Form 8861
(Rev. December 2006)
Welfare-to-Work Credit OMB No. 1545-1569
Attachment
Department of the Treasury Attach to your tax return. Sequence No. 107
Internal Revenue Service
Name(s) shown on return Identifying number
1 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.
a Qualified first-year wages $ 35% (.35) 1a
b Qualified second-year wages $ 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) 4
5 Amount allocated to the patrons of the cooperative or the beneficiaries of the estate or trust (see
instructions) 5
6 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) 6
General Instructions How To Claim the Credit
Section references are to the Internal Revenue Code unless To claim the welfare-to-work credit, you must request and be
otherwise noted. issued a certification for each employee from the state
employment security agency (SESA). The certification proves
What’s New that the employee is a long-term family assistance recipient.
You must receive the certification by the day the individual
The Tax Relief and Health Care Act of 2006
begins work, or you must complete Form 8850,
extended the welfare-to-work credit to cover
Pre-Screening Notice and Certification Request for the Work
employees who begin work for the employer
CAUTION Opportunity and Welfare-to-Work Credits, on or before the
before January 1, 2008. However, after December
day you offer the individual a job.
31, 2006, the welfare-to-work credit will be unified with the
work opportunity credit. Because of these changes, this form If you complete Form 8850, it must be signed by you and the
should not be used to calculate a credit for any employee individual and submitted to the SESA by the 21st calendar day
hired after December 31, 2006. For 2007 and later, section 51 after the individual begins work. If the SESA denies the request,
has been amended, and section 51A has been repealed. To it will provide a written explanation of the reason for denial. If a
calculate a credit for any employee hired after December 31, certification is revoked because it was based on false
2006, use Form 5884, Work Opportunity Credit. For more information provided by the worker, wages paid after the date
information on these changes, see Publication 553, Highlights you receive the notice of revocation do not qualify for the credit.
of 2006 Tax Changes. Long-term family assistance recipient. An employee may
The tax liability limit is no longer figured on this form; be certified as a long-term family assistance recipient if the
instead, it must be figured on Form 3800, General Business employee is a member of a family that:
Credit. ● Received assistance payments from Temporary Assistance
Taxpayers that are not partnerships, S corporations, for Needy Families (TANF) for at least 18 consecutive months
cooperatives, estates, or trusts, and whose only source of ending on the hiring date,
this credit is from those pass-through entities, are not ● Received assistance payments from TANF for any 18 months
required to complete or file this form. Instead, they can (whether or not consecutive) beginning after August 5, 1997,
report this credit directly on line 1c of Form 3800. and the employee is hired not more than 2 years after the end
The IRS will revise this December 2006 version of the form of the earliest 18-month period, or
only when necessary. Continue to use this version for tax ● After August 5, 1997, stopped being eligible for assistance
years beginning after 2005 until a new revision is issued. payments from TANF because federal or state law limits the
maximum period such assistance is payable, and the
Purpose of Form employee is hired not more than 2 years after the date the
eligibility for such assistance ended.
Use Form 8861 to claim the welfare-to-work credit for wages
you paid to or incurred for long-term family assistance Member of controlled group or business under common
recipients during the tax year. The credit is 35% of qualified control. For purposes of figuring the credit, all members of a
first-year wages and 50% of qualified second-year wages controlled group of corporations (as defined in section 52(a))
paid or incurred during the tax year. and all members of a group of businesses under common
You can claim or elect not to claim the welfare-to-work control (as defined in section 52(b)), are treated as a single
credit any time within 3 years from the due date of your taxpayer. As a member, compute your credit based on your
return on either your original return or on an amended return. proportionate share of qualified wages giving rise to the
For Paperwork Reduction Act Notice, see instructions. Cat. No. 24858E Form 8861 (Rev. 12-2006)
Form 8861 (Rev. 12-2006) Page 2
group’s welfare-to-work credit. Enter your share of the credit by the successor employer are reduced by the qualified
on line 2. Attach a statement showing how your share of the first-year wages paid by the previous employer. See section
credit was figured, and write “See attached” next to the entry 51(k)(1) and Regulations section 1.51-1(h).
space for line 2. A successor employer is an employer that acquires
Additional Information substantially all of the property used in a trade or business
(or a separate unit thereof) of another employer (the previous
For more details, see Pub. 954, Tax Incentives for Distressed
employer) and immediately after the acquisition the
Communities, and section 51A.
successor employs in his/her trade or business an individual
Specific Instructions 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 In general, you must reduce your deduction for salaries and
shown the total qualified first-year or second-year wages wages by the amount on line 2. This is required even if you
paid or incurred to employees certified as long-term family cannot take the full credit this year and must carry part of it
assistance recipients. Qualified first-year wages are qualified back or forward. If you capitalized any costs on which you
wages you paid or incurred for work performed during the figured the credit, reduce the amount capitalized by the
1-year period beginning on the date the certified individual credit attributable to these costs.
begins work for you. Qualified second-year wages are
qualified wages you paid or incurred for work performed Line 3
during the 1-year period beginning on the day after the last Enter the amount of credit that was allocated to you as a
day of the first-year wage period. The amount of qualified partner, shareholder, patron of a cooperative, or beneficiary.
first-year wages, and the amount of qualified second-year
wages, which may be taken into account for any employee is Line 5
limited to $10,000 per year. Cooperatives. A cooperative described in section 1381(a)
must allocate to its patrons the credit in excess of its tax
Qualified Wages liability limit. Therefore, to figure the unused amount of the
Wages qualifying for the credit generally have the same credit allocated to patrons, the cooperative must first figure
meaning as wages subject to the Federal Unemployment Tax its tax liability. While any excess is allocated to patrons, any
Act (FUTA). For agricultural employees, if the work performed credit recapture applies as if the cooperative had claimed the
by any employee during more than half of any pay period entire credit.
qualifies under FUTA as agricultural labor, that employee’s Estates and trusts. Allocate the welfare-to-work credit on
wages subject to social security and Medicare taxes are line 4 between the estate or trust and the beneficiaries in the
qualified wages. For a special rule that applies to railroad same proportion as income was allocated and enter the
employees, see section 51(h)(1)(B). Qualified wages for any beneficiaries share on line 5.
employee must be reduced by the amount of any work
supplementation payments you received under the Social
Security Act for the employee. Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
Qualified wages also include the following amounts you
laws of the United States. You are required to give us the
paid or incurred for the employee that are excludable from
information. We need it to ensure that you are complying
the employee’s gross income.
with these laws and to allow us to figure and collect the right
● Premiums and other amounts you paid or incurred under amount of tax.
an accident and health plan excluded under section 105 or
You are not required to provide the information requested
106 (the amount must be based on the reasonable cost of
on a form that is subject to the Paperwork Reduction Act
coverage, but may not exceed the “applicable premium”
unless the form displays a valid OMB control number. Books
under section 4980B(f)(4)).
or records relating to a form or its instructions must be
● Educational assistance excluded under section 127, if paid retained as long as their contents may become material in
or incurred to a person not related to the employer. the administration of any Internal Revenue law. Generally, tax
● Dependent care benefits excluded under section 129. returns and return information are confidential, as required by
The amount of qualified wages for any employee is zero if: section 6103.
● The employee did not work for you for at least 400 hours The time needed to complete and file this form will vary
or 180 days, depending on individual circumstances. The estimated
● The employee worked for you previously, burden for individual taxpayers filing this form is approved
under OMB control number 1545-0074 and is included in the
● The employee is your dependent,
estimates shown in the instructions for their individual
● The employee is related to you (see section 51(i)(1)), or income tax return. The estimated burden for all other
● 50% or less of the wages the employee received from you taxpayers who file this form is shown below.
were for working in your trade or business. Recordkeeping 2 hr., 37 min.
Qualified wages do not include: Learning about the law
● Wages paid to any employee during any period for which or the form 1 hr., 17 min.
you received payment for the employee from a federally Preparing and sending
funded on-the-job training program, and the form to the IRS 1 hr., 23 min.
● Wages for services of replacement workers during a strike If you have comments concerning the accuracy of these
or lockout at a plant or facility. time estimates or suggestions for making this form simpler,
Successor employer. For successor employers, the 1-year we would be happy to hear from you. See the instructions for
period begins on the date the employee first began work for the tax return with which this form is filed.
the previous employer and any qualified first-year wages paid