Enactment of Tax Cuts and Jobs Act Preserves the Work Opportunity Tax Credit (WOTC)

David Burgess,
Government Relations

Beginning with the 2018 tax year, companies will enjoy enhanced WOTC benefits; the future of the Empowerment Zone and Indian Employment Credits Remains Uncertain…

 

On December 22nd President Trump signed the Tax Cuts and Jobs Act, after a long and arduous legislative process in the House and Senate.
The first iteration of the House bill eliminated the WOTC effective January 1, 2018, while the Senate package left WOTC intact through it’s current authorization at the end of 2019. As we had previously predicted, once each chamber had passed separate bills and they went to conference to resolve differences in the two packages, the Senate provision to maintain WOTC prevailed.

 

The keynote of the new law is the lowering personal income tax rates and corporate rates. The most dramatic reduction was in corporate rates, which were lowered from a top rate of 35% down to a flat rate of 21%. When combined with state and local taxes, corporations will pay a combined rate of 26.5%, which is actually slightly less than the rate paid by EU members (26.9%.)

 

However, a byproduct of the new reduced corporate rate is the increased value of the few remaining tax credits, including WOTC. The net value of the credit is determined by the of the tax rate, and the lower the rate, the greater the value of the credit. Since the 2018 tax rate is 40% lower than the 2017 rate, this means that WOTC is also worth 40% more to users.

 

The new tax legislation did not address a number of business tax provisions that had previously expired at the end of 2016, including Federal Empowerment Zones (FEZ’s) and the Indian Employment Credit (IEC). There are ongoing efforts and negotiations to revive these credits as well, at least retroactively for 2017, since the new tax rates would not yet be in effect, and the absence of these credits would mean a de facto tax increase for companies who had previously taken these incentives. At this juncture, the fate of the efforts to enact these measures for 2017 and beyond, is still uncertain.

 

Mckenzie Chase Management continues to take an active and visible role in promoting the extension of WOTC, FEZ’s and the IEC. While the future of the FEZ’s and IEC is unclear, there is good reason to believe that WOTC will be renewed, and perhaps even made permanent in the future. Support for WOTC is bipartisan, and its supporters see the credit as a low-cost way to increase participation of less skilled individuals in the workforce, which helps to reduce much more expensive entitlement costs if more people are unemployed. Stay tuned to our future Newsletters and correspondence for any new or breaking developments!

 

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

OR, find out, from an expert, if you qualify for Employer Incentives on this page.

If you would like more information please us at 206.547.8277 or email me at drdburgess@mckenziechase.com.
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