Opportunity Information: Apply for NCD 22 03
This discretionary cooperative agreement from the National Council on Disability (NCD) funds a single in-depth legal and policy assessment focused on a long-standing administrative exclusion under federal employment tax law that affects people with disabilities working in congregate work settings, commonly called sheltered workshops. The central concern is that federal agencies have, for decades, treated many of these workers as something other than employees for federal employment tax purposes, often labeling them as "clients" participating in a rehabilitation or training program. That classification can create "dueling classifications" because, in other legal contexts, the same individuals may be treated as employees entitled to protections and benefits under different federal employment statutes. The resulting tension raises a basic but high-stakes question: when someone with a disability performs productive work in a sheltered workshop and receives compensation, should they be treated as an employee or as a client for purposes of federal tax and benefit eligibility.
The opportunity is anchored in how the Federal Insurance Contributions Act (FICA) defines "wages," "employment," and "employee." In most situations, FICA requires both employees and employers to pay payroll taxes on wages, and it defines wages broadly as all remuneration for employment. However, unlike some other federal employment laws that use broader or more remedial definitions of employee, FICA relies heavily on common law rules to decide whether an employer-employee relationship exists. The Social Security Act uses a materially similar common law approach for determining whether work counts toward Social Security coverage under OASDI. In practice, this means that subtle distinctions about supervision, control, training status, and the nature of the relationship can determine whether an individual is treated as covered employment for payroll tax and Social Security credit purposes.
The grant is specifically aimed at analyzing the continuing impact of guidance originating in the 1960s. The description highlights a 1965 Treasury Department Revenue Ruling that has been used to support the position that people with disabilities in congregate work settings are not employees for federal employment tax purposes while they are considered to be in a workshop's rehabilitation or training program. It also cites a 1969 Social Security Administration ruling (SSR 69-60) that adopted a materially similar approach, concluding that individuals in these settings were not employees of the facility until after they completed the rehabilitation program and met common law employment criteria. Under these frameworks, the money paid to workers during the rehabilitation or training phase may be treated as not being wages for Social Security coverage and not subject to FICA, which can reduce or eliminate the worker's ability to accumulate Social Security credits and can also affect eligibility for other employment-linked benefits.
A major part of the assessment described in the opportunity involves tracing how this exclusion has been applied and expanded through agency practice, including IRS Private Letter Rulings (PLRs). The source text notes that over time the IRS issued PLRs requested by sheltered workshops that were used to support reclassification of workers with disabilities as clients rather than employees. The concern raised is that such rulings may have been used not only to set prospective treatment, but also to retroactively reclassify compensation as not wages, potentially supporting claims that payroll taxes should not have been paid and enabling refund efforts. The description also suggests that some workshops pursued settlements through the Department of Justice in disputes with the IRS and sought FICA tax refunds by arguing they were comparable to entities that had previously received favorable PLRs. A key issue for the report, therefore, is to examine the legal implications of this long-running administrative position, including how it interacts with or potentially conflicts with employment determinations made by other agencies such as the Department of Labor.
Beyond tax and Social Security coverage, the funded report is expected to examine spillover effects across the broader federal employment law landscape. The opportunity explicitly calls for analysis of whether other federal statutes may have adopted or mirrored Treasury's underlying reasoning, with examples including the National Labor Relations Act and the Employee Retirement Income Security Act of 1974. In practical terms, the project is about mapping how one agency's interpretation of who counts as an employee can influence, conflict with, or be imported into other areas of law governing workplace rights, collective bargaining, and employee benefits. The overall goal is to identify where the "client vs. employee" framing produces inconsistent legal outcomes and what that means for workers with disabilities, providers operating sheltered workshops, and the integrity and coherence of federal employment and tax policy.
Administratively, the opportunity is identified as Funding Opportunity Number NCD 22 03 under CFDA 92.002. It was posted by the National Council on Disability on October 25, 2021, with an original closing date of November 24, 2021. The funding instrument is a cooperative agreement, signaling that NCD anticipated substantive involvement or collaboration during performance rather than a hands-off grant. Eligibility is listed as unrestricted (open to any type of entity, subject to any additional clarifications in the full notice). NCD expected to make one award, with an award ceiling of $100,000, to support production of the final report examining the historical administrative exclusion, its legal foundations, its real-world consequences, and its interaction with other federal employment and benefits regimes.Apply for NCD 22 03
- The National Council on Disability in the other (see text field entitled explanation of other category of funding activity for clarification) sector is offering a public funding opportunity titled "To Assess a Long-Standing Administrative Exclusion under Federal Employment Tax Law for People with Disabilities in Congregate Work Settings for Federal Employment Tax Purposes" and is now available to receive applicants.
- Interested and eligible applicants and submit their applications by referencing the CFDA number(s): 92.002.
- This funding opportunity was created on Oct 25, 2021.
- Applicants must submit their applications by Nov 24, 2021. (Agency may still review applications by suitable applicants for the remaining/unused allocated funding in 2026.)
- Each selected applicant is eligible to receive up to $100,000.00 in funding.
- The number of recipients for this funding is limited to 1 candidate(s).
- Eligible applicants include: Unrestricted (i.e., open to any type of entity above), subject to any clarification in text field entitled Additional Information on Eligibility.
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Frequently Asked Questions (FAQs)
What is this grant opportunity about?
This opportunity funds a single, in-depth legal and policy assessment about a long-standing administrative exclusion under federal employment tax law affecting people with disabilities who work in congregate work settings commonly called sheltered workshops. The assessment focuses on how some workers have been treated as "clients" in a rehabilitation or training program rather than as "employees" for federal employment tax purposes, and what that means for payroll taxes, Social Security coverage, and related benefits.
Which federal agency is offering this opportunity?
The opportunity is offered by the National Council on Disability (NCD).
What type of funding instrument is this?
The funding instrument is a discretionary cooperative agreement. This indicates NCD expected substantive involvement or collaboration during the project period, rather than a fully hands-off arrangement.
What is the Funding Opportunity Number and CFDA number?
The Funding Opportunity Number is NCD 22 03, and the CFDA number is 92.002.
How many awards did NCD expect to make?
NCD expected to make one award.
What is the maximum award amount?
The award ceiling is $100,000.
Who is eligible to apply?
Eligibility is listed as unrestricted, meaning it is open to any type of entity, subject to any additional clarifications in the full notice.
When was the opportunity posted and when was it originally due?
It was posted on October 25, 2021, and the original closing date was November 24, 2021.
What is the core policy question the funded report is expected to address?
The core question is whether a person with a disability who performs productive work in a sheltered workshop and receives compensation should be treated as an employee or as a client for purposes of federal employment taxes and benefit eligibility, particularly where agency practice has historically treated many such workers as non-employees during a rehabilitation or training phase.
Why does the "client vs. employee" classification matter under federal tax law?
Because under the Federal Insurance Contributions Act (FICA), payroll taxes are generally owed on "wages" paid for "employment." If workers are classified as not being employees (for example, treated as clients in a rehabilitation or training program), the compensation they receive may be treated as not being wages subject to FICA, which can affect payroll tax obligations and downstream benefit eligibility.
How does FICA determine whether someone is an employee?
The opportunity emphasizes that FICA relies heavily on common law rules to determine whether an employer-employee relationship exists. As described, distinctions about supervision, control, training status, and the nature of the relationship can affect whether work is treated as covered employment for payroll tax and Social Security credit purposes.
How is the Social Security Act related to the issue described in this opportunity?
The Social Security Act uses a materially similar common law approach for determining whether work counts toward Social Security coverage under OASDI. If compensation is treated as not being wages from covered employment, that can reduce or eliminate a worker's ability to accumulate Social Security credits.
What historical guidance is this project expected to examine?
The assessment is aimed at analyzing the continuing impact of guidance originating in the 1960s, including a 1965 Treasury Department Revenue Ruling and a 1969 Social Security Administration ruling (SSR 69-60). These are described as supporting the position that individuals in sheltered workshop settings may not be treated as employees for federal employment tax purposes while they are considered to be in a rehabilitation or training program.
What does the opportunity say about the 1965 Treasury Revenue Ruling?
It highlights a 1965 Treasury Department Revenue Ruling that has been used to support treating people with disabilities in congregate work settings as not being employees for federal employment tax purposes during a workshop's rehabilitation or training program.
What does SSR 69-60 contribute to the administrative approach described?
The opportunity states that SSR 69-60 adopted a materially similar approach, concluding that individuals in such settings were not employees of the facility until after completing the rehabilitation program and meeting common law employment criteria.
How can this administrative exclusion affect Social Security credits and benefits?
If money paid during a rehabilitation or training phase is treated as not being wages for Social Security coverage and not subject to FICA, workers may not receive Social Security coverage credit for that work. This can reduce or eliminate accumulated Social Security credits and can also affect eligibility for other employment-linked benefits.
What are "dueling classifications" and why do they matter?
The opportunity describes "dueling classifications" as situations where the same individuals may be treated as employees under some federal employment statutes (and therefore entitled to certain protections and benefits) but treated as non-employees (for example, as clients) for federal employment tax purposes. The report is expected to explore the tensions and consequences of these inconsistent classifications.
What role do IRS Private Letter Rulings (PLRs) play in this issue?
The opportunity notes that IRS PLRs requested by sheltered workshops were used over time to support reclassification of workers with disabilities as clients rather than employees. The assessment is expected to trace how the exclusion has been applied and expanded through such agency practices.
Does the opportunity raise concerns about retroactive reclassification or refunds?
Yes. It raises concerns that some rulings may have been used not only to set prospective tax treatment but also to retroactively reclassify compensation as not wages, potentially supporting claims that payroll taxes should not have been paid and enabling refund efforts.
How is the Department of Justice mentioned in connection with this issue?
The opportunity states that some workshops pursued settlements through the Department of Justice in disputes with the IRS and sought FICA tax refunds by arguing they were comparable to entities that had previously received favorable PLRs.
Is the Department of Labor relevant to the analysis described in the opportunity?
Yes. The description identifies the interaction with employment determinations made by other agencies, including the Department of Labor, as an important part of examining the legal implications of the long-running administrative position.
Does the scope extend beyond tax and Social Security issues?
Yes. The funded report is expected to examine spillover effects across the broader federal employment law landscape, including whether other federal statutes may have adopted or mirrored Treasury's underlying reasoning.
Which other federal statutes are specifically mentioned as examples?
The opportunity specifically mentions the National Labor Relations Act and the Employee Retirement Income Security Act of 1974 (ERISA) as examples where similar reasoning may have been adopted or mirrored.
What is the broader goal of the funded assessment?
The overall goal is to identify where the "client vs. employee" framing produces inconsistent legal outcomes and what that means for workers with disabilities, providers operating sheltered workshops, and the integrity and coherence of federal employment and tax policy.
What deliverable is NCD funding through this cooperative agreement?
NCD is funding production of a final report examining the historical administrative exclusion, its legal foundations, its real-world consequences, and its interaction with other federal employment and benefits regimes.
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