Tax Incentives to Hire the Formerly Incarcerated—Part 1: Federal Efforts to Create Fair Chance Hiring

Prison reform must address the needs of men and women who are reentering the work force after serving time in prison. Returning to your community can be as traumatic as going to prison when work opportunities are hampered because of a felony conviction. The idea that it’s a person’s conduct that’s bad, not the person, gets lost in the employment market. In our society, having been to prison labels someone for life as a bad person. Where’s the rehabilitation in that?

I’ve explored this issue before, but I packaged it differently. In my post Prison Reform: A Swing and a Miss, I focused on Ban-the-Box legislation in California that Governor Jerry Brown signed into law on January 1, 2018. Ban-the-Box legislation is an attempt to extend nondiscriminatory employment hiring practices to include formerly incarcerated people by removing the question of whether applicants had ever been convicted of a felony from private and federal job applications.

In Prison Reform: A Swing and a Miss, I detail why the California law, while well intended, will not remove the taint of a felony conviction from effecting the hiring process. Because of a lack of enforcement of the new law, the hiring process is still geared toward giving preference to hiring people who do not have criminal records.

The ACLU’s report “Back to Business: How Hiring Formerly Incarcerated Job Seekers Benefits Your Company” notes that “70 million Americans—one in three adults—have a criminal record. These are people who have or will reenter their communities and need gainful employment to build stability and find success after incarceration.”

Other startling statistics from the ACLU report include

• While 2.3 million people are imprisoned in the United States, 95 percent of people in state prisons will re-enter our communities at some point.
• More than 640,000 people are released from prisons each year.
• Because of the stigma associated with a criminal record, nearly 75 percent of formerly incarcerated individuals are still unemployed a year after release.
• Joblessness is the single most important predictor of recidivism.
• For African Americans, the adverse effect of a criminal record on getting a job interview is 40 percent greater than for whites with similar histories.

Employers who impulsively close their doors to the hundreds of thousands of people released from prison each year compound the number of formerly incarcerated men and women who are unemployed from past years. This marginalization of reentering people contributes negatively upon society.

A 2016 ZipRecruiter Blog post quotes HR consultant B. Max Dubroff: “Without a job, people with a criminal history are far more likely to commit crime, which has a negative impact on society.” The report continues with seemingly logical findings:

• A person who has been given a second chance . . . [through hiring] will be more dedicated and loyal to their employer. . . . They work harder and tend to break fewer rules, because they know they have already used their second chance.
• People with a criminal history had a lower rate of turnover.
• Ex-offenders are motivated to do the right thing [on the job].

The Federal Work Opportunity Tax Credit

The federal government’s Work Opportunity Tax Credit (WOTC) is a federal tax credit created by Congress and signed by President Obama to incentivize employers to hire individuals from identified target groups who have consistently encountered significant barriers to employment. Some of the target groups include unemployed veterans, food stamp recipients, and ex-felons. The maximum tax credits range from $1,200 to $9,600, depending on what category the employee is in.

A tax credit is different than a tax deduction. According to the Tax Policy Center, the difference is substantial because deductions reduce taxable income and tax credits reduce taxes directly and do not depend on tax rates.

A man or woman who is formerly incarcerated meets the criteria for the ex-felon target group if the individual

• Has been convicted of a felony; and
• Has a hiring date that is not more than 1 year after the conviction or release from prison.

An employer starts the process of applying for WOTC by filing a Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, the day an offer of employment is made to a formerly incarcerated person. The instructions specify the purpose of the form: “Employers use Form 8850 to pre-screen and to make a written request to the state workforce agency (SWA) of the state in which their business is located (where the employee works) to certify an individual as a member of a targeted group for purposes of qualifying for the work opportunity credit.” The instructions outline the additional requirements for approval of Form 8850, which include filing an additional form (9061 or 9062), both of which are available on the Department of Labor website.

State WOTC Programs

In part 2, I will cover how some states have adopted fair chance hiring tax incentives for employers geared to help ex-offenders. WOTC programs are a piece of the reentry prison reform fabric that needs to be publicized and encouraged to keep its forward momentum. These programs are designed to help even the employment playing field for free people who encounter impediments for having done time in prison.

For additional reading, check out the April 7, 2018, New York Times article: “Life after ‘17 to Life:’ What It Looks Like to Re-Enter Life in Stockton, Calif., after a Long Stint in Prison.”

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