Work Opportunity Tax Credit 

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA) extended the WOTC through 2011. /1/ 

In 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA), /2/ which included a provision to expand the WOTC temporarily to include two new targeted groups:  unemployed veterans and disconnected youth.  The provision became effective on February 17, 2009, and applies to qualified individuals hired between January 1, 2009, and December 31, 2010.  The extension of the WOTC under TRUIRJCA, however, did not include the ARRA expansion of the credit for unemployed veterans and disconnected youth.

The Obama Administration proposed in its Fiscal Year 2012 budget to extend the WOTC through 2012. /3/  Representatives Aaron Schock (R-IL) and Charles Rangel (D-NY) have introduced the Work Opportunity Credit Improvements Act, which would extent the WOTC through December 31, 2014 and make other modifications to the program, including application of the credit to veterans and disconnected youth (renamed “at-risk youth). /4/

As part of legislation to repeal the 3-percent withholding requirement on payments to government contractors, H.R. 674, the WOTC credit available for hiring veterans was expanded to include a $2,400 to $5,600 credit depending on the veteran’s length of unemployment and a credit of up to $9,600 for hiring veterans with service-connected disabilities who have been unemployed for more than six months. /5/  The expanded veterans-hiring provisions are effective from November 21, 2011 through 2012.

RILA urges Congress to make the WOTC permanent as soon as possible, including restoration of the expanded application of the WOTC to unemployed veterans and disconnected youth.  Short of that goal, RILA will continue to advocate for extending the credit. 

Congress created the WOTC in 1996 as part of the Small Business Job Protection Act. /6/  This federal tax credit assists employers in hiring individuals from specific targeted groups, including recipients of public assistance, qualified veterans, disabled persons, low-income seniors, high-risk youth, and residents of designated areas.  Under current law, businesses may claim a WOTC equal to 40 percent of the first $6,000 of wages paid to employees from these qualifying groups, and the credit is allowed on a larger amount of annual wages for disabled veterans and long-term welfare recipients.

The WOTC helps many retailers offset the added costs of hiring and training individuals who have been on public assistance programs, and through these credits, businesses have helped thousands of disadvantaged individuals find meaningful employment in retail and other settings.

Permanent extension of the WOTC will help retailers administer these programs more efficiently.  For the last few years, Congress has allowed this credit to lapse, ultimately extending it retroactively.  A permanent program would remove uncertainty in business planning, expand employer participation, and improve program administration.

The past few years have also seen significant WOTC expansion.  Most recently, under the ARRA, the WOTC applied temporarily to an unemployed veteran if he or she was discharged or released from active duty from the Armed Forces during the five-year period prior to hiring and received unemployment compensation for more than four weeks during the year before being hired.  The ARRA also expanded the WOTC to include disconnected youth – an individual between the ages of 16 and 25 who has not been regularly employed or attended school in the past six months.  Both expansions expired at the end of 2010.