Form 8861 Form 8861 Welfare-to-Work Credit

8861

Form
(Rev. December 2006)

Welfare-to-Work Credit

Department of the Treasury
Internal Revenue Service

©

OMB No. 1545-1569
Attachment
Sequence No.

Attach to your tax return.

Name(s) shown on return

107

Identifying number

Enter on the applicable line below the qualified first- or second-year wages paid or incurred
during the tax year and multiply by the percentage shown for services of employees who began
work for you before the date in the instructions, and are certified as long-term family assistance
recipients.

1

a Qualified first-year wages

$

3 35% (.35)

1a

b Qualified second-year wages

$

3 50% (.50)

1b

2

Add lines 1a and 1b. See instructions for the adjustment you must make for salaries and wages

2

3

Welfare-to-work credit from partnerships, S corporations, cooperatives, estates, and trusts

3

4

Add lines 2 and 3. Cooperatives, estates, and trusts, go to line 5; partnerships and S corporations,
report this amount on Schedule K; all others, report this amount on the applicable line of Form
3800 (e.g., line 1c of the 2006 Form 3800)
Amount allocated to the patrons of the cooperative or the beneficiaries of the estate or trust (see
instructions)
Cooperatives, estates, and trusts, subtract line 5 from line 4. Report the amount on the applicable
line of Form 3800 (e.g., line 1c of the 2006 Form 3800)

5
6

4

5
6

General Instructions

How To Claim the Credit

Section references are to the Internal Revenue Code unless
otherwise noted.

To claim the welfare-to-work credit, you must request and be
issued a certification for each employee from the state
employment security agency (SESA). The certification proves
that the employee is a long-term family assistance recipient.
You must receive the certification by the day the individual
begins work, or you must complete Form 8850,
Pre-Screening Notice and Certification Request for the Work
Opportunity and Welfare-to-Work Credits, on or before the
day you offer the individual a job.
If you complete Form 8850, it must be signed by you and the
individual and submitted to the SESA by the 21st calendar day
after the individual begins work. If the SESA denies the request,
it will provide a written explanation of the reason for denial. If a
certification is revoked because it was based on false
information provided by the worker, wages paid after the date
you receive the notice of revocation do not qualify for the credit.
Long-term family assistance recipient. An employee may
be certified as a long-term family assistance recipient if the
employee is a member of a family that:
● Received assistance payments from Temporary Assistance
for Needy Families (TANF) for at least 18 consecutive months
ending on the hiring date,
● Received assistance payments from TANF for any 18 months
(whether or not consecutive) beginning after August 5, 1997,
and the employee is hired not more than 2 years after the end
of the earliest 18-month period, or
● After August 5, 1997, stopped being eligible for assistance
payments from TANF because federal or state law limits the
maximum period such assistance is payable, and the
employee is hired not more than 2 years after the date the
eligibility for such assistance ended.
Member of controlled group or business under common
control. For purposes of figuring the credit, all members of a
controlled group of corporations (as defined in section 52(a))
and all members of a group of businesses under common
control (as defined in section 52(b)), are treated as a single
taxpayer. As a member, compute your credit based on your
proportionate share of qualified wages giving rise to the

What’s New
The Tax Relief and Health Care Act of 2006
extended the welfare-to-work credit to cover
employees who begin work for the employer
CAUTION
before January 1, 2008. However, after December
31, 2006, the welfare-to-work credit will be unified with the
work opportunity credit. Because of these changes, this form
should not be used to calculate a credit for any employee
hired after December 31, 2006. For 2007 and later, section 51
has been amended, and section 51A has been repealed. To
calculate a credit for any employee hired after December 31,
2006, use Form 5884, Work Opportunity Credit. For more
information on these changes, see Publication 553, Highlights
of 2006 Tax Changes.
The tax liability limit is no longer figured on this form;
instead, it must be figured on Form 3800, General Business
Credit.
Taxpayers that are not partnerships, S corporations,
cooperatives, estates, or trusts, and whose only source of
this credit is from those pass-through entities, are not
required to complete or file this form. Instead, they can
report this credit directly on line 1c of Form 3800.
The IRS will revise this December 2006 version of the form
only when necessary. Continue to use this version for tax
years beginning after 2005 until a new revision is issued.

Purpose of Form
Use Form 8861 to claim the welfare-to-work credit for wages
you paid to or incurred for long-term family assistance
recipients during the tax year. The credit is 35% of qualified
first-year wages and 50% of qualified second-year wages
paid or incurred during the tax year.
You can claim or elect not to claim the welfare-to-work
credit any time within 3 years from the due date of your
return on either your original return or on an amended return.
For Paperwork Reduction Act Notice, see instructions.

Cat. No. 24858E

Form

8861

(Rev. 12-2006)

Form 8861 (Rev. 12-2006)

group’s welfare-to-work credit. Enter your share of the credit
on line 2. Attach a statement showing how your share of the
credit was figured, and write “See attached” next to the entry
space for line 2.

Additional Information
For more details, see Pub. 954, Tax Incentives for Distressed
Communities, and section 51A.

Specific Instructions

Page

by the successor employer are reduced by the qualified
first-year wages paid by the previous employer. See section
51(k)(1) and Regulations section 1.51-1(h).
A successor employer is an employer that acquires
substantially all of the property used in a trade or business
(or a separate unit thereof) of another employer (the previous
employer) and immediately after the acquisition the
successor employs in his/her trade or business an individual
who was employed immediately prior to the acquisition in the
trade or business of the previous employer.

Lines 1a and 1b

Line 2

Enter on the applicable line and multiply by the percentage
shown the total qualified first-year or second-year wages
paid or incurred to employees certified as long-term family
assistance recipients. Qualified first-year wages are qualified
wages you paid or incurred for work performed during the
1-year period beginning on the date the certified individual
begins work for you. Qualified second-year wages are
qualified wages you paid or incurred for work performed
during the 1-year period beginning on the day after the last
day of the first-year wage period. The amount of qualified
first-year wages, and the amount of qualified second-year
wages, which may be taken into account for any employee is
limited to $10,000 per year.

In general, you must reduce your deduction for salaries and
wages by the amount on line 2. This is required even if you
cannot take the full credit this year and must carry part of it
back or forward. If you capitalized any costs on which you
figured the credit, reduce the amount capitalized by the
credit attributable to these costs.

Qualified Wages
Wages qualifying for the credit generally have the same
meaning as wages subject to the Federal Unemployment Tax
Act (FUTA). For agricultural employees, if the work performed
by any employee during more than half of any pay period
qualifies under FUTA as agricultural labor, that employee’s
wages subject to social security and Medicare taxes are
qualified wages. For a special rule that applies to railroad
employees, see section 51(h)(1)(B). Qualified wages for any
employee must be reduced by the amount of any work
supplementation payments you received under the Social
Security Act for the employee.
Qualified wages also include the following amounts you
paid or incurred for the employee that are excludable from
the employee’s gross income.
● Premiums and other amounts you paid or incurred under
an accident and health plan excluded under section 105 or
106 (the amount must be based on the reasonable cost of
coverage, but may not exceed the “applicable premium”
under section 4980B(f)(4)).
● Educational assistance excluded under section 127, if paid
or incurred to a person not related to the employer.
● Dependent care benefits excluded under section 129.
The amount of qualified wages for any employee is zero if:
● The employee did not work for you for at least 400 hours
or 180 days,
● The employee worked for you previously,
● The employee is your dependent,
● The employee is related to you (see section 51(i)(1)), or
● 50% or less of the wages the employee received from you
were for working in your trade or business.
Qualified wages do not include:
● Wages paid to any employee during any period for which
you received payment for the employee from a federally
funded on-the-job training program, and
● Wages for services of replacement workers during a strike
or lockout at a plant or facility.
Successor employer. For successor employers, the 1-year
period begins on the date the employee first began work for
the previous employer and any qualified first-year wages paid

2

Line 3
Enter the amount of credit that was allocated to you as a
partner, shareholder, patron of a cooperative, or beneficiary.

Line 5
Cooperatives. A cooperative described in section 1381(a)
must allocate to its patrons the credit in excess of its tax
liability limit. Therefore, to figure the unused amount of the
credit allocated to patrons, the cooperative must first figure
its tax liability. While any excess is allocated to patrons, any
credit recapture applies as if the cooperative had claimed the
entire credit.
Estates and trusts. Allocate the welfare-to-work credit on
line 4 between the estate or trust and the beneficiaries in the
same proportion as income was allocated and enter the
beneficiaries share on line 5.
Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
laws of the United States. You are required to give us the
information. We need it to ensure that you are complying
with these laws and to allow us to figure and collect the right
amount of tax.
You are not required to provide the information requested
on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books
or records relating to a form or its instructions must be
retained as long as their contents may become material in
the administration of any Internal Revenue law. Generally, tax
returns and return information are confidential, as required by
section 6103.
The time needed to complete and file this form will vary
depending on individual circumstances. The estimated
burden for individual taxpayers filing this form is approved
under OMB control number 1545-0074 and is included in the
estimates shown in the instructions for their individual
income tax return. The estimated burden for all other
taxpayers who file this form is shown below.
Recordkeeping
2 hr., 37 min.
Learning about the law
or the form
1 hr., 17 min.
Preparing and sending
the form to the IRS
1 hr., 23 min.
If you have comments concerning the accuracy of these
time estimates or suggestions for making this form simpler,
we would be happy to hear from you. See the instructions for
the tax return with which this form is filed.