April has been recognized as “Second Chance Month” since 2017 as part of a bipartisan effort to push criminal justice reform. This year, President Trump has announced that he wants to cut unemployment among ex-offenders—currently around 27%, according to the Prison Policy Initiative—to single digits within five years. The most efficient way to do that is to modify the Work Opportunity Tax Credit.
A job provides needed income and adds structure to a person’s day; it’s no surprise that studies have shown employment can reduce the chance of re-offending by about 20%. Jobs for ex-offenders benefit everyone in a community.
That’s one reason ex-offenders are included in the class of applicants employers are encouraged to consider by an incentive known as Work Opportunity Tax Credits. The Work Opportunity Tax Credit is a provision of the Internal Revenue Code that authorizes a tax credit for companies that hire from certain populations, like veterans, recipients of certain entitlement programs, and people with felony records. Employers submit eligible new hires to claim a tax credit equal to a percentage of an employee’s wages.
More than job training or education, the WOTC holds promise for people leaving prison whose applications may not be as competitive as others. It also encourages higher wages since the tax credit is a proportion of what employees are paid.
In its current form, the WOTC isn’t as effective as it can be. The law applies only to those who are hired within one year of the date of their conviction or release from prison, whichever is later. In that respect, it may limit eligibility only to first-time users of the program; no job applicant can be certified twice if they need another job after that first year.
But as many as 45% of released prisoners don’t have a job in that first year of release. According to a study completed by the Brookings Institution last year, only 55% of released prisoners have any earnings at all during the first year they’re home. Very often, by the time they land a job, their eligibility for the WOTC is gone.
This might explain why the WOTC appears to suffer from underutilization. For instance, Oklahoma, the nation’s leading incarcerator, certified only 1,465 people in fiscal 2018 in the “ex-felon” category. New York, a state with approximately 47,100 inmates and 36,410 parolees, certified only 1,534 people for the WOTC. In 2014, an average of 41,866 people were on parole in California, yet only 527 eligible felons were certified to give their employers the tax credit.
The Labor Department reports that, for fiscal 2018, only 85,796 people with criminal records were certified as eligible employees—and this among a sea of an estimated 626,000 people who leave custody every year.
While it’s possible that 500,000 of those released people are ineligible because they’re beyond the one-year cutoff for the WOTC, any underutilization may stem from the inherent conflict between two policies that have same overarching goal: to help disadvantaged individuals secure employment.
Employers aren’t allowed to know of an applicant’s criminal record and eligibility under “Ban the Box” statutes—laws that remove felony conviction checkboxes from job applications.
Awareness of the WOTC benefit needs to grow and may very well do so on its own if aspiring hires can disclose their eligibility; but they won’t disclose if they’re prohibited from doing so. Ban the Box advocates have been so busy hiding people’s records to remove a disadvantage in hiring that they forego leveraging an advantage. We don’t know how many people who weren’t hired because of the eventual disclosure of their criminal record would have been offered a job if the company knew of the potential tax benefit.
There is a way to protect people’s understandable desire to both hide their record and also signal to employers that hiring them can bring a tax benefit. It involves not banning the box but revising it; a box asking of an applicant is a member of the groups covered by the WOTC would hide a criminal record while also informing businesses of the tax credit if hired.
It true that the stigma of criminal conviction prevents many people from being hired. It’s unclear whether the WOTC is enough to overcome preconceived ideas about released prisoners. The little evidence we have on this, a survey of companies in Connecticut by a small nonprofit, the Malta Justice Initiative, says employers are likely to respond to expanded tax incentives. 73% of respondents indicated a tax credit would motivate hiring managers; subsidies would entice 76% of them.
The Work Opportunity Tax Credit is authorized through the end of 2019 through the Protecting Americans from Tax Hikes Act. Its reauthorization process will now involve criminal justice reform insider Senator Chuck Grassley who is the new Chair of the Senate Finance Committee and Vice-Chair of the Joint Committee on Taxation. Grassley’s dedication to reforming the reentry process and his new positions prime him to optimize the tax code to help meet the president’s employment goal.
Amending the WOTC to expand eligibility beyond one year would likely go a long way in helping released prisoners secure employment as well as provide a boon to businesses.
Chandra Bozelko is the Vice President of the National Society of Newspaper Columnists and writes the Webby award-winning blog Prison Diaries.
Introduction to the Work Opportunity Tax Credit
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Companies that Hire Ex-Offenders Can Get a Tax Credit, But Very Few Actually Claim It
