All posts by Anna Bankston
Extension or expansion of the WOTC program is possible through several avenues. Whether it will be extended before its expiration remains to be seen.
Representatives Lloyd Smucker (R-PA) and Terri Sewell (D-AL), together with several other lawmakers, have introduced the “Improve and Enhance the Work Opportunity Tax Credit Act.” According to Congressman Smucker’s press release, “The Improve and Enhance the Work Opportunity Tax Credit Act of 2023 would update the WOTC, which has not been changed since its enactment twenty-seven years ago, and encourage longer-service employment. The bill would (1) increase the current credit percentage from 40% to 50% of qualified wages and (2) add a second level of credit for employees who work 400 or more hours. In addition, the bill eliminates the arbitrary age cap at which SNAP recipients are eligible for WOTC. This change will provide an incentive to hire older workers and better align the credit with the work reforms adopted in the debt ceiling negotiations in 2023.” The text of the bill can be found here. The following are the specific changes the bill proposes: For certified employees who work at least 400 hours in their first year, increase the credit percentage from 40% to 50%. For certified employees who work more than 400 hours in their first year, increase the qualified wage caps as follows: For target groups with a cap of $6,000 in qualified wages, double the qualified wages to $12,000 for a total possible credit of $6,000 (compared to the current $2,400). Disabled veteran: The current credit is 40% of the first $12,000 (up to $4,800); the bill would increase that to 50% of the first $24,000 (up to $12,000). Long-term unemployed veteran: The current credit is 40% of the first $14,000 (up to $5,600); the bill would increase that to 50% of the first $28,000 (up to $14,000). Long-term unemployed disabled veteran: The current credit is 40% of the first $24,000 (up to $9,600); the bill would increase that to 50% of the first $48,000 (up to $24,000). The Summer Youth target group would remain at 40% and not go up to 50%. The age ceiling for the SNAP target group, currently at age 39, would be eliminated, allowing any new hire that otherwise meets the SNAP requirements to be certified. How and When Could This Happen? This bill represents the most significant proposal to enhance the value of WOTC in many years. However, to be considered, Congress needs to negotiate a tax bill. Tax bills are typically included with large legislative packages such as annual appropriation bills. Congress passed a continuing resolution in November to avoid a government shutdown and delay annual appropriations legislation until 2024. In this instance, Congress created two deadlines at which different parts of the government could shut down without new legislation: January 19 and February 2. According to the Washington Post, House Speaker Mike Johnson “pushed through the laddered approach — leaning on support from Democrats to pass the GOP-controlled chamber — while vowing not to take up another CR in January or February. He reiterated that pledge to House members in a letter last week. ‘It continues to be my intention that the House and Senate complete action on full-year bills ahead of the January 19 and February 2 deadlines provided for in the last continuing resolution,’ Johnson wrote. ‘I do not intend to have the House consider any further short-term extensions.’” Therefore, one opportunity for tax legislation will be in January in the context of government funding. Despite Speaker Johnson’s statements, that process could certainly be delayed further into 2024. Former House Ways and Means Chairman Dave Camp recently interviewed the current Ways and Means Chairman, Jason Smith, at a PwC event. According to Politico’s Weekly Tax newsletter, “[Chairman] Smith believes that a variety of potential vehicles could exist next year, according to Camp — which would mean avenues beyond government funding measures needed early in 2024.” However, even if Congress does take up tax legislation, it is unlikely that this WOTC bill will rise to the top of priority issues. Nevertheless, it introduces important policy considerations for the future of the program, which comes up for renewal at the end of 2025. Department of Labor to Study WOTC DOL has funded an independent contractor, Economic Systems, Inc., to perform an evaluation of the WOTC program. Among the questions the evaluation seeks to research are: What are the characteristics of jobs of WOTC-hires? What types of employers apply for WOTC? How is WOTC reflected in employer hiring and retention practices/policies? To what extent does pre-screening for WOTC eligibility affect employment outcomes? According to a public notice, surveys of various interest parties will be issued in the winter of 2024-2025. State WOTC Programs Several state legislatures have proposals to institute some kind of state WOTC program. Maryland successfully passed a state income tax credit match to WOTC effective in 2022. Here are some of the others we are watching: Georgia House Bill 372 Missouri Senate Bill 1207 New York Senate Bill S4833A & Assembly Bill A1991A North Carolina House Bill 853 Pennsylvania HM 41747 Pennsylvania HM 40254 On December 19, 2023, the city of Tacoma, Washington passed an ordinance creating a $1,000 local WOTC for employers that add a new position for an individual certified by the State Workforce Agency as a member of the vocational rehabilitation WOTC target group.
When committing to a hybrid workforce with remote workers, employers should consider the local tax incentives they may forfeit, and new ones to claim.
On September 19, 2022, the IRS published a news release regarding the Work Opportunity Tax Credit (WOTC), “IRS updates Information on tax credit helping businesses to hire certain categories of workers.” We previously noted that information on the IRS WOTC FAQ page was updated from: Pre-screening and Certification. An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850. To the following IRS WOTC revised text: An employer must pre-screen and obtain certification from the appropriate Designated Local Agency (referred to as a State Workforce Agency or SWA) that an employee is a member of a targeted group to claim the credit. To satisfy the requirement to pre-screen a job applicant, on or before the day that a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer. The Targeted Jobs Tax Credit (TJTC), which preceded WOTC, did not contain a pre-screening requirement. In enacting WOTC to replace the TJTC in 1996, Congress included the requirement that employers pre-screen job applicants before or on the same day the job offer is made. In doing so, Congress emphasized that the WOTC is a subsidy designed to incentivize the hiring and employment of individuals who are members of targeted groups. On page two of Form 8850, there are four dates that must be provided before Form 8850 can be submitted to a SWA. They are the dates that the job applicant Gave information, Was offered job, Was hired, and Started the job. To confirm that the employer pre-screens the job applicant, and obtains information provided by the job applicant on the basis of which the employer believes that the job applicant is a member of a targeted group, the date the applicant Gave information about being a targeted group member must be a date that is the same as, or before the date the applicant Was offered job. The dates that the job applicant Was hired and Started the job must be on or after the dates the applicant Gave information and Was offered job. Form 8850 including the dates entered on page two of Form 8850, must be signed under penalties of perjury and must be submitted to the SWA (or postmarked, if mailed) no later than 28 days after the date that the job applicant Started the job. A number of commentators have given the impression that this update reflects a new policy or a change of the WOTC program’s process with statements such as, “The IRS has updated the prescreening process for new hires.” In fact, the IRS is itself giving this impression by repeatedly tweeting a graphic that says, “The IRS has updated the pre-screening and certification process for the Work Opportunity Tax Credit.” Has the IRS Changed Anything About WOTC? No. The update has merely emphasized and more fully articulated rules that have been in the Internal Revenue Code since the inception of WOTC. WOTC was created by Section 1201 of the Small Business Job Protection Act of 1996 (P.L. 104-188), and signed into law by President Clinton on August 20, 1996. While the law has been amended and extended numerous times since then, the very first version included the following requirement, which has remained unchanged through every subsequent iteration: Special rules for certifications. -- (A) In general.--An individual shall not be treated as a member of a targeted group unless-- (i) on or before the day on which such individual begins work for the employer, the employer has received a certification from a designated local agency that such individual is a member of a targeted group, or (ii)(I) on or before the day the individual is offered employment with the employer, a pre-screening notice is completed by the employer with respect to such individual, and (II) not later than the 21st day after the individual begins work for the employer, the employer submits such notice, signed by the employer and the individual under penalties of perjury, to the designated local agency as part of a written request for such a certification from such agency. The only change to this section of the statute occurred in the Tax Relief and Health Care Act of 2006 (P.L. 109-432), in which Congress extended the paperwork filing deadline from 21 days to 28. This consistency is evident on the pre-screening form itself, IRS Form 8850. The earliest version of that form from 1996 includes the following jurat above where the form requires a job applicant’s signature: “Under penalties of perjury, I declare that I gave the above information to the employer on or before the day I was offered a job, and it is, to the best of my knowledge, true, correct, and complete” (emphasis added). This statement is identical to that found on the most current version of the form. The IRS did not include an explanation for why it decided to “update” its WOTC information with information as old as the program, but such an update indicates a concern that some may be misunderstanding this basic requirement. To learn more about solutions for capturing WOTC and other tax credits, visit Experian Employer Services.