Business Tax Incentives:

Incentives to Employ Workers with Disabilities Receive Limited Use and Have an Uncertain Impact

GAO-03-39: Published: Dec 11, 2002. Publicly Released: Dec 11, 2002.

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More than 17 million working-age individuals have a self-reported disability that limits work. Their unemployment rate is also twice as high as for those without a work disability, according to recent Census data. In the Ticket to Work and Work Incentives Improvement Act of 1999, the Congress mandated that GAO study and report on existing tax incentives to encourage businesses to employ and accommodate workers with disabilities. This report provides information on (1) the current usage of the tax incentives, (2) the incentives' ability to encourage the hiring and retention of workers with disabilities, and (3) options to enhance awareness and usage of the incentives.

A very small proportion of corporate and individual taxpayers with a business affiliation use the two tax credits that are available to encourage the hiring, retention, and accommodation of workers with disabilities, according to IRS data. Taxpayers in the retail and service industries accounted for the largest share of the work opportunity credits reported in 1999, while providers of health care and social assistance services accounted for the largest share of the disabled access credits. Information on the effectiveness of the incentives is limited and inconclusive. Only the work opportunity credit has been studied and these studies, along with those of a prior hiring credit, showed that some employers revised their recruitment, hiring, and training practices to increase the number of disadvantaged workers hired and retained, but that credits have also have been claimed by employers for workers they would have hired anyway. However, these studies have not focused on workers with disabilities and data limitations preclude conclusively determining their effectiveness for these workers. To increase the awareness and usage of the tax incentives, business representatives and experts on disability issues and tax incentives suggested (1) improving government outreach and education efforts; (2) increasing the maximum dollar amount of the incentives; and (3) expanding the types of workers, businesses, and accommodations that are eligible for the incentives. While these options may increase incentive usage, it is uncertain whether the potential loss in tax revenues would be offset by improvements in the employment of workers with disabilities. Commenting agencies generally concurred with GAO's findings.