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WOTC makes it to the final Tax Reform bill

On Friday, December 15, Congress released the final draft of the tax-reform bill. We are happy to report that the conference committee deferred to the Senate position, which left WOTC as is. Therefore, WOTC has survived tax reform and will remain in place through its current expiration date of December 31, 2019. A vote is expected to take place by Wednesday, December 2017, to decide the fate of the tax-reform bill.

We continue to monitor the situation closely and will keep you up to date on the developments as we learn of them.

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Update: Tax Reform and the Future of WOTC

Recent Developments

The Senate Finance Committee voted the tax reform bill out of committee on Thursday, November 16 in a similar fashion to the House plan, suggesting an aligned strategy orchestrated by Republican leadership. All Democratic amendments were voted down by party-line votes. All Republican amendments were withdrawn in favor of the Chairman’s mark. As it turns out, the bill that was voted on does not reference WOTC. This likely means that WOTC will be left in place until December 31, 2019, based on the existing law.

While it seems that most of the Democratic amendments were an act of political showmanship, Senator Ben Cardin (D-MD) offered an amendment to extend or make permanent a series of tax credits. While the amendment was voted down, the conversation was interesting. First, many Republican senators had positive words for Mr. Cardin and expressed support for the basic principles of his amendment. Senator Hatch (R-UT) made a comment that they have a plan to do a “tax extender” bill and that it would be the better vehicle for the Cardin amendment. Several Republican senators referenced that there would be another opportunity at which point they would support the Cardin amendment, but they would not support it as part of the tax reform.

Continue reading “Update: Tax Reform and the Future of WOTC”

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Legislative Update: WOTC program at risk of repeal

On Thursday, November 2, 2017, the House Ways and Means Committee released a first draft of tax reform. The Tax Cuts and Jobs Act H.R. 1 includes many of the items listed in the tax reform framework released by the Republicans in September, as well as additional details. The bill proposes fewer tax brackets for individuals as well as higher deductions for middle-class families and lowers corporate tax rates to 20%. It is estimated that H.R. 1 will also curtail federal government revenues by approximately $1.5 trillion over ten years. As it turns out, the proposed legislation also calls for a repeal of the Work Opportunity Tax Credit (WOTC) by December 31, 2017, along with several other provisions.

Continue reading “Legislative Update: WOTC program at risk of repeal”

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Update: Tax Reform and its Potential Impact on the Work Opportunity Tax Credit (WOTC)

We are now eight months into 2017, and many employers are wondering what the status with tax reform is and how might impact the future of WOTC. As we mentioned in our last update, at the start of this year, House Speaker Paul Ryan proposed a plan to reform our tax code which was designed to be revenue-neutral. His plan proposed a Border Adjustment Tax (BAT) which would tax imports to the United States, but it would not tax exports. Continue reading “Update: Tax Reform and its Potential Impact on the Work Opportunity Tax Credit (WOTC)”

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Retention Tax Credit Opportunity

Earlier today, the U.S. Senate Finance Committee released a series of Frequently Asked Questions (FAQ) prepared by the committee’s Republican staff to address the employee retention credit included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Pub. L. No. 116-136)

Please note that these FAQs are for informational purposes and should not be relied upon for legal advice.

Q: What businesses qualify for the employee-retention credit?

A: Any employer, regardless of size, is eligible for the credit during calendar year 2020 if the business:

  • is fully or partially suspended due to a governmental order related to COVID-19

OR

  • experiences a significant decline in gross receipts (i.e., a reduction of 50% of gross receipts from the same quarter in 2019).

The credit also applies to tax-exempt organizations if the operation of the organization is fully or partially suspended due to circumstances described in the first example above above. However, the credit generally does not apply to governmental employers, including the U.S. Government, state and local governments, or any agency of the foregoing.

Q: Does the credit only apply to small businesses?

A: No, For eligible employers with 100 or fewer full-time employees, the credit applies to all employee wages. In contrast, eligible employers with greater than 100 full-time employees may only take into account qualified wages paid to employees when they are not providing services due to a governmental order related to COVID-19.

Q: How much is the credit?

A: The credit is equal to 50% of the qualified wages paid by the employer with respect to each employee.

Q: How is the credit calculated?

A: The amount of qualified wages with respect to any employee for all calendar quarters in 2020 cannot exceed $10,000. In other words, there is a $5,000 cap on the credit per employee for the 2020 tax year.

Q: What is the duration of the credit opportunity?

A: The credit is available for qualified wages paid from March 13, 2020 – December 31, 2020.

Q: How much of an employee’s compensation counts toward the credit? Do health-care costs count?

A: The definition of qualified wages differs depending on the size of the business.

For eligible employers with more than 100 full-time employees, qualified wages include wages paid to employee when they are not providing services due to a governmental order related to COVID-19. If an employee is performing services on a reduced schedule, wages paid to the employee are only treated as qualified wages if they exceed what the employee would have otherwise been paid for the services performed. In that case, employers will receive a credit for the difference between the total wages paid to the employee and the amount the employer would have paid for the reduced hours or services actually provided by the employee.

For eligible employers with 100 or fewer employees, all employee wages qualify for the credit, whether or not the employee is providing services to the employer.

Regardless of business size, qualified wages include certain health-care costs paid by an employer to maintain a group health plan. Qualified wages do not include wages taken into account for purposes of payroll tax credit for required paid sick leave or paid family leave as provided in Division G of H.R. 6201, the Families First Coronavirus Response Act (FFCRA). This exception prevents both credits from applying to the same wages paid by the employer.

Q: Does it matter if the business is a corporation? Does it apply to limited liability companies (LLCs), S corporations, partnerships, and sole proprietorships?

A: The credit is available to corporations as well as pass-through entities, such as LLCs, S corporations, partnerships, and sole proprietorships. The credit is also available to most tax-exempt organizations. Although the credit is available to all entity types, the business must meet the eligibility requirements (see first question above).

Q: Do I have to wait until my business files its 2020 tax return to claim the credit?

A: No. The tax credit may be claimed against the employer portion of employment taxes, including Social Security and Railroad Retirement payroll taxes. To the extent the credit exceeds the employer portion of employment taxes due, the credit is treated as an overpayment and is refundable to the employer. The Internal Revenue Service (IRS) is expected to provide guidance regarding the process for claiming the credit and receiving a refund.

Check Coronavirus Tax Relief on the IRS website here.

Q: Does the business have to pay back the credit?

A: No. As long as the employer meets the requirements for the credit (described above), the employer does not have to repay the credit or the resulting funds.

Q: What if the business claims the FFCRA credit for mandatory sick leave and/or family leave?

A: If the business claims the FFCRA credit for mandatory sick leave and/or family leave, the wages associated with the FFCRA credit are not eligible as qualified wages for the employee retention credit. This prevents both credits from applying to the same wages paid by an employer.

Q: Is the credit available if the business receives one of the new Small Business Administration (SBA) loans under the CARES Act?

A: The credit is not available to employers receiving a small business interruption loan under the SBA’s Paycheck Protection Program (CARES Act Section 1102).

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