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H.R. 4639

H.R. 4639 would add a targeted category of certain
dislocated employees from base closures, realignments, and
reductions in force. The provision would be effective for
taxable years beginning after the date of enactment.

4. H.R. 673 (Mr. Gallegly)

The bill would add a targeted category of dislocated
defense workers, effective upon the date of enactment.
Dislocated defense workers would be: (1) individuals
involuntarily separated from the Armed Forces as a result in
reductions in defense expenditures, (2) individuals
involuntarily separated from civilian employment in the
Defense Department as a result in reductions in defense
expenditures, or (3) individuals involuntarily terminated
from employment by an employer (other than a governmental
body) as a result of reductions in defense expenditures. In
all cases, the hiring date must be during the one-year period
beginning on the date of involuntary separation or
termination.

5. H.R. 1338 (Mr. Upton)

In the context of a package of tax incentives for
enterprise zones, the bill would extend a maximum $1,800
credit to employers of economically disadvantaged enterprise
zone residents. The provision would be effective upon the
date of enactment.

6. H.R. 2246 (Mr. Andrews of Texas)

The bill would add a targeted category of economically
disadvantaged border empowerment zone residents. The
provision would be effective upon the date of enactment.

7. E.R. 2271 (Mr. Gingrich)

The bill would modify the definition of qualified summer
youth employees to cover individuals aged 14 to 21, and would
increase the maximum credit for that category to $3,500. The
provision would be effective for individuals who begin work
for the employer on or after April 30, 1993.

8. H.R. 2453 (Mr. Machtley)
The bill would add a targeted category of long-term

unemployed defense or shipbuilding industry workers. The
provision would be effective upon the date of enactment.



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II. BACKGROUND AND PRESENT LAW
Legislative Background

The targeted jobs tax credit was enacted in the Revenue
Act of 1978 as a substitute for the new jobs credit.* The
targeted jobs tax credit, as initially enacted, provided a
credit to employers of seven targeted groups. These groups
were: (1) vocational rehabilitation referrals, (2)
economically disadvantaged youths aged 18 to 25, (3)
economically disadvantaged Vietnam-era veterans under the age
of 35, (4) SSI recipients (individuals receiving Supplemental
Security Income under Title XVI of the Social Security Act,
including certain State supplements), (5) general assistance
recipients, (6) economically disadvantaged former convicts
hired within five years of the later release from prison or
date of conviction, and (7) cooperative education students
aged 16 to 19 who had not graduated from high school or
vocational school. The maximum credit equaled 50 percent of
the first $6,000 of qualified first-year wages and 25 percent
of the first $6,000 qualified second-year wages paid to a
targeted group individual. The employer’s deduction for
wages was reduced by the amount of the credit. . The credit
was effective for wages paid or incurred before January 1,
1982.

The Economic Recovery Tax Act of 1981 (ERTA) extended
the credit to individuals who began work for the employer
before January 1, 1983. Because of the two-year nature of
the credit, it applied to wages paid in 1983 and 1984. ERTA
also added new categories of individuals whose employment
qualified for the credit: (1) involuntarily terminated
Comprehensive Employment and Training Act (CETA) workers, (2)
WIN registrants, and (3) AFDC recipients. Other major
changes made in ERTA were limiting the credit to economically
disadvantaged cooperative education students rather than all
such students meeting the age requirements and the repeal of
the age limit for Vietnam-era veterans.

The Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA) extended the credit to individuals who began work for
the employer before January 1, 1985, and applied to wages
paid through 1986. TEFRA also deleted CETA workers as a
targeted group and added a new targeted group of economically
disadvantaged summer youths aged 16 or 17. Employers of
economically disadvantaged summer youths were eligible for a
maximum credit of 85 percent of the first $3,000 of qualified

? The new jobs credit was available in 1977 and 1978.



-8-

education for individuals who, through written cooperative
arrangements between a qualified school and one or more
employers, receive instruction, including required academic
instruction, by alternation of study in school with a job in
any occupational field, but only if these two experiences are
planned and supervised by the school and the employer so that
each experience contributes to the student’s education and
employability.

For this purpose, a qualified school is (a) a
specialized high school used exclusively or principally for
the provision of vocational education to individuals who are
available for study in preparation for entering the labor
market, (b) the department of a high school used exclusively
or principally for providing vocational education to
individuals who are available for study in preparation for
entering the labor market, or (c) a technical or vocational
school used exclusively or principally for the provision of
vocational education to individuals who have completed or
left high school and who are available for study in
preparation for entering the labor market. In order fora
nonpublic school to be a qualified school, it must be exempt
from income tax under section 501(a) of the Code.

The certification is performed by the school
participating in the cooperative education program. After
initial certification, an individual remains a member of the
targeted group only while meeting the program participation,
age, and degree status requirements of (a), (b), and (c),
above.

(8) AFDC recipients

The eighth targeted group includes any individual who is
certified by the designated local employment agency as being
eligible for Aid to Families with Dependent Children (AFDC)
and as having continually received such aid during the 90
days before being hired by the employer.

(2) Economically disadvantaged summer youth

employees

The ninth targeted group includes youths who perform
services in any 90-day period between May 1 and September 15
and who are certified by the designated local agency as (1)
being 16 or 17 years of age on the hiring date, and (2) a
member of an economically disadvantaged family. A youth must
not have been an employee of the employer prior to this
90-day period. With respect to any particular employer, an
employee can qualify only one time for this summer youth
credit. If, after the end of the 90-day period, the employer
continues to employ a youth who is certified during the



-5-

With respect to economically disadvantaged summer youth
employees, the credit is equal to 40 percent of up to $3,000
of qualified first-year wages, for a maximum credit of
$1,200.

The deduction for wages must be reduced by the amount of
the credit.

¢ ication of m 8. ba FE]

In general, an individual is not treated as a member of
a targeted group unless certification that the individual is
a member of such a group is received or requested in writing
by the employer from the designated local agency on or before
the day on which the individual begins work for the employer.
In the case of a certification of an economically
disadvantaged youth participating in a cooperative education
program, this requirement is satisfied if necessary
certification is requested or received from the participating
school on or before the day on which the individual begins
work for the employer. The "designated local agency” is the
State employment security agency.

If a certification is incorrect because it was based on
false information provided as to the employee’s membership in
a targeted group, the certification is to be revoked, so that
wages paid after the revocation notice is received by the
employer are not treated as qualified wages.

The U.S. Employment Service, in consultation with the
Internal Revenue Service, is directed to take whatever steps
are necessary to keep employers appraised of the availability
of the credit.

Target: Ea eligibl the cre

The nine groups eligible for the credit are either
recipients of payments under means-tested transfer programs,
economically disadvantaged (as measured by family income), or
disabled.

{1) Vocational rehabilitation referrals

Vocational rehabilitation referrals are those
individuals who have a physical or mental disability that
constitutes a substantial handicap to employment and who have
been referred to the employer while receiving, or after
completing, vocational rehabilitation services under an
individualized, written rehabilitation plan under a state
plan approved under the Rehabilitation Act of 1973, or under
a rehabilitation plan for veterans carried out under chapter
31 of title 38, U.S. Code. Certification can be performed by



-4-

wages. The Deficit Reduction Act of 1984 (DEFRA) extended
the credit to individuals who began work for the employer
before January 1, 1986.

The Tax Reform Act of 1986 (TRA 1986) extended the
credit to wages paid to targeted group individuals who began
work for an employer after December 31, 1985 and before
January 1, 1989. Major changes enacted in TRA 1986 included
the elimination of the credit for second-year wages and a
reduction in the first-year credit to 40 percent of the first
$6,000 of qualified wages.

The Technical and Miscellaneous Revenue Act of 1988
(TAMRA) extended the credit to eligible individuals who began
work for an employer between January 1, 1989, and
December 31, 1989. Major changes enacted in TAMRA were: (1)
a reduction in the age limit for economically disadvantaged
youth to ages 18-22 rather than 18-25 and (2) a reduction in
the maximum amount of the credit for economically
disadvantaged summer youth from 85 percent to 40 percent of
the first $3,000 of qualified wages.

The Omnibus Budget Reconciliation Act of 1989 (OBRA
1989), the Omnibus Budget Reconciliation Act of 1990 (OBRA
1990), and the Tax Extension Act of 1991 extended the credit
to eligible individuals who began work for the employer
before October 1, 1990, January 1, 1992 and June 30, 1992.
Most recently, the Omnibus Budget Reconciliation Act of 1993
(OBRA 1993) extended the credit to eligible individuals who
begin work for the employer before January 1, 1995.

Present Law
General rules

The targeted jobs tax credit is available on an elective
basis for hiring individuals from one or more of nine
targeted groups. The credit generally is equal to 40 percent
of qualified first-year wages. Qualified first-year wages
consist of wages attributable to service rendered by a member
of a targeted group during the one-year period beginning with
the day the individual begins work for the employer. For a
vocational rehabilitation referral, however, the period
begins the day the individual begins work for the employer on
or after the beginning of the individual’s vocational
rehabilitation plan.

No more than $6,000 of wages during the first year of
employment may be taken into account with respect to any
individual. Thus, the maximum credit per individual is
$2,400 in the first year of employment.



(4) ss cipients

SSI recipients are individuals receiving either
Supplemental Security Income under Title XVI of the Social
Security Act or State supplements described in section 1616
of that Act or section 212 of P.L. 93-66. To be an eligible
employee, the individual must have received SSI payments
during at least a one-month period ending during the 60-day
period that ends on the date the individual is hired by the
employer. The designated local agency is to issue the
certification after a determination by the agency making the
payments that these conditions have been fulfilled.

(5) General assistance recipients

General assistance recipients are individuals who
receive general assistance for a period of not less than 30
days if this period ends within the 60-day period ending on
the date the individual is hired by the employer. General
assistance programs are State and local programs that provide
individuals with money payments, vouchers, or scrip based on
need. These programs are referred to by a wide variety of
names, including home relief, poor relief, temporary relief,
and direct relief. Because of the wide variety of such
programs, Congress provided that a recipient will be an
eligible employee only after the program has been designated
by the Secretary of the Treasury as a program that provides
money payments, vouchers, or scrip to needy individuals.
Certification is performed by the designated local agency.

(6) Economically disadvantaged former convicts

The seventh targeted group includes any individual who
is certified by the designated local employment agency as (1)
having at some time been convicted of a felony under State or
Federal law, (2) being a member of an economically
disadvantaged family, and (3) having been hired within five
years of the later of release from prison or date of
conviction.

(72) Economically disadvantaged cooperative education
Students

The sixth targeted group is youths who (1) actively
participate in qualified cooperative education programs, (2)
have attained age 16 but have not attained age 20, (3) have
not graduated from high school or vocational school, and (4)
are members of economically disadvantaged families. The
definitions of a qualified cooperative education program and
a qualified school are similar to those used in the
Vocational Education Act of 1963. Thus, a qualified
cooperative education program means a program of vocational


DESCRIPTION OF PROPOSALS
RELATING TO
THE TARGETED JOBS TAX CREDIT

Scheduled for a Hearing

Before the

SUBCOMMITTEE ON SELECT REVENUE MEASURES
of the
COMMITTEE ON WAYS AND MEANS

On September 29, 1994

Prepared By the Staff
of the

JOINT COMMITTEE ON TAXATION

September 27, 1994

JCX-19-94



-10-

No credit is available for the hiring of certain related
individuals (primarily dependents or owners of the taxpayer) .
The credit is also not available for wages paid to an
individual who was employed by the employer at any time
during which the individual was not a certified member of a
targeted group.

No credit is allowed for wages paid unless the eligible
individual is either (1) employed by the employer for at
least 90 days (14 days in the case of economically
disadvantaged summer youth employees) or (2) has completed at
least 120-hours (20 hours for summer youth) of services
performed for the employer.



-9-

90-day period as a member of another targeted group, the
limit on qualified first-year wages takes into account wages
paid to the youth while a qualified summer youth employee.

D ition of wa

In general, wages eligible for the credit are defined by
reference to the definition of wages under the Federal
Unemployment Tax Act (FUTA) in section 3306(b) of the Code,
except that the dollar limits do not apply. Because wages
paid to economically disadvantaged cooperative education
students and to certain agricultural and railroad employees
are not FUTA wages, special rules are provided for these
wages.

Wages may be taken into account for purposes of the
credit only if more than one-half of the wages paid during
the taxable year to an employee are for services in the
employer's trade or business. The test as to whether more
than one-half of an employee’s wages are for services ina
trade or business is applied to each separate employer
without treating related employers as a single employer.

Other rules

In order to prevent taxpayers from eliminating all tax
liability by reason of the credit, the amount of the credit
may not exceed 90 percent of the taxpayer’s income tax
liability. Furthermore, the credit is allowed only after
certain other nonrefundable credits have been taken. If,
after applying these other credits, 90 percent of an
employer’s remaining tax liability for the year is less than
the targeted jobs tax credit, the excess credit can be
carried back three years and carried forward 15 years.

All employees of all corporations that are members of a
controlled group of corporations are to be treated as if they
were employees of the same corporation for purposes of
determining the years of employment of any employee and wages
for any employee up to $6,000. Generally, under the
controlled group rules, the credit allowed the group is the
same as if the group were a single company. A comparable
rule is provided in the case of partnerships, sole
proprietorships, and other trades or businesses (whether or
not incorporated) that are under common control, so that all
employees of such organizations generally are to be treated
as if they were employed by a single person. The amount of
targeted jobs tax credit allowable to each member of the
controlled group is its proportionate share of the wages
giving rise to the credit.



-6-

the designated local employment agency upon assurances from
the vocational rehabilitation agency that the employee has
met the above conditions.

(2) Economically disadvantaged youths

Economically disadvantaged youths are individuals
certified by the designated local employment agency as (1)
members of economically disadvantaged families and (2) at
least age 18 but not age 23 on the date they are hired by an
employer. An individual is determined to be a member of an
economically disadvantaged family if, during the six months
immediately preceding the earlier of the month in which the
determination occurs or the month in which the hiring date
occurs, the individual’s family income would be, on an annual
basis, not more than 70 percent of the Bureau of Labor
Statistics’ lower living standard. A determination that an
individual is a member of an economically disadvantaged
family is valid for 45 days from the date on which the
determination is made.

Except as otherwise noted below, a determination of
whether an individual is a member of an economically
disadvantaged family is made on the same basis and is subject
to the same 45-day limitation where required in connection
with the four other targeted groups that exclude individuals
not economically disadvantaged.

(3) Economically disadvantaged Vietnam-era veterans

The third targeted group is Vietnam-era veterans
certified by the designated local employment agency as
members of economically disadvantaged families. For these
purposes, a Vietnam-era veteran is an individual who has
served on active duty (other than for training) in the Armed
Forces for more than 180 days, or who has been discharged or
released from active duty in the Armed Forces for a
service-connected disability, but in either case, the active
duty must have taken place after August 4, 1964, and before
May 8, 1975. However, any individual who has served fora
period of more than 90 days during which the individual was
on active duty (other than for training) is not an eligible
employee if any of this active duty occurred during the
60-day period ending on the date the individual is hired by
the employer. This latter rule is intended to prevent
employers that hire current members of the armed services (or
those departed from service within the last 60 days) from
receiving the credit.



-2-

I. SUMMARY

The targeted jobs tax credit (Code sec. 51) was enacted
in the Revenue Act of 1978 to replace the expiring tax credit
for increased employment (the "new jobs credit"). The
targeted jobs tax credit was subsequently extended and
revised numerous times. It is currently scheduled to expire
after December 31, 1994.

The targeted jobs tax credit is available on an elective
basis for hiring individuals from one or more of nine
targeted groups. The targeted groups are: (1) vocational
rehabilitation referrals, (2) economically disadvantaged
youths, (3) economically disadvantaged Vietnam-era veterans,
(4) SSI recipients, (5) general assistance recipients,

(6) economically disadvantaged former convicts,

(7) economically disadvantaged cooperative education
students, (8) AFDC recipients and WIN registrants, and (9)
economically disadvantaged summer youth employees.

The credit generally is equal to 40 percent of the first
$6,000 of qualified first-year wages paid to a member of a
targeted group. Thus, the maximum credit is $2,400 per
individual in the first year of employment. With respect to
economically disadvantaged summer youth employees, however,
the credit is equal to 40 percent of up to $3,000 of wages,
for a maximum credit of $1,200. The employer’s deduction for
wages must be reduced by the amount of the credit.



-13-
9. H.R. 3147 (Messrs. Edwards of Texas and others)

The bill would permanently extend the targeted jobs tax
eredit. It would also add a targeted category of veterans
who have been awarded (1) a campaign ribbon, (2) a liberation
ribbon, or (3) a national defense service medal. The
provision would be effective for wages paid to individuals
who begin work for an employer after December 31, 1992.

10. H.R. 3828 (Mr. Hefley)

The bill would add a targeted category of individuals
who have received or were eligible to receive unemployment
compensation for at least 90 days. The provision would be
effective upon the date of enactment.



INTRODUCTION

The Subcommittee on Select Revenue Measures of the House
Committee on Ways and Means has scheduled a public hearing on
September 29, 1994, to review the targeted jobs tax credit
which is scheduled to expire after December 31, 1994.

This document', prepared by the staff of the Joint
Committee on Taxation, provides a description of present law
and legislative proposals relating to the targeted jobs tax
credit.

Part I of the document is a summary of present law.
Part II discusses the legislative background and the targeted
jobs tax credit rules. Part III describes House legislative
proposals (103rd Congress) relating to the targeted jobs tax
credit. Finally, an Appendix presents Department of Labor
data on targeted jobs tax credit participation for calendar
year 1992.

1 This document may be cited as follows: Joint Committee
on Taxation, D tion of Pr elatin: Targete

Jobs Tax Credit (JCX-19-94), September 27, 1994.



CONTENTS

INTRODUCTION.................05. tee eee eee e eee
I. SUMMARY..... tee eee eee eee e eee ence see eee
II. BACKGROUND AND PRESENT LAW...............
III. LEGISLATIVE PROPOSALS..................0.

APPENDIX: DATA ON TARGETED JOBS CREDIT

PARTICIPATION, CALENDAR YEAR 1992..



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III. LEGISLATIVE PROPOSALS
1. H.R. 15 and H.R. 325 (Mr. Rangel)

H.R. 15

In the context of a package of tax incentives for
enterprise zones, H.R. 15 would add a targeted category for
economically disadvantaged tax enterprise zone residents as
eligible for the targeted jobs tax credit ("the credit").
The provision would be effective upon the date of enactment.

H.R. 325

H.R. 325 would permanently extend the credit and make
two modifications in the targeted categories. First, the age
limit for economically disadvantaged youth would be restored
to age 25 for individuals who began work for an employer
after June 30, 1992. Second, a new category of economically
disadvantaged veterans would be added. An economically
disadvantaged veteran must (1) be a member of an economically
disadvantaged family and (2) have served in the active
military, naval, or air services (other than active duty for
training) of the United States or have been discharged or
released from such service under conditions other than
dishonorable. This new category would apply to individuals
who begin work for the employer after June 30, 1993.

2. H.R. 110 (Mr. Boehlert) and H.R. 1057 (Mrs. Meyers)
These bills would permanently extend the current credit.
3. H.R. 372, H.R. 1269, and H.R. 4639 (Ms. Snowe)
E.R. 372
H.R. 372 would treat every individual hired within one
year after the date of enactment as a member of a targeted

group. For such individuals, the maximum credit would be
$5,000.

H.R. 1269

H.R. 1269 would add a targeted category of former
employees at Federal military installations who lost their
jobs because of base closing and realignments. The provision
would be effective upon the date of enactment.



-14-

APPENDIX: DATA ON TARGETED JOBS TAX CREDIT PARTICIPATION,
CALENDAR YEAR 1992

Vouchers and Certifications by Targeted Group!

(Percent of Total in Parentheses)

arge Ou)

Economically Disadvantaged

Vouchers

Certification:

Youths 18-22 251,185 (47.6%) 191,617 (55.5%)
Economically Disadvantaged
Vietnam-era Veterans 17,204 (3.3) 9,689 (2.8)
Economically Disadvantaged
Former Convicts 55,623 (10.5) 18,559 (5.4)
Economically Disadvantaged
Summer Youths 13,008 (2.5) 8,002 (2.3)
General Assistance Recipients 23,145 (4.4) 15,741 (4.6)
SSI Recipients 8,218 (1.6) 5,989 (1.7
AFDC Recipients 111,814 (21.1) 69,606 (20.2)
Handicapped 7,995 (9.0) 25.777 (7.5)
Total? 528,192 (100.0%) 344,980 (100.0%)

Source: U.S. Department of Labor

1

individual is a member of a targeted group.
is a final eligibility determination, issued upon the request

of a hiring employer.

A voucher is a preliminary determination that an
A certification

? Does not include certifications of economically

disadvantaged cooperative education students. Such
certifications are issued by participating schools rather
than State employment security agencies which issue
certifications for all other targeted groups.