WOTC repeal

WOTC Repeal – Employer Tax Credit on the Chopping Block

News on tax reform–or the progress of the Tax Cuts and Jobs Act—is big news. Huuuuge news. Very big news. Unfortunately, a lot of the coverage focuses on the same components of the legislation. Heavily discussed have been changes (or possible changes) to income tax brackets, the corporate tax rate, the alternative minimum tax, the standard tax deduction, the child care credit, and a handful of others.

What’s been lost in coverage of the rapidly advancing tax reform legislation is a popular employer tax credit, the Work Opportunity Tax Credit (WOTC). The potential repeal of WOTC is part of the Tax Cuts and Jobs Act, which, ironically, would result in:

  • U.S. employers losing around $1 Billion in annual tax credits and
  • De-incentivize the hiring of American workers who frequently encounter barriers to employment–disabled veterans being one group.

Adding to the bad news, the use of WOTC by employers has increased greatly over the past year. Thanks to the development of an online system, the United States Department of Labor was able to dramatically reduce the time and paperwork required to file for the tax credit. This improvement resulted in many states reporting an increase in WOTC applications. The state of Tennessee, for example, approved nearly 124,000 WOTC applications, totaling over $322 million in employer tax credits between January and October 2017–that represents roughly a 300% increase over the 2016 figures.

Of course, the repeal of WOTC is only part of the tax reform bill. Proposed cuts to the corporate tax rate, as well as rates for pass-through entities may very well offset the gains that employers realized from the WOTC tax credit. And one could also argue that employers are not purposefully hiring individuals because they meet the criteria of a WOTC targeting group, rather they are simply taking advantage of the credit after the fact. These are hard issues to argue either way, and only time will tell if the changes proposed in the Tax Cuts and Jobs Act help more than they hurt.

However, first thing’s first: the Senate and House must agree on one bill through conference. Though the two bodies seem close to agreement, there is still time for 11th hour changes. At the time of writing, Senate Majority Leader Mitch McConnell (R-Ky.) stated that he hopes to have a bill on the President’s desk before Christmas.

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