Business Tax Provisions That Benefit Persons with Disabilities

Order Code RS21006

Updated June 28, 2005

CRS Report for Congress

Received through the CRS Web

Business Tax Provisions That Benefit

Persons with Disabilities

name redacted

Analyst in Public Sector Economics

Government and Finance Division

Summary

This report describes tax provisions designed to either help businesses in making

their facilities available to the disabled or to promote the hiring of disabled persons.

Federal tax law provides four Internal Revenue Code provisions of special significance

to disabled individuals. The first three provisions discussed in this report are employer

based: the work opportunity tax credit, the deduction for architectural and transportation

barrier removal, and the tax credit for public accommodations expenditures for disabled

individuals. A fourth provision, a deduction for employee business expenses, is

available to a disabled employee. Analysis of the tax provisions suggests that few

corporate and individual taxpayers use the tax provisions designed to encourage the

hiring, retention, and accommodation of disabled workers.1

For additional information on tax provisions available to disabled taxpayers see

the Internal Revenue Service’s publication 907, entitled Tax Highlights for Persons with

Disabilities.2

This report will be updated in future years to reflect statutory changes.

1

U.S. General Accounting Office, Business Tax Incentives: Incentives to Employ Workers with

Disabilities Receive Limited Use and Have an Uncertain Impact, GAO report GAO-03-39

(Washington: December 11, 2002); [http://www.gao.gov/atext/d0339.txt], visited May 24, 2005.

2

U.S. Dept. of the Treasury, Internal Revenue Service, Tax Highlights for Persons with

Disabilities, Publication 907 (Washington: 2003); [http://www.irs.gov/pub/irs-pdf/p907.pdf],

visited May 26, 2005.

Congressional Research Service ˜ The Library of Congress

CRS-2

Work Opportunity Tax Credit3

A work opportunity tax credit for disabled individuals undergoing vocational training

is available to employers.4 The credit is equal to 40% of the first $6,000 of wages paid

to newly hired employees during their first year of employment when retained for at least

400 work hours. As such, the maximum credit per employee is $2,400 but may be less

dependent on the employer’s tax bracket and other criteria. The amount of the credit

reduces the company’s deduction for the employee’s wages. A lesser credit rate of 25%

is provided to employers when the employee remains on the job for 120-399 hours.

Vocational rehabilitation referrals are one of nine groups for whose hiring an

employer could claim the WOTC. Employers need to receive certification of eligibility

for newly hired workers. In the case of disabled workers, certifications and referrals can

be made by any employment network approved under the Ticket to Work Act.5

Certifications are likely to be more than actual credits claimed because, among other

reasons, not all eligible hires will remain on a firms’ payrolls for the 120-hour minimum

employment period. Recently, according to the U.S. Department of Labor, almost 5% of

total certifications have been issued to employers for hiring members of the vocational

rehabilitation group.

The work opportunity tax credit first entered the law with passage of the Small

Business Job Protection Act of 1996 (P.L. 104-188). The vocational rehabilitation group

was retained when the WOTC evolved from prior law’s targeted jobs tax credit. The

credit was originally available for those employees starting work after September 30,

1996, and before October 1, 1997. The Taxpayer Relief Act of 1997 (P.L. 105-34) first

extended the credit for nine months through June 30, 1998.6 With passage of the

Omnibus Appropriations Bill FY1999 (P.L. 105-277), the credit was reauthorized from

its prior expiration date through June 30, 1999. The credit was extended a third time by

passage of the Ticket to Work and Work Incentives Improvement Act of 1999. This

legislation was signed into law (P.L. 106-170) by President Clinton on December 17,

1999. Under this law the provision was made retroactive to its prior expiration date and

remained in effect until December 31, 2001. Early in 2002, Congress passed a two-year

extension as part of the Job Creation and Worker Assistance Act of 2002 (P.L. 107-147).

That extension applied the provision retroactively from January 1, 2002 until its

3

Note: This provision expired on Dec. 31, 2005.

4

Vocational rehabilitation referrals are those individuals with physical or mental disabilities that

have resulted in substantial handicaps to employment and who have been referred to employers

upon completion of or while receiving rehabilitative services under the Rehabilitation Act of

1973 or are referred through a program carried out under chapter 31 of title 38, United States

Code.

5

Under the Social Security Protection Act of 2004 (SSPA) (P.L. 108-203) the definition of the

WOTC’s vocational rehabilitation referral eligible group was expanded from a state vocational

rehabilitation agency to include “any employment network created by the Ticket to Work Act.”

The provision was effective as if included in the Ticket to Work Act. The Social Security

Protection Act of 2004 also requires the GAO to provide an interim assessment report due 12

months after enactment of SSPA.

6

For additional information on this credit, see CRS Report RL30089, The Work Opportunity Tax

Credit (WOTC) and the Welfare-to-Work (WtW) Tax Credit, by (name redacted).

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expiration on December 31, 2003. In addition, that legislation also amended the WOTC’s

eligible groups to include “New York Liberty Zone business employees.”7 The most

recent extension was included in the Working Families Tax Relief Act of 2004 (P.L. 108311) which reauthorized the credit retroactive to January 1, 2004 and through December

31, 2005. This legislation also provided a technical correction that clarifies that a member

of a controlled group of corporations will not be entitled to claim the credit if the total

number of employees of the controlled group exceeds 200.

Architectural and Transportation Barrier Removal Deduction

The removal of architectural and transportation barriers is allowed to be treated as

a currently deductible expense rather than as an expenditure that is capitalized and

deducted gradually over the useful life of the asset. To qualify, expenditures must be

made to make facilities or public transportation vehicles (either owned or leased by the

taxpayer and used in the taxpayer’s trade or business) more accessible to, and usable by,

the elderly or disabled. The maximum deduction permitted a business taxpayer (either

an individual, corporation, or a controlled group of corporations) for qualifying

expenditures is $15,000.

Section 190, authorizing this deduction, was first added to the Internal Revenue

Code with the passage of the Tax Reform Act of 1976 (P.L. 94-455), effective for the 3

tax years 1977, 1978, and 1979. This was followed by a three-year extension provided

under an act known as Fringe Benefit Regulations — Issuance — Prohibition (P.L. 96167). The deduction was reinstated for tax years 1984 and 1985 with the maximum

deduction increased to $35,000 under provisions of the Deficit Reduction Act of 1984

(P.L. 98-369). The Tax Reform Act of 1986 (P.L. 99-514) made the provision permanent.

The deduction was reduced to $15,000 after the enactment of the Omnibus Budget

Reconciliation Act of 1990 (OBRA90) (P.L. 100-508). This reduction in the maximum

permitted write off was a result of the creation of the tax credit provision available to

small businesses for public accommodations expenditures made for disabled individuals

(see following provision).

Tax Credit for Public Accommodations Expenditures

for Disabled Individuals

A nonrefundable tax credit is provided for expenditures made by eligible small

businesses to help comply with the requirements of the Americans With Disabilities Act

of 1990 (P.L. 101-336). Small businesses are defined as those for which gross receipts

(less returns and allowances) did not exceed $1 million in the preceding tax year or that

had no more than 30 full time employees. Full-time employees are those who work at

least 30 hours per week for 20 or more calendar weeks during the tax year.

The credit is equal to 50% of eligible expenditures made during the year. The first

$250 of otherwise eligible access expenditures are not eligible for the credit. Expenditure

amounts greater than $250 but less than $10,250 are eligible. Thus, a $5,000 maximum

tax credit is available. This credit is included as a general business credit and subject to

7

A more detailed legislative history can be found in the previously cited CRS Report RL30089

by (name redacted).

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present law limits. As such, the excess or unused credit may be carried back three years

(but may not be carried back to tax years that ended before the date of enactment of

OBRA90) and forward for 15 years. The Internal Revenue Code does not permit amounts

allowable as a disabled access credit to be used as a deduction or credit elsewhere on a

tax entity’s return.

The Internal Revenue Code defines qualifying expenditures as including those made

(A) for the purpose of removing architectural, communication, physical, or transportation

barriers that prevent a business from being accessible to, or usable by, individuals with

disabilities; (B) to provide qualified interpreters or other effective methods of making

aurally delivered materials available to individuals with hearing impairments; (C) to

provide qualified readers taped texts, and other effective methods of making visually

delivered materials available to individuals with visual impairments; (D) to acquire or

modify equipment or devices for individuals with disabilities; or (E) to provide other

similar services, modifications, materials, or equipment.8

Eligible access expenditures must be reasonable. The credit is not available for the

construction of new facilities first placed in service after the date of enactment of

OBRA90. Eligible access expenditures must meet the standards set by the Secretary of

the Treasury in concurrence with the Architectural and Transportation Barriers

Compliance Board.

This provision became law with the passage of the Omnibus Budget Reconciliation

Act of 1990 (OBRA 90) (P.L. 100-508). No changes to the provision have been made

since initial passage.

Employee Business Expense

Normally, employee business expenses other than reimbursed expenses (Section

62(2)(A)) are allowed only as itemized deductions and are subject to a floor of 2% of the

taxpayer’s adjusted gross income (AGI). Thus, taxpayers must make expenditures that

exceed the 2% floor before those expenditures are deductible if they itemize on their

income tax return.9 However, the 2% floor does not apply to impairment-related work

expenses of employees with disabilities. This provision is unavailable for persons with

disabilities who use the standard deduction.10

This provision was included in the Tax Reform Act of 1986 (P.L. 99-514) and made

effective for taxable years beginning on or after January 1, 1987.

8

Internal Revenue Code §44.

9

The tax writing committees were concerned over the complexity and extensive recordkeeping

required for small expenditures. Both the House and Senate felt that significant problems

resulted for the Internal Revenue Service, for whom it is not cost effective to audit situations in

which only small dollar amounts are involved. It was also noted that some of these business

expenditures have a combination of both personal and business motivations.

10

An additional standard deduction is available to blind taxpayers. For information on this

provision, see CRS Report RS20555, Additional Standard Tax Deduction for the Blind: A

Description and Assessment, by Louis Alan Talley and (name redacted).

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