Business Tax Incentives: Incentives to Employ Workers with
Disabilities Receive Limited Use and Have an Uncertain Impact
(11-DEC-02, GAO-03-39).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-39
ACCNO: A05711
TITLE: Business Tax Incentives: Incentives to Employ Workers
with Disabilities Receive Limited Use and Have an Uncertain
Impact
DATE: 12/11/2002
SUBJECT: Employees with disabilities
Employment of the disabled
Tax credit
Human resources utilization
Hiring policies
Work Opportunity Tax Credit
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GAO-03-39
Report to Congressional Committees
United States General Accounting Office
GAO
December 2002 BUSINESS TAX INCENTIVES
Incentives to Employ Workers with Disabilities Receive Limited Use and
Have an Uncertain Impact
GAO- 03- 39
Business Tax Incentives to Encourage the Hiring, Retention, and
Accommodation of Workers with Disabilities
Business incentive Purpose Maximum
amount Reported
in 1999
Work opportunity credit To encourage the hiring of economically
disadvantaged workers, including those with disabilities.
$2,400 per eligible employee
$254 million Disabled access credit To help small businesses
provide accommodations to customers and employees.
$5,000 per year $59 million Barrier removal deduction To make businesses
and
transportation vehicles more accessible.
$15,000 per year Unknown Note: Usage information on the barrier removal
deduction is not available from IRS*s databases. Source: GAO*s analysis of
estimated usage from IRS*s Statistics of Income programs for 1999.
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.
BUSINESS TAX INCENTIVES
Incentives to Employ Workers with Disabilities Receive Limited Use and
Have an Uncertain Impact
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 39. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Robert E. Robertson (202) 512- 7215 or robertsonr@
gao. gov. Highlights of GAO- 03- 39, a report to the
Chairman and Ranking Member, Senate Committee on Finance and the Chairman
and Ranking Member, Committee on Ways and Means, House of Representatives
December 2002
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.
Page i GAO- 03- 39 Business Tax Incentives Letter 1
Results in Brief 4 Background 6 Small Proportion of Taxpayers Use Business
Tax Credits 10 Studies Provide Limited Information on the Effectiveness of
the
Tax Incentives 15 Options May Increase Tax Incentives* Usage and Cost, but
Their
Impact on Workers with Disabilities Is Uncertain 21 Agency Comments and
Our Response 29
Appendix I Scope and Methods 31
Appendix II Federal Employment Programs and Incentives Targeted to Workers
with Disabilities 33
Appendix III Comments from the Social Security Administration 39
Appendix IV Comments from the Internal Revenue Service 42
Appendix V GAO Contacts and Staff Acknowledgments 44 GAO Contacts 44 Staff
Acknowledgments 44
Tables
Table 1: Federal Employment Efforts Targeted to Employers to Hire, Retain,
and Accommodate Workers with Disabilities 7 Table 2: Work Opportunity
Credits Reported for 1999 11 Table 3: Industry Distribution of Work
Opportunity Credits
Reported by Corporations for 1999 12 Table 4: Distribution, by Total
Receipts, of Work Opportunity
Credits Reported by Corporations for 1999 13 Table 5: Disabled Access
Credits Reported for 1999 15 Contents
Page ii GAO- 03- 39 Business Tax Incentives
Table 6: Federal Employment Programs and Incentives for Persons with
Disabilities 35
Abbreviations
ADA Americans with Disabilities Act of 1990 DI Social Security Disability
Insurance DOJ Department of Justice DOL Department of Labor EEOC Equal
Employment Opportunity Commission ETA Employment Training Administration
IRS Internal Revenue Service ODEP Office of Disability Employment Policy
SOI Statistics of Income SSA Social Security Administration SSI
Supplemental Security Income TWWIIA Ticket to Work and Work Incentives
Improvement Act of
1999 WOTC Work Opportunity Tax Credit
Page 1 GAO- 03- 39 Business Tax Incentives
December 11, 2002 The Honorable Max S. Baucus Chairman Committee on
Finance United States Senate
The Honorable Charles E. Grassley Ranking Member Committee on Finance
United States Senate
The Honorable William M. Thomas Chairman Committee on Ways and Means House
of Representatives
The Honorable Charles B. Rangel Ranking Member Committee on Ways and Means
House of Representatives
Recent U. S. Census data show that more than 17 million working- age
individuals have a self- reported disability that limits work. 1 These
data also show that the unemployment rate for those who have a work
disability is more than twice as high as for those without a work
disability. 2 Recognizing the many barriers to employment faced by people
with disabilities, the Congress and the administration have had a long-
term and continuing interest in ensuring that people with disabilities
fully participate in society and become self- sufficient. Numerous federal
1 These data are based on information from the U. S. Census Bureau, March
2001 Current Population Survey report entitled Disability Labor Force
Status* Work Disability Status of Civilians 16 to 74 Years Old, by
Educational Attainment and Sex: 2001. In this survey, those respondents
reporting that they or a member of their household has a health problem or
disability that prevents them from working or that limits the kind or
amount of work that they can do are designated as having a work
disability.
2 We designated individuals between the ages of 16 to 64 to be of a
*working age.* Furthermore, reported data on the employment rate for
individuals with a work disability is about 50 percent less than for those
without a work disability.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 39 Business Tax Incentives
programs and incentives support these goals and are designed to encourage
those with disabilities to prepare for and participate in the workforce,
including three tax incentives to encourage businesses to hire, retain, or
accommodate workers with disabilities.
The federal tax incentives for businesses include not only a tax credit to
encourage the hiring of economically disadvantaged workers but also a tax
credit and a tax deduction to offset the expenses made to remove barriers
preventing a business from being accessible to individuals with
disabilities. The credits and deduction allow the following:
The Work Opportunity Tax Credit (WOTC) Program allows businesses to
claim a tax credit when hiring and employing economically disadvantaged
workers, such as those who receive welfare and food stamp benefits and
those with disabilities who receive veterans or state- administered
vocational rehabilitation services or Supplemental Security Income
benefits. 3 The disabled access credit allows small businesses to claim
a maximum
credit of $5,000 for certain eligible expenditures to provide access to
individuals with disabilities when such accommodations are required to
comply with the Americans with Disabilities Act (ADA) of 1990. 4 The
architectural and transportation barrier removal deduction (the
barrier removal deduction) allows businesses to deduct up to $15,000 for
the cost of making their facilities or transportation more accessible to
and usable by the elderly and individuals with a disability. 5
3 Individuals with disabilities who receive benefits from the Social
Security Disability Insurance Program are not specifically designated as
eligible for this program. However, some may be eligible for the program
if they meet the qualifications for other eligibility categories, such as
recipients of Temporary Assistance for Needy Families.
4 Under the ADA, a person is considered to have a *disability* if he or
she has a physical or mental impairment that substantially limits one or
more major life activities (such as walking or hearing), has a record of
such impairment, or is regarded as having such impairment. The ADA
requires businesses to make reasonable accommodations for otherwise
qualified employees unless the accommodation would impose an undue
hardship on the business. With regard to the public, the ADA similarly
prohibits discrimination on the basis of disability and generally requires
businesses to make reasonable modifications to ensure access to their
goods, services, and facilities by patrons with a disability.
5 Small businesses may use both the disabled access credit and the barrier
removal deduction together, if the expenses incurred are eligible under
both incentives. For example, if a business spent $12, 000 for access
adaptations, it would qualify for a $5,000 tax credit and a $7,000 tax
deduction.
Page 3 GAO- 03- 39 Business Tax Incentives
The Ticket to Work and Work Incentives Improvement Act (TWWIIA) of 1999
directed GAO to study these incentives. This report provides information
on (1) the extent to which the tax credits have been used and
characteristics of those using the credits; (2) the ability of the three
tax incentives to encourage businesses to hire, retain, and accommodate
workers with disabilities; and (3) options that could enhance businesses*
awareness and use of these tax incentives to encourage the employment and
accommodation of workers with disabilities.
To provide information on the usage of the tax credits, we obtained and
analyzed information from the Internal Revenue Service*s (IRS) Statistics
of Income programs for corporations and for individuals for tax year 1999,
the latest year available. In analyzing the database for individuals, we
identified the individual tax returns with a business affiliation, such as
those with a sole proprietorship or interest in real estate property
because only individuals with a business affiliation would be expected to
use the credits. These databases provide information on the tax credits
reported, but IRS databases do not have information on the barrier removal
deduction. 6 For additional information on the usage and effect of the
three incentives, we reviewed studies of these incentives and related
disability studies on the employment and accommodation of workers with
disabilities. We also conducted interviews with six federal government
agencies and state agency officials from New York and California; 7
academic researchers from four major universities involved in disability
and rehabilitation research; representatives of three leading business
groups, including the U. S. Federation of Small Businesses and the U. S.
Chamber of Commerce; eight individual businesses representing various
industries; five disability organizations representing individuals with
physical and mental disabilities; and two tax preparer groups.
Furthermore, we discussed possible changes to improve businesses*
awareness and use of these incentives with those knowledgeable about them.
We conducted our work between October 2001 and September 2002 in
accordance with generally accepted government auditing standards. For more
details on our approach, see appendix I.
6 To determine the extent of the usage of the deduction would require
obtaining and reviewing the actual tax returns. 7 Among all the states,
California and New York had two of the largest WOTC programs and
individually accounted for the two largest allotments of WOTC
administrative funds from the Department of Labor in fiscal year 2001.
Together, they accounted for $3. 7 million or approximately 18.3 percent
of the total administrative budget for the program.
Page 4 GAO- 03- 39 Business Tax Incentives
A small proportion of corporate and individual taxpayers use the work
opportunity credit and the disabled access credit, and a large share of
the credits reported are from taxpayers with businesses within a few
industries. IRS data show that in 1999, about 1 out of 790 corporations
and 1 out of 3,450 individuals with a business affiliation 8 reported the
work opportunity credit on their tax returns. Of the estimated $254
million in work opportunity credits reported in 1999, corporations
accounted for $222 million, and corporations in the retail and service
industries accounted for the largest share of the corporate credits. 9
Similarly, about 1 out of 680 corporations and 1 out of 1,570 individuals
with a business affiliation reported the disabled access credit on their
tax returns for 1999. Of the $59 million in disabled access credits
reported in 1999, individual taxpayers with a business affiliation
accounted for an estimated $51 million. Individual and corporate taxpayers
associated with the providers of health care and other social assistance
services accounted for the largest share of the disabled access credits.
Although we can provide information on the credits* use and
characteristics of users, we cannot determine the amount of the credits
used to hire, retain, and accommodate workers with disabilities. This
information is not available from tax data because tax returns provide
only the total amount of credits reported, and employers can also claim
the work opportunity credit for employing other types of workers and claim
the disabled access credit for expenditures made to accommodate customers
with disabilities. Moreover, information regarding the usage of the
barrier removal deduction for providing transportation or architectural
accommodations is not available in IRS databases.
Little information is available regarding the effectiveness of the
incentives on encouraging the hiring, retention, and accommodation of
workers with disabilities, and data limitations preclude conclusively
determining their effectiveness. Studies and information provided by
disability researchers and others knowledgeable about the incentives
indicated that some
8 Individual taxpayers with a business affiliation are those whose
individual tax returns show they had a sole proprietorship, partnership,
farm, or interest in rental property, an estate, a trust or an S
corporation. S corporations are entities designed to pass through their
tax credits to individual shareholders to be reported on individual tax
returns.
9 The estimated $222 million reported by corporations excludes the dollar
amount reported by S corporations, which pass through their credits to
individual shareholders. The total amount of credits reported by non- S
corporations and individuals with a business affiliation, $254 million, is
based on the dollar value reported for this credit by taxpayers on their
tax returns, as indicated in IRS*s Statistics of Income programs. Results
in Brief
Page 5 GAO- 03- 39 Business Tax Incentives
employers considered tax incentives in recruiting and hiring disadvantaged
workers. For example, the studies of the work opportunity credit showed
that some employers revised their recruitment, hiring, and training
practices to increase the number of disadvantaged workers hired and
retained, but did not specifically address how this credit impacted the
employment of workers with disabilities. Studies of this credit and a
prior and similar hiring credit indicate, however, that employers could
also be receiving credits for employees they would have hired anyway.
Unlike the work opportunity credit, we did not find any specific studies
of the disabled access credit or the barrier removal deduction. However,
other research on disability employment issues and comments from
interviewees indicated that various factors, such as employers* lack of
familiarity with the incentives, may limit the usage of these business tax
incentives. While all these studies provide some information on awareness,
usage, or effectiveness of the incentives, limitations in the studies*
research methods and lack of data for further assessment preclude
conclusively determining the incentives* effectiveness.
Academic disability researchers, businesses, disability groups, and other
interested parties we interviewed proposed various options to increase the
awareness and usage of the incentives, including (1) expanding and
improving federal outreach through better coordination and clarification
of incentive requirements; (2) increasing the maximum amount allowed to be
claimed; and (3) expanding eligibility to cover more workers with
disabilities, businesses, and types of accommodation. Those we interviewed
noted that enhancing federal outreach efforts could address employers*
lack of familiarity with the incentives and their concerns regarding their
use of the incentives and the potential costs of employing workers with
disabilities. Some interviewees suggested that the federal government
clarify the requirements for claiming the credits and improve coordination
of efforts to provide businesses with comprehensive information about the
availability and use of the incentives. Many of those interviewed also
suggested increasing the maximum amount allowed to be claimed and
broadening the eligibility requirements of the incentives such as allowing
larger businesses to use the disabled access credit. They noted that this
might stimulate usage and allow the incentives to benefit a broader
spectrum of businesses and workers with disabilities. While these options
could increase usage, they could also result in a reduction in tax
revenues. However, it is not known whether the costs of these changes
would be offset by improvement in the employment and access to the
workplace for those with disabilities because the impact of incentives on
the employment and accommodation of workers with disabilities is
uncertain.
Page 6 GAO- 03- 39 Business Tax Incentives
In their comments to our report, agencies generally agreed with our
findings. The Department of Education, the Department of Labor, the
Internal Revenue Service within the Department of the Treasury, and the
Equal Employment Opportunity Commission provided us with comments of a
technical nature that we incorporated in the report as appropriate. The
Social Security Administration provided us with both general and technical
comments that we also incorporated as appropriate.
Workers with disabilities frequently face special challenges and
disincentives when entering or maintaining a place in the workforce. To
help those with disabilities overcome these challenges, the federal
government has designed a wide variety of programs and incentives. Most of
these federal efforts, as described in appendix II, are targeted to
persons with disabilities and can include job placement and training
programs from state- administered vocational rehabilitation agencies and
other service providers as well as extended medical and benefit coverage
for Social Security disability beneficiaries to encourage their return to
work. Recognizing that businesses may also face some challenges when
hiring, retaining, or accommodating individuals with disabilities, the
Congress designed some programs and incentives for businesses. These
include the three federal tax incentives reviewed in this report as well
as several other federal efforts, such as Office of Disability Employment
Policy*s (ODEP) Business Leadership Network to link the employers who have
jobs to the local agencies who have workers with disabilities to fill
these jobs (see table 1). Background
Page 7 GAO- 03- 39 Business Tax Incentives
Table 1: Federal Employment Efforts Targeted to Employers to Hire, Retain,
and Accommodate Workers with Disabilities Efforts (Department, Office)
Purpose
Business Leadership Network (Labor, ODEP)
Network of employers, state and local- level support organizations engaged
in activities to improve the employment of qualified candidates with
disabilities. Examples of these activities include sharing information on
disability employment issues and providing work opportunities for job
seekers with disabilities. Disability and Business Technical Assistance
Centers (Education, National Institute on Disability and Rehabilitation
Research)
Assistance centers to provide information, training, and technical
assistance to employers, persons with disabilities, and others with
responsibilities under the ADA using 10 regional centers that work with
local business and other networks. Employer Assistance Referral Network
(Labor, ODEP in partnership with the Social Security Administration (SSA))
Referral service to assist employers with recruitment by connecting them
to agencies that have individuals with disabilities who are job ready and
by providing information on disabilityrelated issues. Job Accommodation
Network (Labor, ODEP)
Network providing information on employers* responsibilities under the
ADA, job accommodation, technical assistance, funding, education, and
other services related to the employment of individuals with disabilities.
Project EMPLOY (Labor, ODEP)
Resources, ongoing support, training, and technical assistance to
employers and others to increase the recruitment, hiring, and retention of
employees with significant disabilities. Projects with Industry
(Education, Office of Special Education and Rehabilitative Services)
Partnership with private industry to create and expand job and career
opportunities for individuals with disabilities in the competitive labor
market. Ticket to Hire (SSA, Office of Employment Support Programs (OESP)
in partnership with Labor)
Free national referral service for employers to hire qualified job
candidates with disabilities from SSA*s Ticket to Work Program. See
appendix II for more information on the Ticket to Work Program to
encourage individuals with disabilities who are receiving disability
benefits to return to work. Workforce Recruitment Program (Labor, ODEP)
Recruitment program providing employers, by request, with a database of
pre- screened college students with disabilities to fill summer or
permanent hiring needs from more than 160 colleges and universities.
Source: Federal agency Web sites and other federal information sources.
The oldest of the three tax incentives, the barrier removal deduction, was
enacted in 1976 to encourage the more rapid modification of business
facilities and vehicles to overcome widespread barriers that hampered the
involvement of people with disabilities and the elderly in economic,
social, and cultural activities. Administered by IRS, it allows taxpayers
to claim expenses for the removal of eligible barriers as a current
deduction rather than as a capital expenditure that is gradually deducted
over the useful life of the asset. Internal Revenue Code and corresponding
regulations delineate the specific types of architectural modifications
that are eligible,
Page 8 GAO- 03- 39 Business Tax Incentives
such as providing an accessible parking space or bathroom. 10 In 1990,
legislation reduced the maximum amount of the barrier removal deduction
from $35,000 to $15,000 and created the disabled access credit. The
disabled access credit may be taken for expenditures made by eligible
small businesses to comply with the requirements of the Americans With
Disabilities Act of 1990. The credit defines small businesses as having no
more than (1) $1 million in gross receipts or (2) 30 full- time employees.
The credit is equal to 50 percent of eligible expenditures made during the
year, not including the first $250 and excluding costs over $10,250,
resulting in a maximum yearly credit of $5, 000. 11 Along with their
responsibility to enforce the ADA, the Equal Employment Opportunity
Commission (EEOC) and the Department of Justice (DOJ) provide information
and promote the use of the disabled access credit and other related tax
incentives.
In addition to these incentives for accommodation, the work opportunity
credit provides businesses of any size with a hiring incentive for
employing economically disadvantaged individuals, including those with
disabilities. Established with the enactment of the Small Business Job
Protection Act of 1996 (P. L. 104- 188), the Work Opportunity Tax Credit
Program provides employers with an incentive to provide jobs and training
to economically disadvantaged individuals, many of whom are underskilled
and undereducated. Of the nine eligibility categories of
10 The standards for eligible architectural modifications set forth in
Internal Revenue guidance for the barrier removal deduction were adapted
from the *American National Standard Specifications for Making Buildings
and Facilities Accessible to, and Usable by, the Physically Handicapped*
(1971) from the American National Standards Institute.
11 General business credits, including the disabled access credit, are
subject to an overall dollar limitation and cannot exceed net income tax
minus the greater of (1) the tentative minimum tax or (2) 25 percent of
the net regular tax liability above $25, 000. Excess amounts of the
disabled access credit are not refundable, but can be claimed by carrying
excess amounts from a tax year back 1 year and forward 20 years.
Page 9 GAO- 03- 39 Business Tax Incentives
disadvantaged workers, 12 two categories specifically include workers with
disabilities* the vocational rehabilitation referrals and Supplemental
Security Income recipients. 13 The method for determining the amount of
work opportunity credit to be claimed has two tiers: (1) for newly hired
eligible employees working at least 400 hours, the credit is 40 percent of
the first $6,000 in wages paid during the first year of employment, for a
maximum amount of $2,400 for each employee and (2) for eligible workers
with 120 to 399 hours on the job, a lesser credit rate of 25 percent is
allowed. 14 No credit is available for eligible workers who do not remain
employed for at least 120 hours.
Federal and state agencies share responsibility for administering the work
opportunity credit. The IRS is responsible for the tax provisions of the
credit. The Department of Labor (DOL), through the Employment and Training
Administration (ETA), is responsible for overseeing the administration and
promotion of the program. DOL awards grants to states to determine and
certify workers* eligibility and to promote the program. As part of the
certification process, for each new person hired, employers must submit
two forms to the state employment agency within 21 days of
12 The nine categories of WOTC- eligible workers include (1) individuals
in families currently or previously receiving welfare benefits under the
Temporary Assistance for Needy Families program or its precursor, the Aid
to Families with Dependent Children program; (2) veterans in families
currently or previously receiving assistance under a food stamp program;
(3) food stamp recipients* aged 18 through 24 years* in families currently
or previously receiving assistance under a food stamp program; (4) youth*
aged 18 through 24 years* who live within an empowerment zone or
enterprise community; (5) youth* aged 16 and 17 years* who live within an
empowerment zone or enterprise community and are hired for summer
employment only; (6) ex- felons in low- income families; (7) individuals
currently or previously receiving Supplemental Security Income; (8)
individuals currently or previously receiving vocational rehabilitation
services; and (9) workers for businesses located in the New York Liberty
Zone or for businesses that relocated from that zone to elsewhere within
New York due to physical destruction or damage of their workplace caused
by the terrorist attack on September 11, 2001.
13 WOTC eligibility requirements for workers with disabilities do not
currently include Social Security Disability Insurance recipients or other
individuals with impairments who are not Supplemental Security Income
recipients or vocational rehabilitation referrals. However, a provision
included in HR 4070, which was passed by the House, and as amended by the
Senate, would have expanded WOTC eligibility to those Social Security
Disability Insurance recipients who are working with employment networks
and have individualized work plans under the Ticket to Work Program. The
107th Congress adjourned without taking further action on this bill.
14 The work opportunity credit is subject to the overall dollar limitation
of general business credits. Excess amounts are not refundable, but can be
carried back 1 year or forward 20 years.
Page 10 GAO- 03- 39 Business Tax Incentives
the hiring. For a fee, consultant businesses can assist the hiring
business with the program*s administrative requirements. Employers must
also determine the appropriate amount of credit to claim and maintain
sufficient documentation to support their claim.
In 1999, a small proportion of corporate taxpayers 15 or individual
taxpayers with a business affiliation 16 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. Although we can provide information on the
credits* use and characteristics of users, we cannot determine the amount
of credits used to hire, retain, and accommodate workers with
disabilities. This information is not available from tax data because tax
returns provide only the total amount of credits reported, and employers
can also claim the work opportunity credit for employing other types of
workers and claim the disabled access credit for expenditures made to
accommodate customers with disabilities. Moreover, information is not
readily available regarding the usage of the barrier removal deduction for
providing transportation or architectural accommodations because IRS*s
databases commingle this deduction with other deductions. 17
15 The number of corporate taxpayers reporting the credits include for-
profit corporations, such as S corporations that report tax information to
the IRS, but are designed to pass their income, losses, and credits
through to individual shareholders for reporting on their individual tax
returns.
16 Individual taxpayers with a business affiliation are those whose
individual tax returns show they had a sole proprietorship, partnership,
farm, or interest in a S corporation, rental property, estate, or trust.
17 Although not available from IRS databases, individual and corporate tax
returns might contain additional information on reported deductions that
might allow for an estimation of the number of taxpayers and dollar amount
reported for the barrier removal deduction. However, identifying,
obtaining, and reviewing a sufficient number of tax returns would be a
substantial undertaking. Small Proportion of
Taxpayers Use Business Tax Credits
Page 11 GAO- 03- 39 Business Tax Incentives
In 1999, a small proportion of taxpayers reported the work opportunity
credit on their tax returns. In that year, about 1 out of 790 corporations
18 and 1 out of 3,450 individuals with a business affiliation 19 reported
this credit. 20 Corporations, excluding those that pass their credits
through to individual shareholders, 21 accounted for an estimated 87
percent ($ 222 million of $254 million) of the total work opportunity
credits reported for 1999. These corporations also had an estimated
average credit of about $106,000, an amount more than 25 times greater
than the estimated average credit for individual taxpayers. Table 2 shows
the estimated amount of work opportunity credits reported for 1999.
Table 2: Work Opportunity Credits Reported for 1999 Taxpayers Total
amount a Sampling error b Average
amount a Sampling error b
Corporations c $221,677,723 +/-$ 67,578,709 $106,265 d +/-$ 43,260
Individuals with a business affiliation 32,196,911 +/- 8,602,357 3,795 e
+/- 1,360
Total $253,874,634 +/-$ 68,034,341 $24,020f +/-$ 8,988 a Figures provide
point estimates from sample data.
b The sampling errors provide the values from which 95 percent confidence
intervals can be computed for each estimate. c Figures exclude the credits
reported by S corporations, which pass credits through to individual
shareholders. d This figure is based on an estimated 2,086 corporations,
excluding S corporations, reporting the
credit.
18 We estimated that 1 out of 791 corporations reported the work
opportunity credit based on an estimated 6, 243 corporations (+/- a
sampling error of 1, 845 corporations) out of a total of 4, 935,904
corporations filing tax returns for 1999.
19 We estimated that 1 out of 3, 455 individuals with a business
affiliation reported the work opportunity credit based on an estimated
8,483 individuals (+/- a sampling error of 2,868 individuals) out of a
total of 29,307, 023 individuals with a business affiliation filing tax
returns for 1999.
20 The expiration and reinstatement of this credit may have affected its
usage and the extent to which it operated as a hiring incentive during
1999, according to IRS. The credit expired on June 30, 1999. From July to
December of this year, the Internal Revenue Code specified that the credit
was unavailable to individuals hired after June 30, 1999. The Congress
retroactively reinstated the credit under Public Law Number 106- 170 on
December 17, 1999.
21 To avoid overestimating the total amount of credits reported by
corporate and individual taxpayers with a business affiliation, the
credits reported by S corporations have been excluded. A Small Proportion
of
Taxpayers Use the Work Opportunity Credit
Page 12 GAO- 03- 39 Business Tax Incentives
e This figure is based on an estimated 8,483 individuals with a business
affiliation reporting the credit. f This figure is based on an estimated
10, 569 individuals with a business affiliation and corporations, other
than S corporations, reporting the credit. Source: GAO*s analysis of IRS*s
Statistics of Income data.
Corporate credits reported were concentrated in a few industries. 22
Corporations in retail trade, hotel and food services, and nonfinancial
services accounted for an estimated $170 million, 23 or about three-
quarters of corporate work opportunity credits in that year. Interviews
with those knowledgeable about this credit, including federal and state
government officials, told us that retail and service businesses
participate in this program because they have high employee turnover and
need a large number of the low- skilled workers that this program targets.
Table 3 provides an industry distribution of the estimated amount of work
opportunity credits reported by corporations for 1999.
Table 3: Industry Distribution of Work Opportunity Credits Reported by
Corporations for 1999
Industry Amount a Sampling error b
Retail trade $102,451,974 +/-$ 62,908,341 Hotel & food services 38,412,798
+/- 15,292,680 Nonfinancial services c 29,118,167 +/- 11,779,669
Manufacturing 19,296,238 +/- 9,594,716 Other d 32,398,545 +/- 12,593,123
Total $221,677,723 +/-$ 67,578,709
a Figures provide point estimates from sample data, and exclude the
credits reported by S corporations, which pass credits through to
individual shareholders. Figures in the amount column do not sum to the
total because of rounding. b The sampling errors provide the values from
which 95 percent confidence intervals can be computed
for each estimate. c Nonfinancial services include administrative,
professional, educational, and other service categories
from the North American Industry Classification System. d Other industries
include the remaining 12 industry categories, such as agriculture and real
estate
from the North American Industry Classification System. None of these
industries accounted for more than 12.2 percent of the estimated dollar
amount of credits reported.
Source: GAO*s analysis of IRS*s Statistics of Income data.
22 Corporate credits reported exclude those reported by S corporations. 23
Corporations in retail trade, hotel and food services, and nonfinancial
services accounted for an estimated $169, 982,939 (+/- a sampling error of
$65, 756,603) of work opportunity credits for 1999.
Page 13 GAO- 03- 39 Business Tax Incentives
Furthermore, large corporations, those with $1 billion or more in total
receipts, 24 accounted for most of the work opportunity credits. 25 These
large corporations accounted for an estimated $177 million, or about 80
percent of corporate credits for 1999. Interviews with those knowledgeable
about this credit, including federal and state government officials, told
us that these larger businesses are more likely to know about and use this
credit because their large hiring needs make it financially beneficial to
learn about and develop procedures to use the credit. Data support this
view, as the estimated average credit for corporations with $1 billion or
more in total receipts was about $540,000. 26 Those interviewed also noted
that larger corporations are more likely to have the needed human
resources to manage the administrative requirements of this program or
they can, for a fee, use consultants to meet these requirements. Table 4
shows the estimated distribution, by total receipts, of work opportunity
credits reported by corporations for 1999.
Table 4: Distribution, by Total Receipts, of Work Opportunity Credits
Reported by Corporations for 1999
Total receipts Amount a Sampling error b
Less than $1 million c c $1 million to less than $10 million $2,219,502
+/-$ 1,060,706 $10 million to less than $100 million 4, 955,427 +/-
1,564,019 $100 million to less than $1 billion 32,769,709 +/- 7,517,665 $1
billion and greater 177,465,992 +/- 66,848,655
Total $221,677,723 +/-$ 67,578,709
a Figures provide point estimates from sample data, and exclude the
credits reported by S corporations, which pass credits through to
individual shareholders. The total provides an estimate of all credits
reported by these corporations, including corporations with less than $1
million in total receipts. b The sampling errors provide the values from
which 95 percent confidence intervals can be computed
for each estimate. c A reliable estimate cannot be provided due to limited
sample data.
24 IRS*s computation of a corporation*s total receipts varies by type of
tax return filed and whether a net gain or loss was reported. The
computation generally includes the amount of a corporation*s total income,
cost of goods sold, and tax exempt interest and subtracts the amount of
taxable income or dividends from foreign- related corporations.
25 Credits reported exclude those reported by S corporations. 26
Corporations with $1 billion or more in total receipts had an estimated
average work opportunity credit of $544,374 (+/- a sampling error of $196,
775) for 1999.
Page 14 GAO- 03- 39 Business Tax Incentives
Source: GAO*s analysis of IRS*s Statistics of Income data.
Although we can provide estimates on the amount reported for the work
opportunity credit, we cannot accurately determine the amount of credits
associated with hiring and employing workers with disabilities. This
amount cannot be precisely determined because tax returns only include the
total amount of the credit reported for all disadvantaged workers eligible
for the credit.
In 1999, a small proportion of taxpayers reported the disabled access
credit on their tax returns, and the dollar amount of credits reported
were concentrated in the health care and other social assistance services.
In that year, about 1 out of 686 corporations 27 and 1 out of 1,570
individuals with a business affiliation 28 reported this credit. Most of
the disabled access credits were reported by individual taxpayers with a
business affiliation ($ 51 million of the total $59 million reported).
Furthermore, providers of health care and other social assistance services
29 accounted for an estimated $31 million, 30 or approximately half of all
the disabled access credits reported for 1999. However, it is not possible
to determine if these credits were for accommodations to benefit their
employees or clients because credits can be reported for either purpose,
and tax returns include only the total amount reported. It is also not
possible to determine the total number of taxpayers whose businesses met
the credit*s small business eligibility requirements. Table 5 shows the
estimated amount of disabled access credits reported for 1999.
27 We estimated that 1 out of 686 corporations reported the disabled
access credit based on an estimated 7,199 corporations (+/- a sampling
error of 2, 530 corporations) out of a total of 4,935, 904 corporations
filing tax returns for 1999.
28 We estimated that 1 out of 1, 570 individuals with a business
affiliation reported the disabled access credit based on an estimated 18,
662 individuals (+/- a sampling error of 6,598 individuals) out of a total
of 29,307, 023 individuals with a business affiliation filing tax returns
for 1999.
29 Social assistance services include services such as vocational
rehabilitation, child day care, and community housing. 30 Providers of
health care and other social assistance services (corporations and
individuals) accounted for an estimated $31,349, 695 (+/- a sampling error
of $10, 126,660) of disabled access credits for 1999. Credits reported
exclude those reported by S corporations. A Small Proportion of
Taxpayers Use the Disabled Access Credit
Page 15 GAO- 03- 39 Business Tax Incentives
Table 5: Disabled Access Credits Reported for 1999 Taxpayers Total
amount a Sampling error b Average
amount a Sampling error b
Corporations c $8,044,789 +/-$ 4,707,616 $3,319d +/-$ 695 Individuals with
a business affiliation 51,374,913 +/- 22,411,548 2, 753e +/- 643 Total
$59,419,702 +/-$ 22,761,369 $2,818f +/-$ 572 a Figures provide point
estimates from sample data.
b The sampling errors provide the values from which 95 percent confidence
intervals can be computed for each estimate. c Figures exclude the credits
reported by S corporations, which pass credits through to individual
shareholders. d This figure is calculated based on an estimated 2,424
corporations, other than S corporations,
reporting the credit. e This figure is calculated based on an estimated
18,662 individuals with a business affiliation reporting
the credit. f This figure is calculated based on an estimated 21,086
individuals with a business affiliation and
corporations, excluding S corporations, reporting the credit. Source:
GAO*s analysis of IRS*s Statistics of Income data.
Little information is available regarding the effectiveness of the
incentives in encouraging employers to hire, retain, or accommodate
workers with disabilities. Of the three incentives, only the work
opportunity credit has been the subject of specific study. 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. 31 However, one of
these studies, as well as some studies of a similar hiring credit that
preceded the work opportunity credit, indicate that such credits can
reward employers for hiring disadvantaged workers they would have hired
anyway. We were unable to identify any studies that directly examined the
effectiveness of the disabled access credit and barrier removal deduction.
However, discussions with those knowledgeable about these incentives,
including government officials, academic experts, and business
representatives, and some general studies of employers* perspectives on
various disability employment issues provided some additional information
about the
31 We also reviewed a 1997 study of the work opportunity credit
commissioned by DOL, but did not include its findings because it focused
on the administration of the credit and did not provide information on the
credit*s effect on the hiring of disadvantaged workers. Studies Provide
Limited Information on the Effectiveness of the Tax Incentives
Page 16 GAO- 03- 39 Business Tax Incentives
awareness, usage, or effectiveness of the incentives. For example, they
indicated that businesses were frequently unaware of the incentives. While
the studies, surveys, and opinions provide some information about the
incentives* effectiveness, limitations in the research methods used, and a
lack of required data for further assessment preclude a conclusive
determination of how effective the three tax incentives are in increasing
the employment of workers with disabilities.
One of the WOTC studies, conducted by GAO, included a survey of 225
employers participating in the WOTC program in California and Texas in
1999 and in 1997 or 1998 and found that most of the employers
participating in the WOTC program reported changing their recruitment,
hiring, or training practices to secure the credit and to better prepare
the credit- eligible new hires. 32 Frequently, reported changes to
recruitment involved employers listing job openings with a public agency
or a partnership (48.8 percent), asking other organizations to refer job
applicants (42. 6 percent), partnering with agencies to identify
applicants (33.8 percent) or to screen them (29.1 percent). These changes
may have helped employers to increase their pool of WOTC- eligible
applicants and may thereby have increased their chances of hiring these
workers. About one- half of these employers also reported training
practices that may have increased the retention of WOTC- eligible hires,
such as providing mentors or work readiness training and lengthening
training times. On the other hand, the report found that 57 percent of
employers surveyed said that the possibility that an applicant might make
the company eligible for the tax credit would not affect the applicant*s
chance of being hired.
The other study, commissioned by DOL, involved in- depth interviews with a
judgmental selection of 16 businesses that used the WOTC and the
32 U. S. General Accounting Office, Work Opportunity Tax Credit: Employers
Do Not Appear to Dismiss Employees to Increase Tax Credits, GAO- 01- 329
(Washington, D. C.: Mar. 13, 2001), 15- 18, 23- 24, 33 and 35. Studies Are
Inconclusive
about the Effectiveness of the Work Opportunity Credit
Page 17 GAO- 03- 39 Business Tax Incentives
Welfare- to- Work Tax Credit. 33 Most, but not all, of these employers
indicated that these tax credits played little or no role in their
recruitment policies or that the individuals hired from either of the
credit*s target groups would have been hired in the absence of the tax
credits. Even in those cases where the tax credit played a role in the
hiring decision, employers indicated that it was one among several factors
considered, such as the applicant*s experience and skills.
Interviews with those knowledgeable about the work opportunity credit
provided some additional information about the effectiveness of this
credit. Some businesses and business groups we interviewed indicated that
the credit may motivate certain employers, such as large businesses hiring
many low- skilled workers, as well as some smaller businesses, to hire
disadvantaged workers because it can lower their labor costs. However,
some of the other businesses we interviewed told us that the work
opportunity credit had marginal, if any, impact on their hiring, because
they based their hiring decisions on other factors, such as the skills and
abilities of job applicants, or because they viewed workers with
disabilities as valuable employees and wanted to have a workforce that
reflected their customer base. Furthermore, government officials and
academic experts told us that the usage of this hiring credit is limited
by a lack of knowledge of the credit in the business community, its low
dollar value per worker hired, and administrative requirements. They also
noted that because eligibility is limited to persons with disabilities
receiving publicly funded vocational rehabilitation or SSI benefits, a
number of other people with disabilities cannot participate. For example,
individuals receiving Social Security Disability Insurance or privately
funded vocational rehabilitation are not eligible to participate in the
program.
Studies of a similar tax incentive to encourage employers to hire
disadvantaged individuals also provide information about the potential
effectiveness of WOTC. Studies of the Targeted Jobs Tax Credit, the
precursor to WOTC, showed that it increased hiring and earnings of the
33 Westat and Decision Information Resources, Inc., Employers* Use and
Assessment of the WOTC and Welfare- To- Work Tax Credits Program, a report
prepared at the request of the Department of Labor, March 2001. The
welfare- to- work tax credit is another hiring incentive that was
established in 1997 and provides up to $8, 500 in credits to employers for
each person hired who is a long- term welfare recipient. The study
included businesses that varied in size, type, and location, such as a
large urban transportation company and a small suburban beauty supply
retailer and many of these businesses had at least one WOTCcertified new
hire in 1999 that was either an SSI recipient or a vocational
rehabilitation referral.
Page 18 GAO- 03- 39 Business Tax Incentives
eligible workers; however, it also provided credits to employers for
hiring workers who would have been hired in the absence of these
incentives. 34 These studies indicate that from 50 to 92 percent of the
credits claimed were for workers employers would have hired anyway.
Studies of the targeted jobs tax credit also found that employers rarely
took the actions needed to claim the credit when hiring individuals from
eligible target groups, but that proactive government outreach, such as
referral of a disadvantaged client to a business, could significantly
increase employer participation in the credit program. 35 Although similar
to its precursor, several administrative changes were made to WOTC in an
attempt to make it less susceptible to providing credits to employers for
workers they would have hired anyway; however, the specific effect of
these changes is not known. 36
In addition, we found two national surveys examining various disability
employment issues that provide some information about employers* awareness
and perceptions of the effectiveness of tax incentives in general. One of
the national surveys assessed employers* experiences with workers with
disabilities and found that only 15 percent of the 255 supervisors of
workers with disabilities were aware of employer tax incentives. 37 The
other national survey assessed employment policies and found that private
human resource managers viewed employer tax
34 For a summary of studies of wage subsidy programs, see Timothy J.
Bartik, Jobs for the Poor: Can Labor Demand Policies Help? (New York:
Russell Sage Foundation, 2001), Chap. 8. For example, these studies
included the U. S. General Accounting Office, Targeted Jobs Tax Credit:
Employer Actions to Recruit, Hire, and Retain Eligible Workers Vary,
GAO/ HRD- 91- 33 (Washington, D. C.: Feb. 20, 1991) and the U. S.
Department of Labor, Office of Inspector General, Targeted Jobs Tax
Credit: Employment Inducement or Employer Windfall? (Washington, D. C.,
1994).
35 Bartik, Jobs for the Poor, 228- 229. 36 The WOTC program was designed
to mitigate some shortcomings that had been identified with it precursor,
the Targeted Job Tax Credit program, including problems with employer
windfalls for hiring employees that they would have hired anyway and too
many crediteligible employees leaving their jobs before receiving much
work experience. To increase the likelihood that the credit would be
considered in the hiring decision, under WOTC, the employer and job seeker
are now required to fill out a form to help establish the eligibility of
the applicant for WOTC on or before the date of hire. In addition, the
minimum employment period for receiving the higher rate of credit was
lengthened. Furthermore, some eligibility target groups were reformulated
with the intention of focusing more narrowly on those who truly needed a
hiring credit.
37 D. Unger, *A National Study of Employers* Experiences with Workers with
Disabilities and Their Knowledge and Utilization of Accommodations*
(unpublished data, 2001).
Page 19 GAO- 03- 39 Business Tax Incentives
incentives as the least effective means for reducing barriers to
employment for people with disabilities. By order of importance, the more
than 800 private human resource managers surveyed viewed visible
topmanagement commitment, staff training, mentoring, on- site consultation
and technical assistance, and short- term outside assistance as more
important than tax incentives in reducing employment barriers for workers
with disabilities. 38
In contrast to the work opportunity credit, we were unable to identify any
studies that directly examined the effectiveness of the disabled access
credit and barrier removal deduction. However, some of those we
interviewed provided additional information on the perceived effectiveness
and use of the disabled access credit and barrier removal deduction. Many
of the business representatives and others we spoke with were either
unaware of these incentives or did not have an opinion about their
effectiveness. Of those with an opinion, the barrier removal deduction was
viewed by more individuals as having a positive effect on the employment
of workers with disabilities than was the disabled access credit. While
both incentives can help offset the cost of accommodating workers with
disabilities, they believed that the barrier removal deduction was more
widely used because larger businesses, that are more likely to be aware of
and willing to use tax incentives, are eligible for this incentive.
However, they also pointed out that the use of the deduction was limited
because it only allows specific types of architectural and transportation
modifications. Implemented more than 20 years ago, the deduction cannot be
applied to the cost of addressing communication and electronic barriers in
today*s modern workplace. Finally, in addition to the business size
restriction, they mentioned that the unfamiliarity with the disabled
access credit or not clearly understanding the expenditures that qualify,
could limit its usage.
38 S. Bruyere, Disability Employment Policies and Practices in Private and
Federal Sector Organizations, (Ithaca, N. Y.: Cornell University, School
of Industrial and Labor Relations Extension Division, Program on
Employment and Disability, 2000). This survey included a random sample of
the membership of the Society for Human Resource Management, the entire
membership of Washington Business Group on Health, and human resource and
equal employment opportunity personnel in the federal agencies, totaling
over 800 private and over 400 federal agency representatives. Studies Do
Not Examine
the Effectiveness of the Disabled Access Credit or Barrier Removal
Deduction
Page 20 GAO- 03- 39 Business Tax Incentives
While the studies, surveys, and opinions from those knowledgeable about
the tax incentives provide some insight about their effectiveness,
limitations in the studies* research methods do not allow for directly
measuring the effectiveness of the incentives. 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. The tax credits and the deduction create
incentives to increase the employment of workers with disabilities by
reducing the costs of employing these workers. To determine the
incentives* effect on the employment of these workers, information is
needed on the extent to which the incentives reduce employers* costs (by
decreasing their tax liability) and the extent to which these reduced
costs result in the employment of more workers with disabilities. However,
the national databases lack the data needed to make this determination. As
previously discussed, IRS databases do not provide information on the
barrier removal deduction. And, while these databases provide information
to estimate the usage of the disabled access credit and the work
opportunity credit, they do not provide information on the amount of
credits specifically associated with workers with disabilities. In
addition, although DOL has a national database for the work opportunity
tax credit program, this database does not contain the information needed
to accurately determine the amount of credits associated with workers with
disabilities. Furthermore, economic literature does not provide a
consensus on the extent to which employers would alter their employment of
workers with disabilities in response to reductions in costs. Without this
information, a conclusive determination of the three incentives*
effectiveness cannot be made.
In addition, surveying employers to determine the extent to which tax
incentives caused them to hire or accommodate employees with disabilities
may provide wide variations in the results depending upon the research
methods used and the quality of the data obtained. Studies that
specifically ask an employer whether a tax incentive caused them to hire
or accommodate an eligible individual can understate the effect of the
incentive, because employers may respond negatively if they do not want
Further Study of the
Incentives* Effectiveness Precluded by Data Limitations
Page 21 GAO- 03- 39 Business Tax Incentives
to appear to discriminate in their employment practices or because
eligibility for the incentive would not be the only or even major factor
that employers consider when making such decisions. On the other hand,
asking a more general question, such as whether the incentives had some
influence on their employment practices, lacks precision and may lead to
overestimating the effect of the incentives. 39
Business representatives and experts on disability issues and tax
incentives 40 suggested options for increasing the usage and effect of
existing employer tax incentives. Many of those we interviewed suggested
increasing and improving government outreach and education efforts,
including improvements to government coordination and clarification of tax
incentive requirements. 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. Although changing the existing tax incentives presents the
potential for increased usage and a reduction in tax revenues, such
changes give no assurance of a substantial improvement in the employment
of workers with disabilities.
Interviews with business representatives and experts in disability issues
indicate that two primary obstacles to increasing the use of the tax
incentives are a lack of familiarity with the incentives and perceptions
regarding the amount of effort required to qualify for them. A number of
those we interviewed suggested that better coordination of government
efforts, clarification of tax incentive provisions, and increased outreach
and education could help to improve this situation.
The most frequently cited reason by business, academic, and disability
representatives for infrequent use of the incentives was that businesses
were not aware of them. Among the three tax incentives we examined, most
businesses and other organizations contacted were familiar with the work
opportunity credit; however, our contacts, especially business
representatives, were far less familiar with the disabled access credit
and
39 Bartik, Jobs for the Poor, 228- 229. 40 A wide variety of groups were
interviewed, including businesses and their representatives, academic
experts, disability groups, tax preparers, and government representatives.
For a more detailed description of interviewees, see appendix I. Options
May Increase
Tax Incentives* Usage and Cost, but Their Impact on Workers with
Disabilities Is Uncertain
Expanded and Improved Outreach Suggested to Increase Incentive Usage
Page 22 GAO- 03- 39 Business Tax Incentives
the barrier removal deduction. Several of those interviewed indicated that
smaller businesses were less likely to have staff who were familiar with
the credits than larger businesses. Furthermore, while larger businesses
may have tax staff who are familiar with the incentives, this knowledge is
not always shared with the hiring and other human resource managers.
Without a general awareness of these tax credits and deduction, employers
cannot factor them into the hiring, accommodation, or retention decisions,
which may be influenced by concerns about the potential costs of employing
individuals with disabilities, such as the possible costs for
accommodation or increased workers* compensation and medical insurance.
Another obstacle to the use of the incentives, according to many of those
we interviewed, was the perception that qualifying for the incentives
would require burdensome paperwork and other efforts. To claim an
incentive, businesses must gain knowledge of the eligibility requirements,
record the amount claimed on the appropriate tax form, and maintain
documentation to support their claim. The process may be particularly
burdensome for the work opportunity credit. To claim the work opportunity
credit, a business must also complete and provide two forms within 21 days
to the state employment agency, which certifies the eligibility of a new
hire for this program. According to some familiar with this credit, these
extra requirements can create a burdensome paperwork process, especially
for smaller businesses that may lack sufficient resources to meet these
requirements. 41 Even those businesses that have sufficient resources may
not believe that the credit is worth the time and effort needed to qualify
for it, according to several business representatives. For a fee, some
businesses use consultants to help reduce this burden. Furthermore, the
IRS has a demonstration project to enable businesses to electronically
file the certification forms and, as of April 2002, authorizes state
employment agencies to accept electronic submission of one of the
certification forms. Also, proposed legislation, recently passed by the
House, is intended to simplify the eligibility requirements for this
credit. 42
41 Several interviewees also raised concerns over the fact that the work
opportunity credit is temporary and not permanent. The interviewees noted
that businesses* interest in using the credit may be limited when its
long- term future is uncertain.
42 Also incorporated into this legislation, H. R. 4626, is a provision to
combine the work opportunity credit and the Welfare- to- Work credit to
simplify the use of these credits for employers.
Page 23 GAO- 03- 39 Business Tax Incentives
Given the general lack of familiarity with the disabled access credit and
the barrier removal deduction, views about the burdens created by these
incentives may be partially based on misperceptions among businesses and
others we interviewed. Unlike the work opportunity credit, these
incentives do not require any additional paperwork beyond claiming the
credit or deduction on IRS tax forms. Accordingly, one vocational
rehabilitation official told us that businesses* perceptions about the
burden of these incentives was a *myth* and not based on their actual
experiences. However, to some extent, the burden may be related to
determining eligibility for incentives, especially for the disabled access
credit. Academic experts told us that a lack of clarity as to the type of
businesses and expenditures that are eligible for the disabled access
credit makes it more difficult for them to use the credit.
To increase familiarity and reduce possible misperceptions concerning the
incentives, representatives from businesses, academia, government
agencies, and disability organizations told us that there is a need for
better coordination in promoting the appropriate use of the incentives and
the advantages of hiring workers with disabilities. Most of those
interviewed believed that the federal government*s efforts to inform and
educate taxpayers about these incentives should increase. A variety of
suggestions were offered on how the government should proceed with these
outreach efforts, and which agency should lead these efforts, given the
multiplicity of agencies with responsibility for encouraging the
employment of individuals with disabilities.
Some business, academic, and disability representatives we interviewed
believed that the Department of Labor, specifically the Office of
Disability Employment Policy, should have lead responsibility for
promoting these three incentives. According to one businessperson, ODEP
should take the lead because promoting the incentives is about promoting
business and hiring of competent workers. Some of those we interviewed
also viewed the participation of all federal, state, and local agencies
associated with the employment of people with disabilities in outreach
efforts as essential.
Some representatives also emphasized that federal agencies should partner
with the private sector in promoting the use of these incentives. Federal
outreach efforts were viewed as being more likely to be effective if they
utilized business organizations as well as disability advocacy
organizations, local agencies, and nonprofits to promote these incentives.
According to a representative of thousands of small businesses, increased
publicity through disability advocacy groups and the tax preparer industry
would make small businesses more aware of the available incentives.
Page 24 GAO- 03- 39 Business Tax Incentives
Outreach efforts by federal government agencies have been limited, but
they appear to be increasing. For example, IRS, DOL, DOJ, and EEOC use
their Web sites and toll- free numbers to give individuals access to
information on the incentives and have recently begun more active
outreach. 43 In addition, DOJ officials told us that they had been
coordinating their outreach efforts with other agencies. In coordination
with the Small Business Administration, DOJ developed an ADA guide for
small businesses that addresses the tax incentives. DOJ officials also
told us that, for each year since 1994, they had included a flier or an
article with information on ADA requirements and available tax incentives
along with routine SSA and IRS mailings to businesses and/ or their
accountants. SSA also has several efforts to provide information about tax
incentives to employers and individuals with disabilities. Information
about the incentives is available on its Web site and through printed
materials widely distributed to employers and disability beneficiaries. As
part of SSA*s Ticket to Work Program, the private employment service
providers and public vocational rehabilitation agencies offer employers
information about their eligibility for tax incentives and assistance in
qualifying for these credits, according to SSA. 44 IRS has also recently
made efforts to reach out to taxpayers by including an article on the
disabled access credit in the IRS Reporter* an IRS publication for
taxpayers and tax preparers.
Furthermore, as part of the President*s New Freedom Initiative to ensure
enforcement of the ADA, 45 DOJ is mailing to selected small businesses a
packet of information on tax incentives to encourage the accommodation of
customers and employees with disabilities. This outreach effort to the
business community was undertaken in response to a general belief that
many small businesses were not aware of the tax incentives available to
them, particularly the disabled access credit. Other efforts under the
President*s initiative include a series of workshops initiated by the EEOC
to provide information to small businesses about the benefits of hiring
43 As WOTC is jointly administered at the federal and state level, state
WOTC coordinators and other state agencies are also responsible for
marketing this credit. According to a state official, these activities
have included providing information on this incentive at employer seminars
and job fairs, but government officials acknowledged that marketing for
this incentive could be improved.
44 SSA also has on- going research efforts to identify potential new
economic incentives for employers to stimulate the employment and
retention of workers with disabilities. 45 In February 2001, President
George W. Bush announced his New Freedom Initiative to help Americans with
disabilities participate more fully in their communities and country,
including proposals to increase their ability to integrate into the
workforce.
Page 25 GAO- 03- 39 Business Tax Incentives
people with disabilities, including information about the tax incentives.
The EEOC is partnering with DOJ to conduct some of the workshops. In
addition, EEOC recently released a guide for businesses that includes
information about the tax incentives entitled The Americans with
Disabilities Act: A Primer for Small Businesses.
Improved coordination and outreach were also suggested to help resolve a
reported concern about the appropriate use of the disabled access credit.
According to some academic experts, unclear guidance, including a lack of
IRS implementing regulations for the disabled access credit, can inhibit
its use. It was explained that some companies may not use the incentives,
in part, because they are wary of being audited by IRS and later being
found to have used the credit incorrectly. According to a representative
of a large tax preparer group, the disabled access credit*s provisions are
unclear and complicated. For example, IRS guidelines do not clearly state
whether a business that is not required by title I of the ADA to
accommodate an employee can use the credit for these expenditures.
Many of the organizations that we contacted told us that increasing the
maximum dollar amount allowed to be claimed for the incentives might
increase usage by attracting the attention of businesses and changing
perceptions that the administrative cost of using the incentives will
outweigh their benefits. Some academic and business representatives said
that they believed that the incentives would need to increase* with some
suggesting increases of 25 to 200 percent* to capture the attention of
businesses or reduce their concerns about the cost of accommodating
workers with disabilities. Although the cost of accommodating a worker
with a disability is often less than $500, sometimes these costs can
exceed the amount allowed under the tax incentives. 46 For example, some
government, disability, and academic representatives told us that the cost
of some accommodations, such as those for information technology to
accommodate a person that is visually impaired, can sometimes far exceed
the maximum $5,000 per year for each eligible business allowed under the
disabled access credit. In addition, companies that employ a large number
of disabled workers may also incur substantial accommodation costs. For
example, one of the large companies we interviewed reported spending
46 Information from DOL*s Job Accommodation Network indicates that
carrying out its suggested accommodations cost less than $500 in 71
percent of all cases. (See Job Accommodation Network Publications, *Facts
About Job Accommodations,* http:// www. jan. wvu. edu/ media/ JANFacts.
html.) Raising the Maximum
Dollar Amount of Incentives Suggested to Increase Usage
Page 26 GAO- 03- 39 Business Tax Incentives
more than $1 million on accommodations in the last year, although this
official believed that the talent they received more than compensated for
these costs.
Most of the organizations interviewed favored an expansion of the
eligibility requirements of the tax incentives as a means to increase
their usage. According to interviewees, use of the incentives is limited
by the following restrictions:
the type of workers eligible for the work opportunity credit, the size
of businesses for the disabled access credit, and the type of
accommodations for the barrier removal deduction.
Most interviewees favored expanding coverage of the work opportunity
credit to include a broader spectrum of workers with disabilities, as
eligibility requirements currently limit eligibility for workers with
disabilities to certain vocational rehabilitation referrals or
Supplemental Security Income recipients. Many suggested including Social
Security Disability Insurance recipients as an additional category of
eligible workers for this program even though some of these individuals
may not be economically disadvantaged* generally a criterion for inclusion
in this program. 47 Inclusion of this group would complement SSA*s Ticket
to Work program to encourage individuals with disabilities who are
receiving disability benefits to return to work. Pending legislation,
passed by the House, includes a provision to expand eligibility to those
Social Security Disability Insurance recipients who are working with
employment networks and have individualized work plans under the Ticket to
Work program.
47 The work opportunity credit was originally designed to help
economically disadvantaged individuals from certain groups that
consistently have had a particularly high unemployment rate. However, it
does not specifically require that all individuals of these groups be
economically disadvantaged. For example, youth from empowerment zones and
enterprise communities do not have to demonstrate that they are
economically disadvantaged to be eligible for WOTC. Also, a recent
amendment to WOTC has created a new group of eligible workers who may or
may not be economically disadvantaged. This group includes workers for
businesses located in the New York Liberty Zone or for businesses that
relocated from that zone to elsewhere within New York due to physical
destruction or damage of their workplace caused by the terrorist attack on
September 11, 2001. Expanding Eligibility for
the Tax Incentives Suggested to Benefit a Broader Spectrum of Businesses
and Workers with Disabilities
Page 27 GAO- 03- 39 Business Tax Incentives
Many business representatives would also like to see the disabled access
credit expanded to make more businesses eligible for the credit. The tax
code limits the usage of this credit to businesses that are making
accommodations in compliance with the ADA and have either (1) 30 employees
or less or (2) $1.0 million or less in gross receipts. Many believed that
the restriction on employees should be expanded to include businesses with
over 30 employees. In addition, academic experts pointed out that by tying
the use of the credit to compliance with the ADA that many of the smallest
firms, that is those with fewer than 15 employees, may not be able to use
this credit when accommodating an employee. While the ADA generally
requires small businesses to remove architectural barriers, it does not
require businesses with fewer than 15 employees to make such modifications
for their employees. According to representatives of a business
organization representing many small companies, ensuring that the
incentives are available to small business to accommodate employees is
particularly important because these businesses account for most of the
growth in jobs. According to the Small Business Administration, small
firms constituted about three- quarters of the employment growth in the
1990s. 48
The vast majority of business, academic, government, and disability
representatives interviewed told us that the barrier removal deduction
should be expanded to include accommodations to address electronic and
communications barriers in the workplace. Although new technologies can
open up opportunities for people with disabilities to more actively
participate in the workforce, some new technologies can also act as
barriers for those with sensory and other types of impairments and can
prevent them from fully participating in the modern workplace. For
example, an individual with a visual impairment may not be able to use a
computer without a screen reader or other special software to interpret
images on the monitor.
48 U. S. Small Business Administration, Office of Advocacy, Small Business
Economic Indicators 2000, (Washington, D. C. 2001).
Page 28 GAO- 03- 39 Business Tax Incentives
Many of those we interviewed believed that various changes could increase
the usage of the incentives to improve the employment of workers with
disabilities; however, tax revenue reductions are a likely result from
such changes. Tax revenues would be expected to decrease if the dollar
value of the incentives was increased and/ or coverage was expanded to
include more people with disabilities, businesses, or types of
accommodation. Potential reductions in tax revenues could be offset to
some extent by an increase in taxable income and reduced government
benefits for workers with disabilities if changing the incentives were to
improve the employment of workers with disabilities. However, because of
the lack of data on the effectiveness of the incentives, potential tax
revenue losses would have to be absorbed without knowing the effect of
changes to the incentives on the employment of people with disabilities.
Increasing the dollar amount allowed for these incentives may also
increase the potential for misuse and thereby reduce tax revenues. There
are already indications that at least one of the incentives, the disabled
access credit, has been targeted for fraudulent activity. In April 2002,
the Treasury Inspector General for Tax Administration testified that, in
tax year 1999, thousands of taxpayers may have inappropriately claimed the
disabled access credit, including taxpayers who did not indicate any
interest in or ownership of a business on their tax return* a key
requirement for receiving the credit. 49 Increasing the value of this and
other tax incentives may make them even more attractive to those who may
misuse them.
Another point to consider with increasing the maximum dollar amount for
the incentives is that this change would allow those who are already
claiming the incentive to claim an additional amount without increasing
the employment or accommodation of workers with disabilities. For example,
businesses that already claim the work opportunity credit, could, if the
credit were increased, simply claim more for each eligible worker without
making any changes in the overall number of workers they hired or the
level of accommodation provided. In addition, because the disabled access
credit is tied to compliance with the ADA, increasing the maximum dollar
amount for the incentive may not increase the level of
49 In an April 11, 2002, hearing before the Senate Committee on Finance,
the Treasury Inspector General for Tax Administration identified a
fraudulent tax scheme in which promoters selling expensive, coin- operated
telephone equipment with volume controls targeted elderly taxpayers to
convince them that purchasing this equipment would enable the taxpayer to
claim the disabled access credit. Suggested Options May
Increase Government Costs, but the Effect on Workers with Disabilities is
Uncertain
Page 29 GAO- 03- 39 Business Tax Incentives
accommodation provided, in that employers are already required by law to
provide reasonable accommodations. 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.
We provided a draft of this report to the Department of Education, the
Department of Justice, the Department of Labor, the Internal Revenue
Service within the Department of the Treasury, the Equal Employment
Opportunity Commission, and the Social Security Administration. They
generally concurred with our findings.
The comments from most of the agencies were limited to technical comments
and were incorporated, as appropriate, into the report. In addition to
technical comments, SSA provided us with several general comments. In
response to one of these comments, we included additional information
about workers* eligibility for the work opportunity credit. SSA also
commented that disability groups believe that the current structure of
WOTC may be causing a revolving door effect in which employers hire
individuals for low- pay and unskilled work and retain them only as long
as the employers receive the tax credit. However, in our discussions with
a wide range of disability groups, none indicated that the program created
a revolving door for WOTC- eligible hires. Moreover, a recent GAO review
of the credit found that employers did not appear to be dismissing
employees to increase their tax credit. 50 In addition, SSA*s general
comments indicated that more attention should be directed at measuring the
employers* awareness and understanding of the three tax incentives, the
results of which could, among other things, improve outreach and
education. Although further study may provide some additional information
on changes to outreach that could increase the incentives* usage, existing
data limitations would still preclude determining the effectiveness of
these changes on the employment of people with disabilities. The full
texts of SSA*s and IRS*s comments are included as appendices III and IV.
We are sending copies of this report to the Department of Education, the
Department of Justice, the Department of Labor, the Internal Revenue
50 GAO- 01- 329, 2- 3. Agency Comments
and Our Response
Page 30 GAO- 03- 39 Business Tax Incentives
Service within the Department of the Treasury, the Equal Employment
Opportunity Commission, the Social Security Administration, appropriate
congressional committees, and other interested parties. We will also make
copies available to others on request. In addition, the report will be
available at no charge on GAO*s Web site at http:// www. gao. gov.
If you or your staffs have any questions concerning this report, please
call me or Carol Dawn Petersen, Assistant Director, at (202) 512- 7215.
Staff acknowledgments are listed in appendix V.
Robert E. Robertson Director, Education, Workforce, and Income Security
Issues
Appendix I: Scope and Methods Page 31 GAO- 03- 39 Business Tax Incentives
To obtain information on the usage of the two tax credits, we analyzed tax
data from the Internal Revenue Service*s (IRS) Statistics of Income
Programs for 1999, the most recent year that data were available.
Statistics compiled for the Statistics of Income (SOI) programs are
generally based on stratified probability samples of income tax returns or
other forms filed with the IRS.
The two SOI programs used were the 1999 Corporation Income Tax Returns
Program and the 1999 Individual Income Tax Return Program. The Corporation
program includes information on active, for- profit corporations,
including information on S corporations. S corporations report items of
income, deduction, loss, and credit on their corporate tax returns, but
pass through such items to individual shareholders. Throughout the report,
we provided information on the number and characteristics of corporations
reporting the credits. However, we excluded the amount of credits
associated with S corporations because these credits can be passed through
to individual shareholders and reported on individual tax returns. For
individual tax returns, we differentiated between individuals with and
without a business affiliation, as the credits are for businesses that
hire disadvantaged employees or accommodate employees or customers with
disabilities. Individual taxpayers with a business affiliation are those
whose individual tax returns show they had a sole proprietorship,
partnership, farm, or interest in a S corporation, rental property,
estate, or trust.
Because estimates from the SOI programs are based on a sample of taxpayer
data, they are subject to sampling errors. These sampling errors measure
the extent to which the point estimates may vary from the actual values in
the population of taxpayers. Each of our estimates are surrounded by a 95-
percent confidence interval, which indicates that we can be 95 percent
confident that the interval surrounding the estimate includes the actual
population value. In some cases, the small number of taxpayers reporting
the tax credits in the SOI sample resulted in large estimate intervals. 1
To assess existing information on the tax incentives* effectiveness as
well as to identify any changes that may increase businesses* awareness of
1 In addition to the reported sampling errors, there are other sources of
error that may affect the reliability of SOI data. These nonsampling
errors include taxpayer reporting errors and inconsistencies, processing
errors, and the effects of any early cutoff of sampling. Appendix I: Scope
and Methods
Appendix I: Scope and Methods Page 32 GAO- 03- 39 Business Tax Incentives
future usage, we performed extensive literature, legislative history, and
Internet searches and reviewed available studies. We also interviewed
various groups interested in these issues using interview guides, with a
standard set of questions for each group interviewed. We conducted
interviews with federal agency officials in the Departments of Education,
Labor, Justice, and the Treasury and in the Social Security Administration
and the Equal Employment Opportunity Commission and with state agency
officials from New York and California. 2 Additional interviews were
conducted with selected businesses, business groups, tax preparer groups,
disability organizations, and academic experts who were knowledgeable
about these incentives and disability issues in general. Among those we
interviewed were (1) individuals from a variety of businesses, such as
large businesses in the retail and computer industries and small to medium
sized businesses in the consulting and engineering service industries; (2)
business groups, including the U. S. Federation of Small Businesses, the
Washington Business Group on Health, and the U. S. Chamber of Commerce;
(3) disability organizations, including the American Association of People
with Disabilities, the American Foundation for the Blind, the Paralyzed
Veterans of America, the World Institute on Disability, and the Consortium
of Citizens with Disabilities; and (4) academic experts at the Law, Health
Policy, and Disability Center at the University of Iowa, the Rural
Institute on Disabilities at the University of Montana, the Rehabilitation
Research and Training Center at the Virginia Commonwealth University, and
the Department of Policy Analysis and Management at Cornell University.
2 Among all the states, California and New York had two of the largest
WOTC programs and individually accounted for the two largest allotments of
administrative funds from the Department of Labor in fiscal year 2001.
Together, they accounted for $3. 7 million, or approximately 18.3 percent
of the total administrative budget for the program.
Appendix II: Federal Employment Programs and Incentives Targeted to
Workers with Disabilities
Page 33 GAO- 03- 39 Business Tax Incentives
The federal government provides many programs and incentives exclusively
to persons with disabilities to enable them to enter or remain in the
workforce. Persons with disabilities can take advantage of more than 100
federal programs. Many of these programs, such as those providing
accessible housing, transportation, and independent living services, can
help those with disabilities to become or remain employed. 1 However, only
a relatively small proportion of these federal programs are specifically
focused on providing employment services exclusively to persons with
disabilities.
The Department of Education, the Department of Labor, the Department of
Health and Human Services, and the Social Security Administration (SSA)
administer most of the employment programs exclusively targeted to persons
with disabilities, with services delivered by numerous public and private
agencies at the state and local level. 2 The Department of Education has a
long standing involvement in, and numerous programs for, the
rehabilitation and training of persons with disabilities. Its Vocational
Rehabilitation Program is the largest federal effort for improving the
employment of people with disabilities. Recently, the Department of Labor
undertook two initiatives to improve the employment of persons with
disabilities: (1) a series of projects under the Office of Disability
Employment Policy, some of which are targeted to employers, as previously
described and (2) Work Incentives Grants to give persons with disabilities
better access to the one- stop centers where many of the federally funded
employment and training programs are to be provided, as required by the
Workforce Investment Act passed in 1998.
Other recent legislation, the Ticket to Work and Work Incentives
Improvement (TWWIIA) Act of 1999 created four new federal programs for
1 For the broad range of federal programs to assist people with
disabilities, see U. S. General Accounting Office, People with
Disabilities: Federal Programs Could Work Together More Efficiently to
Promote Employment, GAO/ HEHS- 96- 126 (Washington, D. C.: Sept. 3, 1996).
2 Federal agencies are also joining together to create special initiatives
to encourage the employment of persons with disabilities. Under the State
Partnership Systems Change Initiative, the Social Security Administration
and the Department of Education*s Rehabilitation Services Administration
funded demonstration projects in 17 states to provide innovative projects,
services, and supports to increase job opportunities and to assist adults
with disabilities in their efforts to enter the work force. Other federal
agencies, such as the Department of Health and Human Services have joined
in the support of these projects. SSA also has a Youth Continuing
Disability Initiative in two states to provide early intervention and
information to assist youths in making a successful transition from school
to work. Appendix II: Federal Employment Programs
and Incentives Targeted to Workers with Disabilities
Appendix II: Federal Employment Programs and Incentives Targeted to
Workers with Disabilities
Page 34 GAO- 03- 39 Business Tax Incentives
persons with disabilities, as well as incentives to encourage persons with
disabilities to work. Two of these programs, under the Department of
Health and Human Services, are designed to provide services needed by
workers with disabilities to become employed and to help those with severe
impairments to maintain their employment. Two others, under SSA, are
intended to build the infrastructure for the new ticket program to expand
the availability of employment services for disability beneficiaries. This
legislation also provides states with options for expanding medical
coverage to working individuals with disabilities and adds to the work
incentives available to persons who are receiving Supplemental Security
Income (SSI) and Social Security Disability Insurance (DI), such as
extending healthcare coverage an additional 4- 1/ 2 years to DI recipients
who have returned to work. In addition to these incentives, the government
also provides a tax incentive to individuals who incur workrelated
accommodation expenses. The federal employment programs and incentives
exclusively available to persons with disabilities are summarized in table
6.
Appendix II: Federal Employment Programs and Incentives Targeted to
Workers with Disabilities
Page 35 GAO- 03- 39 Business Tax Incentives
Table 6: Federal Employment Programs and Incentives for Persons with
Disabilities Programs and incentives Objective Target beneficiary
Department of Education Programs
Rehabilitation Services* Vocational Rehabilitation Grants to States To
provide grants to assist states in operating
statewide comprehensive programs, as part of a statewide workforce
investment system, designed to assess, plan, develop, and provide
vocational rehabilitation services for individuals with disabilities.
Individuals with disabilities. Rehabilitation Services* Service Projects
To provide discretionary grant funds to state
vocational rehabilitation agencies and public nonprofit organizations for
special projects and demonstrations that promise to expand or otherwise
improve services to individuals with disabilities, over and above those
provided by the basic rehabilitation services administered by states.
Individuals with disabilities and individuals with *significant*
disabilities as defined in the Rehabilitation Act of 1973.
Rehabilitation Services Demonstration and Training- Special Demonstration
Programs To provide financial assistance to projects and
demonstrations for expanding and improving services authorized under the
Rehabilitation Act of 1973, including related research and evaluation
activities.
Individuals with disabilities. Supported Employment Services for
Individuals With Significant Disabilities To provide grants to help states
develop and
implement collaborative programs with appropriate entities to provide
supported employment services, such as intensive on- the- job training, to
enable individuals with the most significant disabilities to achieve
supported employment.
Individuals with significant disabilities.
Helen Keller National Center Program To provide direct services for deaf
and blind individuals to enhance their potential for employment and to
live independently in their home communities.
Individuals who are deaf and blind, their families, and service providers.
Randolph- Sheppard Program To provide blind persons with remunerative
employment, enlarge their economic opportunities, and encourage their
self- support through the operation of vending facilities in federal
buildings.
Blind individuals. Rehabilitation Services* American Indians with
Disabilities Provide vocational rehabilitation services to American
Indians with disabilities that reside on or near federal or state
reservations, to prepare them for employment.
American Indians with disabilities who reside on or near federal or state
reservations. Projects with Industry To create and expand job and career
opportunities for
individuals with disabilities in the competitive labor market by
partnering with private industry.
Individuals with disabilities.
Department of Labor Programs
Employment Programs for People with Disabilities To bring a heightened and
permanent long- term focus
to the goal of increasing employment of persons with disabilities, by
providing leadership, development policies, and initiatives and by
awarding grants that further the elimination of barriers to the training
and employment of people with disabilities. (Note: See table 1 for several
of the programs targeted to employers that are funded by this program.)
People with disabilities and the organizations that serve them.
Appendix II: Federal Employment Programs and Incentives Targeted to
Workers with Disabilities
Page 36 GAO- 03- 39 Business Tax Incentives
Programs and incentives Objective Target beneficiary
Work Incentive Grants To support the development of the one- stop system
infrastructure with the objective of achieving model, seamless, and
comprehensive services for people with disabilities, thereby increasing
their employment, retention, earning capacity, and occupational skill
attainment.
Individuals with disabilities eligible for employment and training
services under the Workforce Investment Act.
Department of Health and Human Services Programs and Incentives
Demonstration to Maintain Independence and Employment (Ticket- to- Work
Demonstrations) To support states* efforts to provide working
individuals with the necessary benefits and services required for these
individuals to manage the progression of their condition and remain
employed. The benefits provided should be equivalent to those provided by
Medicaid to the categorically needy and to workers that have physical or
mental impairments that, without medical assistance, will result in a
disability.
Workers with potentially severe disabilities that are (1) at least 16 but
less than 65 years of age, (2) have specific physical or mental
impairments identified by the state that are reasonably expected to lead
to blindness or disability, and (3) are employed. Medicaid Infrastructure
Grants to Support the Competitive Employment of People with Disabilities
To support state efforts to enhance employment options for persons with
disabilities by building the Medicaid infrastructure. Funding may be used
to develop a Medicaid buy- in, increase availability of Personal
Assistance Services, plan a demonstration to Maintain the Independence and
Employment Program, or for state- to- state technical assistance.
Employed persons with disabilities between 16 and 65 years old in either
of two circumstances: (1) those who meet income, asset, and resource
standards established by the state and (2) those who cease to be eligible
for medical assistance because of medical improvements determined at the
time of a regularly scheduled disability review, but who also continue to
have a severe, medically determinable impairment. Expanded Availability of
Healthcare Services for Workers with Disabilities To enable individuals
with disabilities to remain in or
enter the workforce, TWWIIA allows (1) the option to states to provide
Medicaid benefits to more people with disabilities, (2) extension of
premium- free Medicare coverage to DI recipients who return to work, and
(3) coverage protection for some Medigap policy holders.
With the passage of TWWIIA, states can offer Medicaid to (1) working
individuals between 16 and 64 years of age who, except for their income
and resource levels, are eligible to receive SSI and (2) employed
individuals with a medically improved disability who lost Medicaid
eligibility because they no longer met the SSI definition of disability.
Appendix II: Federal Employment Programs and Incentives Targeted to
Workers with Disabilities
Page 37 GAO- 03- 39 Business Tax Incentives
Programs and incentives Objective Target beneficiary Social Security
Administration Programs and Incentives
Social Security* Benefits Planning, Assistance, and Outreach Program To
provide grants to qualified organizations to (1) offer
benefit planning and assistance to disability beneficiaries and to provide
outreach to those potentially eligible for work incentive programs and (2)
disseminate accurate information to beneficiaries with disabilities about
incentive programs and related issues.
DI and SSI beneficiaries with disabilities and their families.
Social Security State Grants for Work Incentives Assistance to Disabled
Beneficiaries
To provide grants to state protection and advocacy systems that provide
(1) information and advice about obtaining vocational rehabilitation and
employment services or (2) advocacy or other services that beneficiaries
with disabilities may need to secure or regain employment.
DI and SSI beneficiaries with disabilities who want to work.
Work Incentives for Supplemental Security Income (SSI) and Social Security
Disability Insurance (DI)
To encourage and enable those receiving federal disability benefits to
become part of the workforce, SSA provides incentives to allow SSI and DI
beneficiaries to extend their medical benefits and disability payments
when returning to work and to make it easier to have benefits reinstated
if work is no longer possible. TWWIIA expands upon the incentives by (1)
providing tickets to SSI and DI recipients to receive training and
employment assistance; (2) extending premium- free Medicare coverage for a
longer time period; (3) providing temporary benefits for those who left
the disability program, but are unable to continue working; and (4) not
reviewing the eligibility of DI or SSI beneficiary using a ticket to work.
Individuals receiving SSI or DI benefit payments who return to work.
Department of the Treasury
Tax deduction for Impairment- Related Work Expenses To permit workers with
disabilities to claim
impairment- related work expenses (such as the cost for attendant care at
work) as deductions to their gross income. These deductions, unlike other
business expenses, are not limited to 2 percent of adjusted gross income.
Individuals with a disability or impairment that functionally limits their
employment or substantially limits one or more major life activities.
Department of Veterans* Affairs Program
Vocational Rehabilitation for Disabled Veterans To provide all services
and assistance necessary to
enable veterans with service- connected disabilities to prepare for,
obtain, or maintain suitable employment, and if work is not possible, to
provide services and assistance to help the veteran achieve maximum
independence in daily living.
Veterans with a serviceconnected disability and veterans with disabilities
who have a serious employment handicap.
a Federal programs and initiatives that do not exclusively and directly
provide employment related services to persons with disabilities have not
been included. For example, not included is the JavitsWagner- O*Day Act
that requires federal agencies to give purchasing priority to the products
and services of sheltered workshops for individuals who are blind or have
other significant disabilities. b For more information on the work
incentives and the Ticket to Work Program, see Social Security
Administration, Office of Employment Support, 2002 Red Book on Employment
Support: A Summary Guide to Employment Support Available to People with
Disabilities Under the Social Security Disability Insurance and
Supplemental Security Income Programs, SSA Publication No. 64- 030.
(Baltimore, Md., 2002).
Appendix II: Federal Employment Programs and Incentives Targeted to
Workers with Disabilities
Page 38 GAO- 03- 39 Business Tax Incentives
c For more information on tax adjustments, such as the medical expense
deduction, that may be of particular interest for those with a disability
or who care for someone who has a disability, see Department of Treasury,
Internal Revenue Services, Tax Highlights for Persons with Disabilities,
IRS Publication No. 907. (Washington, D. C., 2000).
Source: The Catalog of Federal Domestic Assistance Programs and federal
agency Web sites and other federal information sources.
Appendix III: Comments from the Social Security Administration Page 39
GAO- 03- 39 Business Tax Incentives
Appendix III: Comments from the Social Security Administration
Appendix III: Comments from the Social Security Administration Page 40
GAO- 03- 39 Business Tax Incentives
Appendix III: Comments from the Social Security Administration Page 41
GAO- 03- 39 Business Tax Incentives
Appendix IV: Comments from the Internal Revenue Service Page 42 GAO- 03-
39 Business Tax Incentives
Appendix IV: Comments from the Internal Revenue Service
Appendix IV: Comments from the Internal Revenue Service Page 43 GAO- 03-
39 Business Tax Incentives
Appendix V: GAO Contacts and Staff Acknowledgments
Page 44 GAO- 03- 39 Business Tax Incentives
Robert E. Robertson, (202) 512- 7215 Carol Dawn Petersen, (202) 512- 7215
In addition to those named above, the following individuals made
significant contributions to this report: Jeffrey Arkin, Julie DeVault,
Patrick DiBattista, Patricia Elston, Corinna Nicolaou, Robert Tomco,
Education, Workforce, and Income Security Issues: Wendy Ahmed, Luanne Moy,
Ed Nannenhorn, James Ungvarsky, Anne Stevens, Applied Research and
Methods: Shirley Jones and Behn Miller, General Counsel; and Thomas Bloom
and Samuel Scrutchins, Tax Administration and Justice Issues. Appendix V:
GAO Contacts and Staff
Acknowledgments GAO Contacts Staff Acknowledgments
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