Employers can capitalize on the value and talent people with disabilities offer America’s workplaces with both federal and state government financial incentives. These incentives serve two purposes:
- To encourage hiring individuals with disabilities.
- To support modifications and accommodations that enhance workplace accessibility and productivity of workers with disabilities.
Federal Government Employer Tax Incentives:
Read summaries of these federal tax incentives. Learn about employer incentives for hiring veterans, including those with service-connected disabilities.
State Employer Tax Incentives:
Some state-specific tax credit programs for hiring people with disabilities are based on the Federal Government’s Work Opportunity Tax Credit (WOTC) and others are related to accessibility improvements and employment supports.
State Tax Credits for Hiring People with Disabilities
Delaware provides a tax credit for employers in the state who hire individuals with disabilities referred by the state vocational rehabilitation (VR) program. The tax credit is equal to 10% of the employee’s gross wages (not to exceed $1,500) paid by the qualified employer in the course of that employee’s sustained employment during the taxable year.
Iowa provides employers a tax credit of 65% of wages paid in the first 12 months, up to $20,000 per employee, for people with disabilities. A person with a disability is defined as, “someone who has a physical or mental impairment which substantially limits one or more major life activities, has a history of impairment, is regarded as having an impairment, qualifies for the targeted jobs tax credit as a person with a disability undergoing vocational rehabilitation or has been certified by the State Division of Vocational Rehabilitation as having a disability.” Impairment includes, but is not limited to, psychological disorders and conditions, cosmetic disfigurement, anatomical loss and any mental or psychological disorder.
Kansas adopted HB 2044 (2019), which provides an income tax credit for taxpayer purchases of certain goods and services from qualified vendors providing employment for blind or disabled individuals.
Louisiana provides a tax credit of up to 50% of gross wages during the first four months of employment, and 30% of gross wages during each subsequent continuous month of employment. Employers are entitled to the deduction for each qualified individual with a disability that they employ during a taxable year. An employer can claim the deduction for no more than 100 employees in a particular organization.
The Maryland Disability Employment Tax Credit (MDETC) allows employers to claim credit for employees with disabilities hired on or after December 31, 2014. For each taxable year, a credit is allowed in an amount equal to 30 percent of up to the first $9,000 ($2,700) of wages paid during the first and second years of employment. A credit of up to $900 is also available to pay for qualified childcare or transportation expenses incurred during the first two years of employment. This provision does not apply to people who are hired to replace laid-off employees or workers on strike, a business simultaneously receiving federal or state employment training benefit, or a business claiming a state tax credit under the “work not welfare” law for the same individual. For purposes of the program, employees with disabilities include individuals with disabilities who have been certified by the Maryland State Department of Education, Division of Rehabilitation Services (DORS) or the U.S. Department of Veteran Affairs (VA) as having met established criteria.
New York’s Workers with Disabilities Employment Tax Credit provides up to $2,100 per person for the second year of employment (35% of the first $6,000 wages) for individuals receiving vocational rehabilitation services (with a written individual employment plan) from the state, or those who qualify for a Federal Work Opportunity Tax Credit (WOTC) for the first year. In order to qualify, an employee must meet the eligibility requirements for certification under the WOTC program as a vocational rehabilitation referral and be certified by the New York State Education Department’s Adult Career and Continuing Education Services-Vocational Rehabilitation (ACCES-VR) or the Office of Children and Family Services’ Commission for the Blind and Visually Handicapped (CBVH).
The state also provides tax credits for businesses that hire individuals with developmental disabilities – $5,000 for full-time employment (30 hours or more per week), based on 15% of the individual’s wages paid after January 1, 2015 for a period of employment no less than six months; and $2,500 for part-time employment (between 8 hours and 30 hours per week), based on 10% of the individual’s wages paid after January 1, 2015 for a period of employment no less than six months.
North Dakota passed ND 1406 (2019), which creates a new provision relating to an income tax credit for the employment of individuals with developmental disabilities or severe mental illness and amends and reenacts provisions relating to an income tax credit for the employment of individuals with developmental disabilities or severe mental illness. The credit allowed under this section equals 25% of up to $6,000 in wages paid annually by the taxpayer for each employee with a developmental disability or severe mental illness, if the department of human services’ vocational rehabilitation division determines the individual has a most significant disability, is eligible for services, and requires customized employment in order to obtain competitive integrated employment.
The Tennessee Jobs Tax Credit for Hiring Persons With Disabilities provides a one-time amount of $2,000 (part-time) or $5,000 (full-time) for people with disabilities who are receiving state services directly related to their disability. Employment of the person with a disability must create a net increase in the number of people with disabilities employed by the employer/taxpayer within the 90-day period immediately preceding the employment. The taxpayer must provide the qualifying employment for at least 12 consecutive months for no less than the minimum hours per week as described in the enacting legislation. To claim the tax credit, the taxpayer must file a plan with the Tennessee Department of Revenue, Taxpayer and Vehicle Services Division on or before the last day of the fiscal year in which the employment begins and must state the number of people with disabilities newly employed.
State Tax Credits for Barrier Removal and Employment Supports
Arizona enacted legislation in 2017 allowing for a subtraction of eligible business access expenditures paid or incurred when retrofitting developed real property in order to comply with the requirements of the Americans with Disabilities Act (ADA). This includes any amount of eligible access expenditures recognized under the Internal Revenue Code, including any amount that is amortized according to federal amortization schedules, and that is included in computing taxable income for the current taxable year.
Arizona also enacted SB 1348 (2020), which specifies that eligible business access expenditures include reasonable and necessary amounts paid or incurred to:
- Remove any barriers that prevent a business from being accessible to or usable by individuals with disabilities.
- Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals.
- Provide qualified readers, taped texts and other effective methods of making visually delivered materials available to individuals with visual impairments.
- Acquire or modify equipment or devices for individuals with disabilities.
- Provide other similar services, modifications, materials or equipment.
The Iowa Assistive Device Tax Credit allows an eligible small business to claim a credit against corporate tax equal to 50% of the first $5,000 paid during the tax year for purchasing, renting or modifying an assistive device or making other workplace modifications for an employee with a disability. The Iowa Economic Development Authority certifies those eligible for the credit and issues tax credit certificates for eligible claimants. This is a refundable credit.
Kansas legislation allows any taxpayer who incurs expenditures for the purpose of making an existing facility accessible for people with disabilities, including making all or any portion of a facility or equipment usable for the employment of individuals with disabilities, to claim an income tax credit equal to 50% of the expenditures or $10,000, whichever is less. The tax credit will be deducted from the taxpayer’s tax liability for the taxable year following the year in which the expenditures are made by the taxpayer. If the amount of the tax credit exceeds the taxpayer’s tax liability for the taxable year, the amount which exceeds the tax liability may be carried over for deduction from the taxpayer’s tax liability in the next taxable year or years, for up to four years.
Under the Maryland Disability Employment Tax Credit, employers can claim up to $600 the first year and up to $500 the second year against transportation or child care costs paid on behalf of the employee for each qualifying employee. If the credit is more than the tax liability, the unused credit may be carried forward for up to five tax years. Tax-exempt organizations can apply the credit against the tax on unrelated business taxable income.
State Financial Incentives to Establish Stay-at-Work/Return-to-Work Programs, Including Workplace Safety and Illness and Injury Prevention Programs:
A number of state workers compensation programs include incentives to encourage employers to adopt Stay-at-Work/Return-to-Work Programs. These incentives are designed to facilitate workers who become injured, ill or disabled to remain on the job or return to work following illness or injury. Some states interpret “stay-at-work” and “return-to-work” broadly to include workplace safety and illness and injury prevention programs. Incentives include premium adjustments or discounts, wage subsidies for hiring injured workers, and repayment for the purchase of special equipment purchased for employees returning to work after illness, injury or disability. Below are some examples of these types of programs and policies.
Colorado has a program that allows premium adjustments to encourage the adoption and successful implementation by insureds of effective workplace safety programs mainly encompassing risk management and medical cost containment procedures. In 2020, Colorado also enacted SB 26 concerning eligibility for workers’ compensation benefits for workers who are exposed to psychologically traumatic events, and, in connection therewith, establishing that a worker’s visual or audible exposure to the serious bodily injury or death, or the immediate aftermath of the serious bodily injury or death, of one or more people as the result of a violent event, the intentional act of another person or an accident is a psychologically traumatic event for the purposes of determining the worker’s eligibility for workers’ compensation benefits.
Connecticut enacted SB 164 (2019), which includes certain mental or emotional impairments within the definition of personal injury under the workers’ compensation statutes, expands workers’ compensation coverage in certain situations that result in mental or emotional impairment.
Illinois enacted SB 1449 (2019), which amends the Insurance Code, relates to the task force to review the plans and policies for individual and group short term and long term disability income insurance issued and offered to individuals and employers in this state in use for behavioral health conditions and revises the membership requirements and responsibilities for the task force.
Maine enacted legislation that specifies that workers’ compensation benefits cannot be reduced if the employee is actively participating in a prescribed rehabilitation plan.
Through the Massachusetts Workers’ Compensation program, firms can receive a premium credit for enrolling in a Qualified Loss Management Program. The purpose of this program is to apply a prospective credit, for a period of up to four years, to the premium of assigned risk insureds who subscribe to a qualified loss management firm, and remain in such firm’s Loss Management Program during that period.
Montana provides up to $2,000 to employers in support of workplace modifications for injured workers.
- The SMP is designed to assist employers in developing or improving current safety management systems. Employers who successfully participate in WSI’s SMP can receive a premium discount of 10%.
- The SAM program is designed to provide employers with options that allow them to choose and implement safety improvement programs that meet their business needs. Employers can receive up to a 15% premium discount by successfully participating in the SAM programs. Each individual SAM program can provide a 5% discount up to a maximum of 15%.
- Employers are encouraged to enroll in both the SMP and SAM as the discounts of each program can be combined in the same premium period for a maximum discount of 25%. Employers who wish to enroll in SMP and/or SAM must submit an application before the beginning of their premium period.
- The Risk Management Workers Compensation Program (RMWCP) Premium Reduction Program has been designed to reflect loss control practices that reduce the state’s exposure to work injuries. The program focus is on the adoption of practices that justify the discounts by reducing the frequency and severity of worker compensation claims involving state employees.
The state’s Preferred Worker Program also offers reimbursement of up to 50% of wages (not to exceed the States Average Weekly Wage) for employers who hire participants in the program.
Ohio’s Transitional Work Bonus Program assists employers in developing a worksite program that helps injured workers perform transitional work while they recover.
Oregon has two programs that help employers bring injured workers back to the job quickly and safely. The Employer-at-Injury Program provides employers with wage subsidies, reimbursement for worksite modifications and other accommodations costs to help workers stay at work. The Preferred Worker Program is targeted to employers who hire injured workers.
Rhode Island’s Temporary Disability Insurance program includes a partial return-to-work plan that provides benefits to encourage workers to return to their jobs sooner than they might otherwise.
Participants in Texas’ Return-to-Work Reimbursement Program for Employers may be eligible for either reimbursement or an advance payment of up to $5,000 to pay for special equipment, furniture and other workplace alterations that enable an injured employee to return to work. To apply for an advance, employers must submit a request for payment before they incur the expense. To apply, complete DWC Form-008, Return-to-Work Reimbursement Program for Employers.
SAW/RTW programs succeed by returning injured and ill workers to productive work as soon as medically possible during their recovery process and often provide interim transition work and accommodations, as necessary. The State of Washington has developed a model SAW/RTW program that recognizes the roles of different stakeholders in a workers’ compensation system. Its SAW/RTW approach includes:
- Centers of Occupational Health and Education (COHE)
- Stay at Work Program (incentives for the employer of injury)
- Preferred Worker Program (incentives for any hiring employer)
Learn more by reading the Early Return to Work and Vocational Recovery Toolkit.
Vocational Rehabilitation (VR) Services:
State vocational rehabilitation agencies may be able to help employers with some of the costs associated with assistive and rehabilitation technology for employees with disabilities. Employees who are VR clients can request VR assistance to help pay for this type of technology and other employment supports, such as sign language interpreters and readers. For more information, employers can contact the Council of State Administrators of Vocational Rehabilitation’s National Employment Team (NET).
Alabama’s Vocational Rehabilitation Services provides SAW/RTW services to individuals with disabilities and employers seeking to retain/return valued workers. The state’s Retaining a Valued Employee (RAVE) Program assists employers in retaining workers whose job duties, job performance and/or promotional ability is affected by an injury, illness or disability, whether the source of the limitation is occupational or non-occupational. A professional team, comprised of a VR counselor, a Business Relations Consultant and a Rehabilitation Engineer, work directly with the employer and employee to assess, identify and provide needed consultation, case management, accommodations, modifications and other services, to facilitate successful SAW/RTW outcomes.
The Arkansas Rehabilitation Services (ARS) agency at the state Department of Career Education operates the SAW/RTW program, supporting employers who accommodate employees with health problems. Their support includes vocational counseling, job site assessments, help developing SAW/RTW plans and general ergonomics assessments.
Virginia enacted SB 560 (2018), which requires the Department for Aging and Rehabilitative Services to administer Long Term Employment Support Services and Extended Employment Services to assist individuals with disabilities with maintaining employment.