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 | NCD 22 03

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.

• 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.

Apply for NCD 22 03

[Watch] Creating a grant proposal using the step-by-step wizard inside the applicant portal: