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Tax Reform and the Work Opportunity Tax Credit (WOTC): What’s Happening Now?

On November 2, 2017, House Ways and Means Chairman Kevin Brady and Speaker of the House Paul Ryan introduced tax reform legislation, H.R. Bill 1, the Tax Cut and Jobs Act. Within this draft bill, numerous programs are listed for repeal, including the Work Opportunity Tax Credit (WOTC) program (in section 3404). While no one knows the future, one thing is certain: the story is far from over. Here is an overview of the WOTC program and what you can expect next.

What is WOTC?

WOTC is available to eligible employers who hire and retain certain veterans and people from other target groups who have historically been viewed as facing significant barriers to employment. Businesses can claim tax credits, up to a maximum of $9,600 per eligible employee, depending on the target group eligibility of the person hired and the number of hours worked at the new employer.

The WOTC program began on October 1, 1996 and has endured the test of time through several expirations and renewals by Congress. Most recently, the program expired on December 31, 2014, but was renewed via legislation passed in December 2015. The legislation extended the WOTC program retroactively from January 1, 2015 through the end of 2019 – only the second time in the program’s history that it has enjoyed a 5-year renewal.

Historically, WOTC has not only saved employers money on their bottom line, but it has also saved federal and state governments billions in entitlement spending.1 It has also been viewed as an excellent tool to help get historically unemployed and underemployed Americans off of federal aid programs and into productive private sector jobs.

What Do the Latest Activities in Washington Mean to You?

Despite these latest legislative actions, employers should not lose sight of the fact WOTC is still in place. Accordingly, you should continue to review your administrative practices to make sure you’re maximizing your capture of WOTC credits for which you are eligible. Although it is seemingly inevitable that the tax reform process will continue to evolve, employers should move forward on a business-as-usual basis..

What Should Employers Expect Next?

The tax reform process will likely be a complex and lengthy one. To date, ADP has already had discussions with legislative leadership, continuing to reinforce the economic and societal benefit of the WOTC program. Similarly, coalitions like the National Employment Opportunity Network (NEON) also continue to communicate the importance of WOTC. The positive news is that the general feedback from our legislative contacts is strong bi-partisan support of the WOTC program, in large part due to economic impact WOTC has shown, which has been reinforced with studies such as the studies conducted by Dr. Peter Cappelli of the Wharton School (University of Pennsylvania).

We will continue to discuss the importance of WOTC with legislative leaders and will provide ongoing updates as they become available. In the interim, our team of dedicated professionals will continue to carefully monitor federal legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve.

  1. WOTC State Savings, Peter Cappelli: http://www.wotcmeansjobs.org/Shared%20Documents/WOTC%20State%20Savings%20Table%20and%20Explanation.pdf
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