One-Year Extension of Work Opportunity Tax Credit Is Only a Start

SHRM backs permanent WOTC extension to spur hiring from diverse talent pools

Stephen Miller, CEBS By Stephen Miller, CEBS December 19, 2019

The end-of-year spending and tax extension package signed into law on Dec. 20 extended the Work Opportunity Tax Credit (WOTC) through the end of 2020. If the credit had been allowed to expire at the end of 2019, employers would have lost an incentive to hire disadvantaged employees. But passing legislation to make the WOTC permanent is still needed, supporters of the credit say.

Enacted in 1996 and extended multiple times, the WOTC is a federal tax credit available to employers that hire and retain individuals from certain groups that have consistently faced significant employment barriers. About $1 billion in tax credits are claimed each year under the WOTC program, according to the Department of Labor (DOL).

Tapping Overlooked Talent Pools

"The WOTC helps both employers that are experiencing labor shortages and certain groups of people who need assistance finding jobs, such as the long-term unemployed, the formerly incarcerated, individuals with disabilities and qualified military veterans," said Chatrane Birbal, director of policy engagement at the Society for Human Resource Management (SHRM). Other disadvantaged groups under the credit include people living in government-designated rural renewal counties or empowerment zones and recipients of certain welfare benefits.

SHRM Backs Permanent Extension

In April, Reps. Mike Thompson, D-Calif., and Tom Reed, R-N.Y., introduced H.R. 2213, the Work Opportunity Tax Credit and Jobs Act, to permanently extend the WOTC. The measure currently has bipartisan support and 48 co-sponsors in the House. The Senate version, S. 978, was introduced by Sens. Rob Portman, R-Ohio, and Benjamin Cardin, D-Md., and has eight bipartisan co-sponsors.

SHRM strongly supports the legislation, Birbal said, and she urges Congress members to co‑sponsor this measure and vote to pass it in 2020.

When the measure was introduced, Cardin said that the credit "is one of our best tools to promote the employment of those who find it hardest to get a job. … But to be effective, employers need the certainty of a permanent extension."

Portman added, "Encouraging employers to hire those who have the most trouble finding work is good policy, and that's why we should make the Work Opportunity Tax Credit permanent."

[Take the SHRM quiz Hiring Individuals with Criminal Records.]

How the Credit Works

There are two ways that employers can obtain the tax credit, according to the nonprofit Tax Foundation:

  • Qualified workers can obtain a conditional certification form from a state or local workforce agency. Once those workers are hired, their employers should complete a certification request form.
  • Alternatively, employers can fill out a certification request form and an individual-characteristics information form if they think their employee is in a target group.

"Either way, employers must mail both forms to their state's WOTC coordinator within 28 days of the employees' first workday," the Tax Foundation noted.

State agencies, which receive funding from the DOL to administer the WOTC, verify that new hires are members of WOTC groups and notify the employers, after which the employers can claim the tax credit.

The tax credit is equal to 25 percent of the qualified employee's first year of wages if the employee works between 120 and 400 hours in that year. It grows to 40 percent if the employee works more than 400 hours in that year.

A 2012 study by the RAND Corporation that looked specifically at disabled veterans found that the WOTC increased veteran employment rates by 1.8 percentage points and their wage income by 39.9 percent, the Tax Foundation noted.


[Visit SHRM's military employment resource page.]




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