NCD letter to House Education and Workforce Committee regarding CRP employment benefits for disabled workers

March 23, 2026

The Honorable Tim Walberg, Chairman
U.S. House of Representatives
Committee on Education and Workforce
2266 Rayburn House Office Building
Washington DC 20515

The Honorable Robert “Bobby” Scott, Ranking Member
U.S. House of Representatives
Committee on Education and Workforce
2328 Rayburn House Office Building
Washington DC 20515

Re: Federal report examines employment benefits and protections offered or denied to workers with disabilities in community rehabilitation programs (CRP)

Dear Honorable Chairman Walberg and Ranking Member Scott:

I am writing as Acting Chairman of the National Council on Disability (NCD), an independent, bipartisan federal agency that advises Congress, the President, and other federal agencies on matters affecting the lives of people with disabilities. In view of the Committee’s recent field hearing in Madison, Wisconsin that examined Community Rehabilitation Programs (CRPs), NCD wishes to draw the Committee’s attention to important related matters of employee benefits and protections affecting disabled workers in these settings.

NCD provides advice based on comprehensive and objective analyses to inform policy development, improvement, and enforcement efforts. In 2012 and 2018, we issued reports on subminimum wages and have consistently recommended that policymakers eliminate subminimum wages paid to people with disabilities as they are a vestige of the past that is wholly incompatible with modern disability employment policies. ¹

In 2024, NCD released the findings of its research on the tax misclassification of workers with disabilities who work for CRPs, which leaves those workers ineligible for employment benefits and protections, despite their employment status under the Fair Labor Standards Act (FLSA). ² NCD stands ready to brief the Committee on this recent research and encourages the Committee to examine the employment classification of workers with disabilities working in CRPs, regardless of whether or not they use a 14(c) certificate, to ensure that workers with disabilities have the same benefits and protections as non-disabled workers.

NCD Has Consistently Called on Policymakers to Eliminate the Use of Section 14(c) of the FLSA

NCD began its study of Section 14(c) specifically and topics related to subminimum wages approximately fifteen years ago and has advised Congress on the basis of its findings several times since then. ³ Over the years, NCD has visited numerous CRPs across the country, met with families of individuals who are employed at CRPs or have a history of employment at CRPs, and met with nonprofits who either voluntarily or involuntarily transitioned away from paying subminimum wages to new work models without closing down or abandoning their long-term clients.

Central to all NCD’s research and recommendations has been a focus on the context of progress for people with disabilities, which has fundamentally shifted both what is possible for people with disabilities and the expectations that society should have for them. Over 80 years ago when Section 14(c) became law, people with disabilities were largely kept out of society - there was no right to a public education; large institutions housed thousands of people with intellectual and developmental disabilities for whom few other options existed; and no anti-discrimination civil rights laws for people with disabilities existed. Against this policy and societal backdrop, Section 14(c) was in fact a charitable government response to people who had little standing in society and few to no opportunities to be part of society or pursue educational or work goals.

More than 80 years later, however, people with disabilities and their families commonly have far more opportunities and expectations for themselves as they are mainstreamed in public education, living and participating in the community, benefit by a more accessible landscape where they have option, and have equal opportunity and civil right protections under the Rehabilitation Act and Americans with Disabilities Act (ADA). It makes sense that federal policies and investments reflect the realities of these markedly different circumstances.

NCD’s 2012 and 2018 reports related to 14(c) focus largely on wages, with a focus on the bipartisan goal of economic self-sufficiency in the ADA.

NCD Recommends Oversight of CRPs to Ensure People with Disabilities are Properly Classified as “Employees” and Receiving Employment Benefits and Protections

NCD’s 2024 report, Tax Misclassification: Lost Employment Benefits for Disabled Workers, ⁴ focuses on the employee benefits offered (or denied) to people with disabilities who choose to work in CRPs, regardless of being paid above or below minimum wage. NCD examined the definition of “employee” under the Internal Revenue Code (IRC) and the implications of a 1965 legal ruling that may be applied inappropriately to misclassify employees with disabilities who choose to work in CRPs as “rehabilitation clients” and not “employees” for employment tax purposes. NCD is concerned that, while these workers may be “employees” under the Fair Labor Standards Act’s definition, the misclassification of these same workers as “rehabilitation clients” under the IRS’s distinct definition of “employee” leaves these putative employees ineligible to participate in employer-sponsored benefits plans and could jeopardize their participation in the IRS’s antipoverty programs, which provide cash benefits directly to low-income employees.

NCD identified employment dispute cases where CRPs relied on outdated tax loopholes, in the form of exemptions, to deny employment benefits to employees with disabilities. Members of this Committee should be aware that the IRS’s Revenue Ruling 65-165 creates an opportunity for employers, specifically CRPs, to maintain a segregated payroll system that results in labeling these putative workers as “rehabilitation clients” or “independent contractors” for federal employment tax purposes. NCD’s investigation uncovered online bulletins with posts from tax attorneys and accountants explaining how this 1965 loophole allows CRPs (sheltered workshop facilities) to misclassify workers with disabilities as “rehabilitation clients” in general, long after their rehabilitation program has concluded. Furthermore, this 1965 loophole provides financial benefits to the CRPs, who avoid paying income taxes, Social Security and Medicare taxes, and unemployment taxes on behalf of these misclassified workers regardless of whether the CRP has a 14(c) certificate. Finally, NCD’s report found that there is no oversight enforcing the employment classification of workers with disabilities in CRPs to ensure that these workers are receiving employment benefits and protections. For this reason, federal oversight, interagency investigations, and random payroll audits are needed.

Workers with Disabilities Must Be Classified as “Employees” for Tax Purposes in Order to Qualify for the IRS’s Anti-Poverty Programs

The misclassification of workers with disabilities as “rehabilitation clients” may also leave scores of workers ineligible to participate in the IRS’s antipoverty programs offered to low-income employees, further confounding the federal policy goal of economic self-sufficiency. The IRS implements some of the largest federal antipoverty programs in the United States. For example, the Earned Income Tax Credit (EITC) is a refundable tax credit intended to reduce work disincentives by providing financial assistance to qualifying low-income workers and relief to low-income families. ⁵ The Department of Treasury stated that the purpose of the EITC is to help lift families above the poverty line and encourage people to work. ⁶ According to tax year 2022 data from the IRS, the most recent year for which tax data was available at the time of our research, approximately 23 million workers and families received $57 billion in EITC payments, with an average amount nationwide of $2,541. [^7] In 2025, the EITC tax credit ranged from $649 (families with no qualifying children) to $8,046 (families with three or more qualifying children). [^8](Id.) The EITC is different from other federal benefit programs for low-income families because it requires earned income to qualify. In contrast, employees misclassified as rehabilitation clients can also result in their earnings being misclassified as “awards or incentives” rather than wages, which leaves these workers ineligible for the EITC.

Thank you for the opportunity to provide this brief summary of some of NCD’s research, analysis, and recommendations for how to improve employment for individuals who work in CRPs. As always, we welcome the opportunity to brief the Committee and its staff in depth on any of these or related topics.

To that end, please do not hesitate to contact NCD’s Director of Legislative Affairs and Outreach, Anne Sommers McIntosh, amcintosh@ncd.gov, who will be glad to address a request for follow-up.

Respectfully,

Neil Romano
Acting Chairman

Cc:

Members of the Education and Workforce Committee

[^7]: Internal Revenue Service, Statistics for Tax Returns with the Earned Income Tax Credit (EITC) available at: Earned Income Tax Credit statistics

Internal Revenue Service.