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Imagine changing your company’s payroll provider and deciding, while you’re at it, to replace your accountant, insurance agent, and employment attorney. After all, they all deal with employees and money, right?
Sounds ridiculous. Yet something remarkably similar sometimes happens with the Work Opportunity Tax Credit (WOTC). A company switches its payroll provider and, as part of the package, moves its WOTC services too. It seems convenient. One vendor, fewer relationships, everything under one roof.
There’s just one problem: WOTC isn’t a payroll function.
WOTC begins in the recruiting and hiring process, before an employee ever receives a paycheck. Federal law requires WOTC prescreening to be completed on or before the day a job offer is made.
Payroll, of course, comes later. By the time an employee is entered into the payroll system, the opportunity for timely WOTC prescreening has ordinarily passed.
Payroll data does have a role, but the traditional payroll process does not. After an employee’s WOTC eligibility has been established and certified, their wage and hours information determine the amount of tax credit the employer can claim. But that’s a downstream accounting function that often occurs annually in preparation for an employer’s federal income tax return.
WOTC is a professional specialty requiring its own expertise, workflows, and information management.
WOTC specialists spend their days navigating eligibility rules, government certifications, documentation requirements, and state agency procedures. They manage a myriad of relationships between the employers they serve and the numerous government agencies responsible for verifying and certifying their qualifying employees.
So, when changing payroll providers, ask a simple question: Should we replace a successful WOTC program just because we’re changing who prints the paychecks?
Certainly, payroll companies can provide excellent WOTC services, and some have developed sophisticated WOTC programs. But WOTC expertise isn’t an inherent feature of payroll processing. WOTC and payroll are fundamentally different functions that should be evaluated independently.
WOTC Planet does not provide tax, accounting, or legal advice. This content is for informational purposes only.
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A newly introduced bill in Congress takes an interesting approach to extending the Work Opportunity Tax Credit (or WOTC).
This week, on September 16, Representative George Latimer (D-NY) introduced H.R. 10446. The bill would pair an extension and enhancement of WOTC with improvements to another federal tax incentive designed to help businesses remove architectural and transportation barriers for people with disabilities. H.R. 10446 was referred to the House Ways and Means Committee.
This legislative pairing is worth watching.
The WOTC program is about more than simply rewarding employers for hiring people. The credit is designed to encourage hiring people who have historically faced barriers to entering the workforce.
For many years, WOTC has provided enhanced incentives for hiring qualified veterans, including certain veterans entitled to compensation for a service-connected disability. WOTC also includes individuals referred for employment through qualifying vocational rehabilitation programs. These are individuals with physical or mental disabilities who have been referred to an employer while receiving, or after completing, rehabilitation services.
All of this makes the connection in H.R. 10446 more meaningful than it might first appear.
One part of the proposal (an enhanced WOTC) would encourage employers to hire workers with disabilities, among others. The other part of the proposal would improve a longstanding tax deduction for businesses that spend money removing physical and transportation barriers that affect some of the same workers.
Pairing the two ideas in a single legislative proposal creates a potentially useful political advantage by broadening support for the bill. While related in obvious ways, the two provisions have historically attracted interest from different populations and advocacy groups. Combining them gives those diverse interests a common piece of legislation to rally around.
The common theme is straightforward: helping businesses open more doors to employment and helping workers physically get through those doors.
Whether that broader combination improves the bill’s prospects in Congress remains to be seen. H.R. 10446 was referred to the House Ways and Means Committee just two days ago, and the complete legislative text was not yet publicly available when I prepared this article.
As of the moment of this publication, H.R. 10446 has one recorded co-sponsor – Representative Gilbert Ray Cisneros (D-CA). We will continue to follow this ongoing development.
WOTC Planet does not provide tax, accounting, or legal advice. This content is for informational purposes only.
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Selling a business can create unexpected WOTC tax credit issues and opportunities long after the transaction closes. Because employee certifications may not be issued until months (or even years) later, both sellers and successor employers should understand how delayed certifications can affect their tax credits.
When business owners prepare to sell their company, they naturally focus on things like purchase agreements, employee transitions, customer relationships, and tax planning. An item that is often overlooked is the status of pending Work Opportunity Tax Credit (WOTC) applications.
Because WOTC certification frequently takes months, and in some states several years, valuable tax credits may still be working their way through the certification process after ownership has changed.
Without careful planning, those tax credits can be misunderstood, overlooked, or claimed incorrectly.
Tax Credits Earned Before the Sale May Still Belong to the Original Employer
Generally speaking, WOTC tax credits attributable to qualified wages paid by the original employer remain available to that employer, even if an employee’s WOTC certification is not issued until after the business has been sold. This is an important consideration because, in some states, the WOTC certification process for individual employees may take anywhere from a few weeks to multiple years.
This can create an unusual situation:
- The certification arrives after the business has been sold.
- The former owner may no longer be actively involved in the business.
- Accounting records may have been archived.
- The individuals responsible for the transaction may assume the opportunity has passed.
In many cases, however, that opportunity has not passed.
Depending on the circumstances, those certifications may support amended tax returns or other tax benefits relating to the period before the acquisition. Your CPA should determine the appropriate tax treatment, while your WOTC service provider can help identify which certifications and wages relate to the pre-acquisition period.
Successor Employers May Continue Receiving WOTC Benefits
Business owners are often surprised to learn that, generally speaking, a successor employer steps into the shoes of the previous employer for WOTC purposes. Employees who were hired and certified by the original employer before the acquisition may continue generating WOTC tax credits for the acquiring employer, subject to the normal WOTC limitations and maximum credit amounts.
This does not transfer tax credits attributable to wages paid before the acquisition. Rather, it allows the successor employer to continue earning WOTC tax credits on its own qualified wages paid after acquiring the business.
Transferred Employees Are Not New Hires
Another common misunderstanding occurs after an acquisition when employees become part of the acquiring company. Generally speaking, the IRS does not treat these transferred employees as new hires for WOTC purposes.
As a result:
- Employees transferred from the previous employer cannot be screened again for WOTC eligibility simply because ownership changed.
- If an employee was previously certified, the acquiring employer generally continues under that existing certification rather than obtaining a new one.
- If an employee was not WOTC eligible at the time they were originally hired, the acquiring employer generally cannot create a new WOTC opportunity simply because ownership changed.
Understanding this distinction can prevent unnecessary screening efforts and avoid compliance mistakes.
Communication Is Essential During a Business Transition
Whenever a business is being sold, both the seller and purchaser should discuss any pending WOTC activity with their tax advisors and WOTC service provider.
Questions worth addressing include:
- How many WOTC applications are still awaiting certification?
- Which certifications may still produce tax credits for the selling employer?
- Which employees may continue generating WOTC benefits for the acquiring employer?
- How should future certifications be tracked after the transaction closes?
Addressing these questions early can help ensure that valuable tax credits are properly identified, documented, and claimed by the appropriate employer.
If a business acquisition is anticipated, now is the time to review all pending WOTC applications with your CPA and WOTC service provider. Doing so can help ensure that certifications issued months (or even years) after closing are properly tracked and that the resulting tax credits are claimed by the appropriate employer.
Every acquisition is unique, and WOTC treatment depends on the specific facts of the transaction. Business owners should work closely with their CPA and experienced WOTC professionals to ensure these opportunities are not overlooked during the transition.
WOTC Planet does not provide tax, accounting, or legal advice. This content is for informational purposes only.
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For employers and workforce professionals who follow the Work Opportunity Tax Credit (WOTC) program, recent activity in Congress offers an encouraging sign.
The Improve and Enhance the Work Opportunity Tax Credit Act (H.R. 6231 / S. 3265), legislation currently serving as a vehicle for the next reauthorization of the WOTC program while also expanding eligibility to military spouses, continues to attract bipartisan support in both the House and Senate.
The bipartisan coalition supporting this bill extends well beyond the legislation’s original sponsors, with additional lawmakers continuing to join as cosponsors months after the bills were introduced.
As of late May, the House bill includes one sponsor and 24 cosponsors, while the companion Senate bill includes one sponsor and 11 cosponsors.
Most recently, Representatives Stephanie Bice (R-OK), Donald Davis (D-NC), and Maggie Goodlander (D-NH), along with Senator Tim Sheehy (R-MT), added their names as cosponsors during May 2026. Their participation follows a steady stream of lawmakers who have joined the legislation since its introduction in late 2025.
For supporters of WOTC, this continued growth in cosponsorship may be one of the most encouraging developments during the program’s current reauthorization cycle.
You can examine the bills’ lists of sponsors and other legislative information here:
In the U.S. House of Representatives – H.R. 6231
In the U.S. Senate – S 3265
WOTC Planet does not provide tax, accounting, or legal advice. This content is for informational purposes only.
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