GAO-03-39, Business Tax Incentives: Incentives to Employ Workers with Disabilities Receive Limited Use and Have an Uncertain Impact


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Disabilities Receive Limited Use and Have an Uncertain Impact' which 
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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:



GAO Highlights: 



Highlights of GAO?03?0039, a report to the Chairman and Ranking Member 
of 

the Committee on Finance, U. S. Senate, and the Chairman and Ranking 
Member 

of the Committee on Ways and Means, House of Representatives.



December 2002: 



Business Tax Incentives:



Incentives to Employ Workers with Disabilities Receive Limited Use and 

Have an Uncertain Impact:



Why GAO Did This Study: 



More than 17 million working-age individuals have a self-reported 

disability that limits work. Their unemployment rate is also twice as 

high as for those without a work disability, according to recent Census 

data. In the Ticket to Work and Work Incentives Improvement Act of 
1999, 

the Congress mandated that GAO study and report on existing tax 
incentives 

to encourage businesses to employ and accommodate workers with 

disabilities. This report provides information on (1) the current 

usage of the tax incentives,  (2) the incentives’ ability to encourage 

the hiring and retention of workers with disabilities, and (3) options 

to enhance awareness and usage of the incentives.



What GAO Found: 



Table: Business Tax Incentives to Encourage the Hiring, Retention, and 

Accomodation of Workers with Disabilities:



[See PDF for image]



Source: GAO 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.



The full report, including GAO’s objectives, scope, methodology, and 

analysis is available at www.gao.gov/cgi-bin/getrpt?GAO?03?0039. For 

additional information about the report, contact Robert E. Robertson 

(202) 512-7215 or robertsonr@gao.gov.



Contents:



Letter:



Results in Brief:



Background:



Small Proportion of Taxpayers Use Business Tax Credits:



Studies Provide Limited Information on the Effectiveness of the Tax 

Incentives:



Options May Increase Tax Incentives’ Usage and Cost, but Their Impact 

on Workers with Disabilities Is Uncertain:



Agency Comments and Our Response:



Appendix I: Scope and Methods:



Appendix II: Federal Employment Programs and Incentives 

Targeted to Workers with Disabilities:



Appendix III: Comments from the Social Security Administration:



Appendix IV: Comments from the Internal Revenue Service:



Appendix V: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Staff Acknowledgments:



Tables:



Table 1: Federal Employment Efforts Targeted to Employers to Hire, 

Retain, and Accommodate Workers with Disabilities:



Table 2: Work Opportunity Credits Reported for 1999:



Table 3: Industry Distribution of Work Opportunity Credits Reported by 

Corporations for 1999:



Table 4: Distribution, by Total Receipts, of Work Opportunity Credits 

Reported by Corporations for 1999:



Table 5: Disabled Access Credits Reported for 1999:



Table 6: Federal Employment Programs and Incentives for Persons with 

Disabilities:



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:



Letter:



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.[Footnote 

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.[Footnote 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 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.[Footnote 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.[Footnote 

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.[Footnote 5]



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.[Footnote 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;[Footnote 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.



Results in Brief:



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[Footnote 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.[Footnote 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 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.



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.



Background:



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).



Table 1: Federal Employment Efforts Targeted to Employers to Hire, 

Retain, and Accommodate Workers with Disabilities:



Efforts: Business Leadership Network; (Labor, ODEP); Purpose: 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..



Efforts: Disability and Business Technical Assistance Centers; 

(Education, National Institute on Disability and Rehabilitation 

Research); Purpose: 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..



Efforts: Employer Assistance Referral Network; (Labor, ODEP in 

partnership with the Social Security Administration (SSA)); Purpose: 

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 disability-related issues..



Efforts: Job Accommodation Network; (Labor, ODEP); Purpose: 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..



Efforts: Project EMPLOY; (Labor, ODEP); Purpose: Resources, ongoing 

support, training, and technical assistance to employers and others to 

increase the recruitment, hiring, and retention of employees with 

significant disabilities..



Efforts: Projects with Industry; (Education, Office of Special 

Education and Rehabilitative Services); Purpose: Partnership with 

private industry to create and expand job and career opportunities for 

individuals with disabilities in the competitive labor market..



Efforts: Ticket to Hire; (SSA, Office of Employment Support Programs 

(OESP) in partnership with Labor); Purpose: 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..



Efforts: Workforce Recruitment Program; (Labor, ODEP); Purpose: 

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.



[End of table]



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, such as providing an 

accessible parking space or bathroom.[Footnote 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.[Footnote 

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 

disadvantaged workers,[Footnote 12] two categories specifically 

include workers with disabilities-the vocational rehabilitation 

referrals and Supplemental Security Income recipients.[Footnote 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.[Footnote 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 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.



Small Proportion of Taxpayers Use Business Tax Credits:



In 1999, a small proportion of corporate taxpayers[Footnote 15] or 

individual taxpayers with a business affiliation[Footnote 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.[Footnote 17]



A Small Proportion of Taxpayers Use the Work Opportunity Credit:



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[Footnote 18] and 1 out of 3,450 individuals with a 

business affiliation[Footnote 19] reported this credit.[Footnote 20] 

Corporations, excluding those that pass their credits through to 

individual shareholders,[Footnote 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: Corporations[C]; Total 

amount[A]: $221,677,723; Sampling 

error[B]: +/-$67,578,709; Average amount[A]: $106,265[D]; Sampling 

error[B]: +/-$43,260.



Taxpayers: Individuals with a business affiliation; Total 

amount[A]: 32,196,911; Sampling 

error[B]: +/-8,602,357; Average amount[A]: 3,795[E]; Sampling 

error[B]: +/-1,360.



Taxpayers: Total; Total 

amount[A]: $253,874,634; Sampling 

error[B]: +/-$68,034,341; Average amount[A]: $24,020f; Sampling 

error[B]: +/-$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.



[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.



[End of table]



Corporate credits reported were concentrated in a few 

industries.[Footnote 22] Corporations in retail trade, hotel and food 

services, and nonfinancial services accounted for an estimated $170 

million,[Footnote 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: Retail trade; Amount[A]: $102,451,974; Sampling error[B]: +/

-$62,908,341.



Industry: Hotel & food services; Amount[A]: 38,412,798; Sampling 

error[B]: +/-15,292,680.



Industry: Nonfinancial services[C]; Amount[A]: 29,118,167; Sampling 

error[B]: +/-11,779,669.



Industry: Manufacturing; Amount[A]: 19,296,238; Sampling error[B]: +/-

9,594,716.



Industry: Other[D]; Amount[A]: 32,398,545; Sampling error[B]: +/-

12,593,123.



Industry: Total; Amount[A]: $221,677,723; Sampling error[B]: +/-

$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.



[End of table]



Furthermore, large corporations, those with $1 billion or more in total 

receipts,[Footnote 24] accounted for most of the work opportunity 

credits.[Footnote 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.[Footnote 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: Less than $1 million; Amount[A]: [C]; Sampling 

error[B]: [C].



Total receipts: $1 million to less than $10 million; Amount[A]: 

$2,219,502; Sampling error[B]: +/-$1,060,706.



Total receipts: $10 million to less than $100 million; Amount[A]: 

4,955,427; Sampling error[B]: +/-1,564,019.



Total receipts: $100 million to less than $1 billion; Amount[A]: 

32,769,709; Sampling error[B]: +/-7,517,665.



Total receipts: $1 billion and greater; Amount[A]: 177,465,992; 

Sampling error[B]: +/-66,848,655.



Total receipts: Total; Amount[A]: $221,677,723; Sampling error[B]: +/-

$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.



Source: GAO’s analysis of IRS’s Statistics of Income data.



[End of table]



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.



A Small Proportion of Taxpayers Use the Disabled Access 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[Footnote 27] 

and 1 out of 1,570 individuals with a business affiliation[Footnote 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[Footnote 29] accounted for an 

estimated $31 million,[Footnote 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.



Table 5: Disabled Access Credits Reported for 1999:



Taxpayers: Corporations[C]; Total 

amount[A]: $8,044,789; Sampling

error[B]: +/-$4,707,616; Average amount[A]: $3,319d; Sampling 

error[B]: +/-$695.



Taxpayers: Individuals with a business affiliation; Total 

amount[A]: 51,374,913; Sampling

error[B]: +/-22,411,548; Average amount[A]: 2,753e; Sampling error[B]: 

+/-643.



Taxpayers: Total; Total 

amount[A]: $59,419,702; Sampling

error[B]: +/-$22,761,369; Average amount[A]: $2,818f; Sampling 

error[B]: +/-$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.



[End of table]



Studies Provide Limited Information on the Effectiveness of the Tax 

Incentives:



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.[Footnote 

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 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.



Studies Are Inconclusive about the Effectiveness of the Work 

Opportunity Credit:



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.[Footnote 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 

Welfare-to-Work Tax Credit.[Footnote 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 

eligible workers; however, it also provided credits to employers for 

hiring workers who would have been hired in the absence of these 

incentives.[Footnote 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.[Footnote 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.[Footnote 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.[Footnote 37] The other national survey assessed employment 

policies and found that private human resource managers viewed employer 

tax 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 

top-management 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.[Footnote 38]



Studies Do Not Examine the Effectiveness of the Disabled Access Credit 

or Barrier Removal Deduction:



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.



Further Study of the Incentives’ Effectiveness Precluded by Data 

Limitations:



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 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.[Footnote 39]



Options May Increase Tax Incentives’ Usage and Cost, but Their Impact 

on Workers with Disabilities Is Uncertain:



Business representatives and experts on disability issues and tax 

incentives[Footnote 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.



Expanded and Improved Outreach Suggested to Increase Incentive Usage:



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 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.[Footnote 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.[Footnote 42]



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.



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.[Footnote 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.[Footnote 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,[Footnote 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 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.



Raising the Maximum Dollar Amount of Incentives Suggested to Increase 

Usage:



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.[Footnote 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 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.



Expanding Eligibility for the Tax Incentives Suggested to Benefit a 

Broader Spectrum of Businesses and Workers with Disabilities:



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.[Footnote 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.



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.[Footnote 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.



Suggested Options May Increase Government Costs, but the Effect on 

Workers with Disabilities is Uncertain:



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.[Footnote 

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 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.



Agency Comments and Our Response:



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.[Footnote 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 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:



Signed by Robert E. Robertson:



[End of section]



Appendix I: Scope and Methods:



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.[Footnote 51]



To assess existing information on the tax incentives’ effectiveness as 

well as to identify any changes that may increase businesses’ awareness 

of 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.[Footnote 

52] 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.



[End of section]



Appendix II: Federal Employment Programs and Incentives Targeted to 

Workers with Disabilities:



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.[Footnote 53] 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.[Footnote 54] 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 

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 work-related accommodation expenses. The federal 

employment programs and incentives exclusively available to persons 

with disabilities are summarized in table 6.



Table 6: Federal Employment Programs and Incentives for Persons with 

Disabilities:



Programs and incentives: Department of Education Programs.



Programs and incentives: Rehabilitation Services--Vocational 

Rehabilitation Grants to States; Objective: 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.; Target beneficiary: Individuals with 

disabilities..



Programs and incentives: Rehabilitation Services--Service Projects; 

Objective: 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.; 

Target beneficiary: Individuals with disabilities and individuals with 

“significant” disabilities as defined in the Rehabilitation Act of 

1973..



Programs and incentives: Rehabilitation Services Demonstration and 

Training-Special Demonstration Programs; Objective: 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.; Target 

beneficiary: Individuals with disabilities..



Programs and incentives: Supported Employment Services for Individuals 

With Significant Disabilities; Objective: 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.; Target beneficiary: 

Individuals with significant disabilities..



Programs and incentives: Helen Keller National Center Program; 

Objective: To provide direct services for deaf and blind individuals to 

enhance their potential for employment and to live independently in 

their home communities.; Target beneficiary: Individuals who are deaf 

and blind, their families, and service providers..



Programs and incentives: Randolph-Sheppard Program; Objective: 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.; Target 

beneficiary: Blind individuals..



Programs and incentives: Rehabilitation Services--American Indians 

with Disabilities; Objective: Provide vocational rehabilitation 

services to American Indians with disabilities that reside on or near 

federal or state reservations, to prepare them for employment.; Target 

beneficiary: American Indians with disabilities who reside on or near 

federal or state reservations..



Programs and incentives: Projects with Industry; Objective: To create 

and expand job and career opportunities for individuals with 

disabilities in the competitive labor market by partnering with private 

industry.; Target beneficiary: Individuals with disabilities..



Programs and incentives: Department of Labor Programs; Objective: 

[Empty]; Target beneficiary: [Empty].



Programs and incentives: Employment Programs for People with 

Disabilities; Objective: 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.); Target beneficiary: People with 

disabilities and the organizations that serve them..



Programs and incentives: Work Incentive Grants; Objective: 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.; Target 

beneficiary: Individuals with disabilities eligible for employment and 

training services under the Workforce Investment Act..



Programs and incentives: Department of Health and Human Services 

Programs and Incentives; Objective: [Empty]; Target beneficiary: 

[Empty].



Programs and incentives: Demonstration to Maintain Independence and 

Employment (Ticket-to-Work Demonstrations); Objective: 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.; Target beneficiary: 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..



Programs and incentives: Medicaid Infrastructure Grants to Support the 

Competitive Employment of People with Disabilities; Objective: 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.; 

Target beneficiary: 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..



Programs and incentives: Expanded Availability of Healthcare Services 

for Workers with Disabilities; Objective: 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.; Target beneficiary: 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..



Programs and incentives: Social Security Administration Programs and 

Incentives; Objective: [Empty]; Target beneficiary: [Empty].



Programs and incentives: Social Security--Benefits Planning, 

Assistance, and Outreach Program; Objective: 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.; Target beneficiary: DI and SSI beneficiaries with 

disabilities and their families..



Programs and incentives: Social Security State Grants for Work 

Incentives Assistance to Disabled Beneficiaries; Objective: 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.; Target beneficiary: DI and SSI beneficiaries with 

disabilities who want to work..



Programs and incentives: Work Incentives for Supplemental Security 

Income (SSI) and Social Security Disability Insurance (DI); Objective: 

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.; Target beneficiary: Individuals receiving SSI 

or DI benefit payments who return to work..



Programs and incentives: Department of the Treasury; Objective: 

[Empty]; Target beneficiary: [Empty].



Programs and incentives: Tax deduction for Impairment-Related Work 

Expenses; Objective: 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.; Target beneficiary: Individuals with a disability or 

impairment that functionally limits their employment or substantially 

limits one or more major life activities..



Programs and incentives: Department of Veterans’ Affairs 

Program; Objective: [Empty]; Target beneficiary: [Empty].



Programs and incentives: Vocational Rehabilitation for Disabled 

Veterans; Objective: 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.; Target beneficiary: Veterans with a 

service-connected 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 

Javits-Wagner-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).



[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.



[End of table]



[End of section]



Appendix III: Comments from the Social Security Administration:



SOCIAL SECURITY:



The Commissioner:



November 6, 2002:



Mr. Robert E. Robertson:



Director, Education, Workforce and Income Security Issues:



U.S. General Accounting Office Washington, D.C. 20548:



Dear Mr. Robertson:



Thank you for the opportunity to review and comment on the draft 

report, “Business Tax Incentives: Incentives To Employ Workers with 

Disabilities Receive Limited Use and Have an Uncertain Impact” (GAO-03-

39). Our comments on the report are enclosed. If you have any 

questions, please have your staff contact Trudy Williams at (410) 965-

0380.



Sincerely,



Jo Anne B. Barnhart:



Signed by Jo Anne B. Barnhart:



Enclosures: (2):



SOCIAL SECURITY ADMINISTRATIONBALTIMORE MD 21235-0001:



COMMENTS OF THE SOCIAL SECURITY ADMINISTRATION (SSA) ON THE GENERAL 

ACCOUNTING OFFICE (GAO) DRAFT REPORT, “BUSINESS TAX INCENTIVES: 

INCENTIVES TO EMPLOY WORKERS WITH DISABILITIES RECEIVE LIMITED USE AND 

HAVE AN UNCERTAIN IMPACT” (GAO-03-39):



The use and effectiveness of tax incentives to hire and retain workers 

with disabilities is an important topic in the overall arena of 

providing employment opportunities for individuals with disabilities. 

We think it would be helpful to readers of the report if it provided a 

more detailed description of each of the business tax incentives and 

identified categories for eligible individuals for whom an employer 

could claim tax credits (and those who are not eligible).For instance, 

the Work Opportunity Tax Credit is available for Supplemental Security 

Income recipients, persons participating in a vocational rehabilitation 

program, and other disadvantaged groups (e.g., former prisoners). 

However, Social Security Disability Insurance beneficiaries are not an 

eligible category; neither are other categories of impaired persons. 

Identifying all eligible groups may provide the reader with a better 

picture of which disabled groups are included and which are not, as 

well as how large the pool of eligible disabled persons is relative to 

those who are eligible for other reasons.



SSA believes that additional attention should be directed at measuring 

employers’ awareness and understanding of the principal tax incentives. 

The results of these efforts could help in conducting more effective 

outreach and education, documenting employers’ concerns and 

misperceptions over the administrative burdens of qualifying for the 

incentives, and developing additional or modified incentives that would 

address the needs of employers.



The report includes the results of some interviews that indicate that 

the incentives are underutilized, and it makes some suggestions for 

improving the incentives. However, it could be strengthened by adding a 

discussion of the concern of the major advocacy groups for the disabled 

that the current structure of the Work Opportunity Tax Credit may be 

causing a revolving door effect in which employers hire individuals for 

low-pay, unskilled work and retain them only as long as they receive 

the tax credit. When the tax credit is no longer payable, the employee 

is let go and replaced with another eligible person. Not having 

obtained any skills, the disabled person is left to find another low-

pay, unskilled job. While this is clearly anecdotal, the GAO might want 

to look more carefully at this concern and consider recommending a 

longer time horizon for the tax credit in the place of proposing a 

larger maximum amount for the incentive.



Technical Comments:



Beginning on page 23, the report cites examples of the outreach and 

education efforts of Federal agencies, including use of the Internet, 

to provide information about tax incentives. SSA has been very active 

in this arena through several initiatives:



*SSA provides information to employers about tax incentives, 

qualifications and application procedures on its SSA Online web site 

and includes this information in printed materials that are widely 

distributed to beneficiaries and employers.



SSA is partnering with the Department of Labor (DOL), Office of 

Disability Employment Policy, on Project EARN, which offers information 

and support to employers who are looking to hire qualified persons with 

disabilities. The two agencies are also partnering on Ticket to Hire, 

which is a free national referral service for employers to hire 

qualified job candidates with disabilities from the Ticket to Work 

Program.



Through the Ticket to Work Program, private sector employment service 

providers and public vocational rehabilitation agencies offer employers 

information about their eligibility for tax incentives and assistance 

in qualifying for these credits.



We suggest including a description of Ticket to Hire, described above, 

to Table 1: “Federal Employment Efforts Targeted to Employers to Hire, 

Retain and Accommodate Workers with Disabilities” on page 7.



Additional Comments:



SSA is presently developing research projects that focus on innovative 

employment practices and methods for intervening with appropriate 

benefits and support services earlier in the disability determination 

process. As part of this effort, we are examining other domestic 

programs, such as Welfare to Work and the practices of foreign 

disability programs as sources of potential new economic incentives for 

employers which would provide better measures of their effectiveness in 

stimulating employment and furthering retention of workers with 

disabilities.



[End of section]



Appendix IV: Comments from the Internal Revenue Service:



DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 

20224:



COMMISSIONER:



November 26, 2002:



Mr. Robert E. Robertson Director:



Education, Workforce, and Income Security Issues United States General 

Accounting Office Washington, D.C. 20548:



Dear Mr. Robertson:



I reviewed your draft report titled “Business Tax Incentives: 

Incentives to Employ Workers With Disabilities Receive Limited Use and 

Have Uncertain Impact” (GAO-03-39). I agree with your report that 

businesses have not made full use of the tax incentives available to 

them. But, as your report indicates, we have taken steps to publicize 

these tax incentives. Tax professionals and employers can access 

information on available tax credits through our website, the Digital 

Daily. The website provides forms and publications, answers to 

frequently asked questions, and information on the misuse of these 

credits.



I also would like to clarify a few areas. Your report is based on data 

for 1999. The Work Opportunity Tax Credit (WOTC) expired on June 30, 

1999. From July to December 1999, the Internal Revenue Code specified 

that the credit was unavailable to individuals hired after June 30, 

1999. Public Law Number 106-170, dated:



December 17, 1999, retroactively reinstated the credit. The 

reinstatement may have affected the total usage of the credit during 

1999 and the extent to which the credit operated as a hiring incentive 

during that year.



I would also like to comment on two sentences in the report:



*On page 8, the description of the first tier of the credit refers to 

the amount as being “40 percent of the first $6,000 in wages paid....” 

This statement would be incorrect if an employee took more than one 

year to earn his or her first $6,000. You should revise the description 

to read “40 percent of the first $6,000 in wages paid for the first 

year of employment....”:



*On page 22, the following sentence could be misleading: “The IRS is 

working on a project to enable businesses to electronically file the 

certification forms.” The current project is a demonstration project. 

However, in April 2002, the IRS released Announcement 2002-44, 

authorizing state employment agencies to accept electronic submissions 

of Form 8850. Each state employment agency can accept electronic 

submissions at any time in accordance with the provisions of that 

announcement without waiting for completion of the demonstration 

project.



Several footnotes also need to be clarified:



*On page 3, footnote 7 - “allotments of WOTC funds” should be revised 

to clearly indicate that it refers to payments administered by the 

Department of Labor to states rather than tax credits to employers.



*On page 25, footnote 42 - the footnote should be replaced with the 

following: “The Internal Revenue Code states that small businesses can 

claim the disabled access credit for expenditures incurred to comply 

with the ADA. The statutory language appears to be clear that a small 

business already in compliance with the ADA would have little basis for 

claiming the credit.”:



If you have any questions, please contact me or Joseph R. Brimacombe, 

Deputy Director, Compliance Policy, Small Business/Self Employed 

Division, at (202) 283-2180.



Sincerely,



Bob Wenzel:



Acting Commissioner:



Signed by Bob Wenzel:



[End of section]



Appendix V: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Robert E. Robertson, (202) 512-7215

Carol Dawn Petersen, (202) 512-7215:



Staff Acknowledgments:



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.



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U.S. Small Business Administration, Office of Advocacy, Small Business 

Economic Indicators 2000, (Washington, D.C. 2001).



FOOTNOTES



[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.



[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. 



[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.



[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.



[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. 



[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.



[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. 



[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.



[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.



[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.



[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.



[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. 



[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.



[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 WOTC-certified 

new hire in 1999 that was either an SSI recipient or a vocational 

rehabilitation referral. 



[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 credit-

eligible 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).



[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. 



[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.



[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. 



[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.



[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.)



[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.



[48] U.S. Small Business Administration, Office of Advocacy, Small 

Business Economic Indicators 2000, (Washington, D.C. 2001).



[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.



[50]  GAO-01-329, 2-3.



[51] 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.



[52] 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.



[53] 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). 



[54] 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.



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