Small Proportion of Taxpayers Use Business Tax Credits

In 1999, a small proportion of corporate taxpayers or individual taxpayers with a business affiliation reported the work opportunity credit and the disabled access credit on their tax returns. Whereas taxpayers in the retail and service industries accounted for most of the dollar amount of work opportunity credits, those providing health care and other social assistance services accounted for most of the dollar amount of the disabled access credits. The two studies we identified showed that some employers participating in the program modified their recruitment, hiring, and training practices to increase their hiring and retention of disadvantaged workers. Studies of the Targeted Jobs Tax Credit, the precursor to WOTC, showed that it increased hiring and earnings of the eligible workers; however, it also provided credits to employers for hiring workers who would have been hired in the absence of these incentives.These studies indicate that from 50 to 92 percent of the credits claimed were for workers employers would have hired anyway. For example, the WOTC studies are limited in that they did not measure (1) the extent to which employers would have made these hires in the absence of the incentive; (2) the effect of the incentive on the retention and salaries of WOTC hires compared to similar employees who were not certified for the program; or (3) the effect of the incentive on SSI recipients and vocational rehabilitation referrals, who are represented in two eligibility categories for the work opportunity credit. Existing data limitations preclude a conclusive determination of how effective the three tax incentives are in increasing the employment of workers with disabilities. Options May Increase Tax Incentives’ Usage and Cost, but Their Impact on Workers with Disabilities Is Uncertain

Business representatives and experts on disability issues and tax incentives suggested options for increasing the usage and effect of existing employer tax incentives. To further increase the use and effect of the incentives, they also suggested increasing the dollar value of the incentives and expanding the types of workers, businesses, and accommodations that qualify a business to receive the credits or deduction. Finally, increasing outreach, eligibility, or the maximum dollar amount allowed to be claimed for the incentives may increase their usage; however, it is not known whether the costs of such changes would be offset by improvements in the employment and accommodation of workers with disabilities. They generally concurred with our findings. Other recent legislation, the Ticket to Work and Work Incentives Improvement (TWWIIA) Act of 1999 created four new federal programs for persons with disabilities, as well as incentives to encourage persons with disabilities to work.
Why GAO Did This Study

More than 17 million working-age individuals have a self-reported disability that limits work. Their unemployment rate is also twice as high as for those without a work disability, according to recent Census data. In the Ticket to Work and Work Incentives Improvement Act of 1999, the Congress mandated that GAO study and report on existing tax incentives to encourage businesses to employ and accommodate workers with disabilities. This report provides information on (1) the current usage of the tax incentives, (2) the incentives' ability to encourage the hiring and retention of workers with disabilities, and (3) options to enhance awareness and usage of the incentives.

What GAO Found

A very small proportion of corporate and individual taxpayers with a business affiliation use the two tax credits that are available to encourage the hiring, retention, and accommodation of workers with disabilities, according to IRS data. Taxpayers in the retail and service industries accounted for the largest share of the work opportunity credits reported in 1999, while providers of health care and social assistance services accounted for the largest share of the disabled access credits. Information on the effectiveness of the incentives is limited and inconclusive. Only the work opportunity credit has been studied and these studies, along with those of a prior hiring credit, showed that some employers revised their recruitment, hiring, and training practices to increase the number of disadvantaged workers hired and retained, but that credits have also have been claimed by employers for workers they would have hired anyway. However, these studies have not focused on workers with disabilities and data limitations preclude conclusively determining their effectiveness for these workers. To increase the awareness and usage of the tax incentives, business representatives and experts on disability issues and tax incentives suggested (1) improving government outreach and education efforts; (2) increasing the maximum dollar amount of the incentives; and (3) expanding the types of workers, businesses, and accommodations that are eligible for the incentives. While these options may increase incentive usage, it is uncertain whether the potential loss in tax revenues would be offset by improvements in the employment of workers with disabilities. Commenting agencies generally concurred with GAO's findings.