This month, the House Ways and Means Committee released tax proposals that may eventually be included in the massive budget reconciliation bill currently making its way through Congress. For a general summary, check out this article in the Journal of Accountancy.
Our interest here is the proposal for a temporary expansion of the Work Opportunity Tax Credit (WOTC). The legislation replaces just a few key terms in the Internal Revenue Code, where the WOTC program is defined. Yet, the effect would be very valuable for employers who participate in the WOTC program.
The bottom line – WOTC-qualifying employees whose wages now generate up to $2,400 in WOTC tax credit for their employer could potentially generate as much as $10,000
Here’s my bullet-point list of WOTC changes proposed by the bill. They would be effective for employees whose hire dates fall on the day after enactment through December 31, 2022. These changes would affect all target groups except for Summer Youth, which would remain unchanged.
The legislation proposes to:
- Extend all target groups (except Summer Youth) to cover two years of employment.
- Increase the first-year (and second-year) tax-credit amounts to equal 50% of qualified wages.
- Increase the existing $6,000 qualified-wage cap to $10,000.
- Remove the restriction against re-hires. This means new hires and re-hired former employees could qualify in the same way.
Finally, the bill’s language implies that qualified second-year wages would also be capped at $10,000. However, it does not state this expressly, and I remain uncertain about this feature.
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