To amend the Internal Revenue Code of 1986 to modify the work opportunity credit and the welfare-to-work credit.

March 10, 2005

Mr. SANTORUM (for himself, Mr. BAUCUS, Mr. SMITH, Mr. ROCKEFELLER, and Mr. JEFFORDS) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to modify the work opportunity credit and the welfare-to-work credit.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Encouraging Work Act of 2005'.

SEC. 2. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT.

(a) Credit Made Permanent-

(1) Subsection (c) of section 51 of the Internal Revenue Code of 1986 is amended by striking paragraph (4) (relating to termination).

(2) Section 51A of such Code is amended by striking subsection (f).

(b) Eligibility of Ex-Felons Determined Without Regard to Family Income- Paragraph (4) of section 51(d) of the Internal Revenue Code of 1986 is amended by adding `and' at the end of subparagraph (A), by striking `, and' at the end of subparagraph (B) and inserting a period, and by striking all that follows subparagraph (B).

(c) Increase in Maximum Age for Eligibility of Food Stamp Recipients- Clause (i) of section 51(d)(8)(A) of the Internal Revenue Code of 1986 is amended by striking `25' and inserting `40'.

(d) Increase in Maximum Age for Designated Community Residents-

(1) IN GENERAL- Paragraph (5) of section 51(d) of the Internal Revenue Code of 1986 is amended to read as follows:

`(5) DESIGNATED COMMUNITY RESIDENTS-

`(A) IN GENERAL- The term `designated community resident' means any individual who is certified by the designated local agency--

`(i) as having attained age 18 but not age 40 on the hiring date, and

`(ii) as having his principal place of abode within an empowerment zone, enterprise community, or renewal community.

`(B) INDIVIDUAL MUST CONTINUE TO RESIDE IN ZONE OR COMMUNITY- In the case of a designated community resident, the term `qualified wages' shall not include wages paid or incurred for services performed while the individual's principal place of abode is outside an empowerment zone, enterprise community, or renewal community.'

(2) CONFORMING AMENDMENT- Subparagraph (D) of section 51(d)(1) of such Code is amended to read as follows:

`(D) a designated community resident,'.

(e) Clarification of Treatment of Individuals Under Individual Work Plans- Subparagraph (B) of section 51(d)(6) of the Internal Revenue Code of 1986 (relating to vocational rehabilitation referral) is amended by striking `or' at the end of clause (i), by striking the period at the end of clause (ii) and inserting `, or', and by adding at the end the following new clause:

`(iii) an individual work plan developed and implemented by an employment network pursuant to subsection (g) of section 1148 of the Social Security Act with respect to which the requirements of such subsection are met.'

(f) Effective Date- The amendments made by this section shall apply to individuals who begin work for the employer after the date of the enactment of this Act, in taxable years ending after such date.

SEC. 3. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH WELFARE-TO-WORK CREDIT.

(a) In General- Paragraph (1) of section 51(d) of the Internal Revenue Code of 1986 is amended by striking `or' at the end of subparagraph (G), by striking the period at the end of subparagraph (H) and inserting `, or', and by adding at the end the following new subparagraph:

`(I) a long-term family assistance recipient.'

(b) Long-Term Family Assistance Recipient- Subsection (d) of section 51 of the Internal Revenue Code of 1986 is amended by redesignating paragraphs (10) through (12) as paragraphs (11) through (13), respectively, and by inserting after paragraph (9) the following new paragraph:

`(10) LONG-TERM FAMILY ASSISTANCE RECIPIENT- The term `long-term family assistance recipient' means any individual who is certified by the designated local agency--

`(A) as being a member of a family receiving assistance under a IV-A program (as defined in paragraph (2)(B)) for at least the 18-month period ending on the hiring date,

`(B)(i) as being a member of a family receiving such assistance for 18 months beginning after August 5, 1997, and

`(ii) as having a hiring date which is not more than 2 years after the end of the earliest such 18-month period, or

`(C)(i) as being a member of a family which ceased to be eligible for such assistance by reason of any limitation imposed by Federal or State law on the maximum period such assistance is payable to a family, and

`(ii) as having a hiring date which is not more than 2 years after the date of such cessation.'

(c) Increased Credit for Employment of Long-Term Family Assistance Recipients- Section 51 of the Internal Revenue Code of 1986 is amended by inserting after subsection (d) the following new subsection:

`(e) Credit for Second-Year Wages for Employment of Long-Term Family Assistance Recipients-

`(1) IN GENERAL- With respect to the employment of a long-term family assistance recipient--

`(A) the amount of the work opportunity credit determined under this section for the taxable year shall include 50 percent of the qualified second-year wages for such year, and

`(B) in lieu of applying subsection (b)(3), the amount of the qualified first-year wages, and the amount of qualified second-year wages, which may be taken into account with respect to such a recipient shall not exceed $10,000 per year.

`(2) QUALIFIED SECOND-YEAR WAGES- For purposes of this subsection, the term `qualified second-year wages' means qualified wages--

`(A) which are paid to a long-term family assistance recipient, and

`(B) which are attributable to service rendered during the 1-year period beginning on the day after the last day of the 1-year period with respect to such recipient determined under subsection (b)(2).

`(3) SPECIAL RULES FOR AGRICULTURAL AND RAILWAY LABOR- If such recipient is an employee to whom subparagraph (A) or (B) of subsection (h)(1) applies, rules similar to the rules of such subparagraphs shall apply except that--

`(A) such subparagraph (A) shall be applied by substituting `$10,000' for `$6,000', and

`(B) such subparagraph (B) shall be applied by substituting `$833.33' for `$500'.'

(d) Repeal of Separate Welfare-to-Work Credit-

(1) IN GENERAL- Section 51A of the Internal Revenue Code of 1986 is hereby repealed.

(2) CLERICAL AMENDMENT- The table of sections for subpart F of part IV of subchapter A of chapter 1 of such Code is amended by striking the item relating to section 51A.

(e) Effective Date- The amendments made by this section shall apply to individuals who begin work for the employer after the date of the enactment of this Act, in taxable years ending after such date.

END