On July 27, Senate Republicans introduced a series of bills intended as their opening salvo in what appears likely to be contentious negotiations among Senate Republicans, the White House, and House and Senate Democrats over the next legislative response to the COVID-19 pandemic. Along with another round of direct stimulus payments to individual taxpayers, extended unemployment benefits, and enhancements to the employee retention credit (earlier coverage) enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, one proposed bill, the American Workers, Families, and Employers Assistance Act (the “Bill”), would expand the Work Opportunity Tax Credit (“WOTC”) in an effort to spur employers to hire and rehire workers.
Under Section 51 of the Internal Revenue Code, the WOTC is a tax credit for employers who hire individuals belonging to one or more targeted groups. Section 212 of the Bill would add a new WOTC targeted group for “COVID-19 unemployment recipients.” The group encompasses individuals who have received (or are approved to receive) unemployment benefits for the week of or the week immediately preceding the hiring date. Individuals may qualify as COVID-19 unemployment recipients regardless of whether their job loss resulted from the pandemic or predated it, so long as they remain eligible for unemployment benefits immediately before being hired. For the employer to receive the credit, an employee would have to begin work between the date of enactment and January 1, 2021, potentially spurring a round of hiring late in 2020.
The WOTC is usually equal to 40% of “first-year wages,” subject to caps that vary among the different targeted groups. For the COVID-19 targeted group, the Bill would increase the amount of the credit to 50% and apply a cap of $10,000 on first year wages, resulting in a maximum credit of $5,000 per hired or rehired employee. (Generally, employers are prohibited for claiming the credit with respect to rehired employees, but the Bill would eliminate the restriction on rehires with respect to COVID-19 unemployment recipients. The Bill also directs the Treasury Department to issue regulations to prevent abuse, such as terminating and rehiring employees to obtain the credit.) Wages used in calculating the employee retention credit may not be included in the determination of the WOTC credit.
It is uncertain whether the proposed WOTC expansion will make it into any final COVID-19 package, but we will continue to monitor developments.