BEHIND THE SCENES AT MCM: How WOTC was renewed through 2019, what it means and how McKenzie Chase played an important role

Companies benefiting from WOTC savings have always been frustrated by the inability of Congress to pass WOTC for more than a year or two at a time, usually well after its official sunset.  Although WOTC has now been around for more than 20 years since the first legislation took effect on October 1, 1996, it has been extended exclusively in 1 or 2 year increments, often with long hiatuses before retroactive renewals, except for 2008 renewal that was part of ‘Economic Stimulus.’  When the long ‘Stimulus’ renewal ended, in fact, it may be recalled that the 2012-13 extension did not happen until the last day of 2012, and the 2014 extension was also a December bride and without a go-forward provision for 2015.  WOTC pessimists were concerned that this was signaling the end of WOTC.  But McKenzie Chase knew better and thought otherwise.

This series of short-term extensions was never a reflection on the popularity of WOTC.  This incentive enjoys broad support both in the House and Senate and with Democrats and Republicans.  But it has historically been part of a package of business tax credit called the ‘extenders,’ because they always required annual or bi-annual reauthorization.  And based on budget constraints and a desire to do broader tax reform, Congress always did short-term extensions of these provisions in the hopes of doing meaningful reform – next year!

When it was time for a belated 2015 and 2016 renewal, Congress finally acknowledged that tax reform was not going to occur in the 2016 election year and that meaningful tax reform would be a multi-year process.  This was not just recognizing that crafting and passing a bill would be long and painful, but that whatever they passed would likely be phased in over a year or longer once legislated.  Based on that recognition, Congress passed a 5 year extension in December of 2015, one year retroactive and 4 years forward through the end of 2019.

McKenzie Chase played a prominent role in all of these renewals, including the recent resulting in long-term renewal.  We are an active member of the industry trade association, the National Employment Opportunity Network (NEON), which lobbies and educates Congress about WOTC.  We participate in monthly meetings in the Washington DC and often spend days visiting Congressional offices on behalf of our clients.  In addition, we work with NEON lobbyists on these visits, and also participate in fundraising events for members of the Congressional tax writing committees, the House Ways and Means Committee and Senate Finance Committee.

This educational process finally succeeded in getting Congress to understand the destabilizing effect of the short-term renewals.  Unsurprisingly, new companies were reluctant to begin a program that officially did not exist.  Perhaps most importantly, the ‘on again off again’ nature had a major impact on the Department of Labor units that are responsible for issuing certifications that are required for a company to claim a credit.  This resulted in backlogs of a year or longer and meant that companies often received certifications well after they filed their corporate or partnership tax returns.  Now that WOTC has a measure of stability, these challenges should dissipate, aided by the fact that more and more states are upgraded their technologies to make their processes more efficient.

Whatever happens in the November elections, tax reform will be a priority for the next Congress and President.  But the process will be long, complex and will be a challenge to complete successfully.  If reform is enacted, WOTC is well positioned to become a permanent part of our tax code.  But it reform fails, we have the stability of already being a part of the code through the end of 2019.

Download the free report about the history of the WOTC Program here.

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