Billions saved in brief history of WOTC
December 8, 2016
By Stacey May, Director of Tax Credits
Since its creation in 1996 by the Small Business Job Protection Act, the Work Opportunity Tax Credit (WOTC) program has expired and been renewed 11 times:
- The Taxpayer Relief Act of 1997 extended its original 12 month term an additional 9 months.
- The Tax and Trade Relief Act of 1998 reauthorized and extended it 12 months.
- The Ticket to Work and Work Incentives Improvement Act of 1999 extended WOTC for an additional 20 months.
- The Job Creation and Worker Assistance Act of 2002 retroactively reauthorized it to the beginning of the year and extended it for a total of 24 months.
- The Working Families Relief Act of 2004 retroactively extended WOTC to the beginning of the year and through 2005.
- The Tax Relief and Health Care Act of 2006 retroactively extended it again to the beginning of 2006 and through 2007.
- The Small Business and Work Opportunity Tax Act of 2007 extended WOTC for 44 months.
- The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act extended it 4 months through the end of 2011.
- The American Taxpayer Relief Act of 2012 retroactively extended WOTC to the beginning of 2012 and through 2013.
- The Tax Increase Prevention Act of 2014 retroactively extended it to the beginning of the year and through the end of 2014.
- The Protecting Americans from Tax Hikes Act of 2015 retroactively extended WOTC to the beginning of 2015 and through 2019.
During that time, state workforce agencies issued over 12 million WOTC certifications. This represents millions of historically underemployed Americans put to work and over $1 billion in tax credits earned by U.S. businesses.
How WOTC provides measurable savings
Studies by Dr. Peter Cappelli of The Wharton School at the University of Pennsylvania show that the average federal savings for a Temporary Assistance for Needy Families (TANF) recipient is around $17,722 because of WOTC. The Department of Labor (DOL) statistics show that from 2002-2013 approximately 1.8 million certifications were issued for the TANF and long-term TANF target groups. Therefore, the total federal savings for just the TANF target groups (approximately 20 percent of WOTC certifications) is around $130.9 billion over that period.
The savings for Supplemental Security Income (SSI) recipients and veterans are higher still. For WOTC’s newest target group, long-term unemployment recipients, Dr. Cappelli estimates the federal savings in terms of federal benefits that would not need to be paid are close to $28,000 per individual. Individual states benefit similarly as well.
Applications and certifications have also increased over time. Although similar estimates for all target groups are not available, between 1996 and today, it is not a stretch to say WOTC’s total federal savings adds up to around half a trillion dollars. WOTC does not just help individuals and businesses, but it also results in huge savings to the government and, therefore, taxpayers.
WOTC improving turnaround time
Throughout this history, government offices administering WOTC continued to exist, but during hiatus periods they did not process leading to enormous and onerous backlogs. Even with electronic filing now prevalent, the effects of these backlogs are still felt by many states. Now that WOTC is authorized through 2019, and as even more states transition to electronic systems, lengthy turnaround times should eventually become a thing of the past.
Future of WOTC
Another important item to note throughout WOTC’s history is the ever-evolving list of target groups including various modifications for veterans, food stamp and TANF recipients, designated community residents, at-risk youth, and the long-term unemployed. To this day, legislators continue to come up with ideas to use WOTC’s flexibility as a policy tool, and potential future additions may include foster youth, members of the National Guard and student loan recipients.
As for the future of WOTC beyond 2019, and with potential major tax reform on the horizon, due diligence with research, applications and deadlines will be paramount. Staying abreast of these opportunities can significantly impact employers in the years to come.
Check out our YouTube video on HKP’s tax credit services: https://www.youtube.com/watch?v=tTU6P6rnkEI