Happy New Year. The federal Work Opportunity Tax Credit will expire tomorrow.

This will be the 6th time that Congress has allowed the credit to expire. In the past five times, the program has operated in hiatus and has been renewed retroactively. Experts currently expect that this will be the case again this year. The first opportunity for an extension through 2012 will come early in the new year as Congress scrambles to extend the payroll tax cut beyond the two-month deal reached earlier this month.

In the mean time, employers will still need to submit their WOTC paperwork on time in order to receive certifications once the program is renewed. The program will also remain in effect during the hiatus for the new veteran WOTC categories passed by Congress in November, which were approved through 12/31/2012.

Be sure to visit WOTCMeansJobs.org to write your representatives and urge them to extend WOTC in a timely manner.

The US Senate has passed a new multi-tier expansion of the WOTC program for several categories of veterans. The bill is expected to pass in the House next week. Credit amounts will range from the standard $2,400 to over $9,000.

These new categories will have an expiration date of 12/31/2012. The bill did not extend the base WOTC program beyond its current 12/31/2011 expiration date. The expectation is that this will be addressed in a broader tax extenders bill, but it is not clear if this will be handled before the end of the year.

One of the proposals in President Obama’s “American Jobs Act” was an expanded WOTC credit for returning military veterans. While the Jobs Act as a whole is not being pursued in Congress, various pieces of it are. According to The Hill, Senator Reid is forcing the issue of the veterans tax credit:

Senate Majority Leader Harry Reid (D-Nev.) challenged Republicans on Monday to join Democrats in supporting their latest jobs proposal, a bill that would create tax incentives for businesses to hire veterans.

Before laying down the challenge, Reid listed the jobs packages that Republicans have blocked so far this year, which he said has cost the economy hundreds of thousands of jobs.

“Now we will see if Republican lawmakers are willing to put jobs for veterans at risk as well,” said Reid. “I certainly hope they are not. I hope they will join us.”

So far Reid has been unable to lure a single Republican to cross party lines in a series of votes on elements of the “bipartisan” jobs bill President Obama presented to Congress in the summer.

The veterans bill, like the Democratic proposals that came before it, is designed to lure at least nominal Republican support. In particular this bill would provide businesses with a “Returning Heroes” tax credit for 2012-2013 of about $2,400 for hiring an unemployed veteran. The legislation also includes a two-year extension of the “Wounded Warriors” tax credit, which gives companies that hire disabled veterans a $4,800 credit.

Reid plans to attach that veterans plan to a piece of Republican legislation that will see a vote later today that would repeal the 3 percent withholding provision on contracts made with governments.

An editorial in the Sacramento Bee is promoting the passage of the tax credit.

The credit uses the infrastructure of the existing WOTC program, but expands the credit to several tiers worth up to $9,600 (in contrast to the basic WOTC credit worth up to $2,400).

The specific language Reid is proposing is not yet available, but it seems that it would put the credit in place from the time of passage through 2012. The existing WOTC program is currently set to expire at the end of 2011 which could create some complications for the new veterans credit if the legislation does not include an extension of the underlying program.

The White House has released the detailed legislative language for the President’s “American Jobs Act” proposals.

Both the “Returning Heroes and Wounded Warriors” and “Long Term Unemployed” tax credit proposals have been drafted as new sections of the existing Work Opportunity Tax Credit statute.

President Obama is expected to make a major speech around Labor Day on how his administration intends to create more jobs. We recently saw the President propose an expansion of the WOTC program to enhance the hiring tax credits for military veterans.

Representative Charles Rangel has sent this letter to the President’s Chief of Staff urging the President to make H.R. 2082, which includes an extension and enhancement of the existing WOTC program, part of the administration’s jobs initiative this fall.

President Obama just delivered a speech today at the Washington Navy Yard to discuss policies that will help returning military veterans enter the job force. One of his proposals is an expansion of WOTC:

The Wounded Warrior Tax Credit will double the existing tax credit for long-term unemployed veterans with service-connected disabilities.

Maintain the existing Work Opportunity Tax Credit for veterans with service-connected disabilities (currently the maximum is $4,800).

A new credit of 40 percent of the first $24,000 of wages (up to $9,600) for firms that hire veterans with service-connected disabilities who have been unemployed longer than 6 months.

The paperwork process for claiming these credits will be simplified by streamlining the burdensome certification that firms had to undertake to claim previous credits

Senators Baucus and Grassley introduced Senate Bill 146 to expand the Veteran category for WOTC and simplify the certification process. A Finance Committee press release explains:

This Veterans Employment Transition Act, or the VETs Jobs bill, would reward employers for hiring qualified veterans who have recently completed their service in the military with a tax credit of up to $2,400 per veteran. A previous version of this credit, which was part of the Work Opportunity Tax Credit, was designed to help employers hire veterans, but expired at the end of 2010. The new legislation Baucus and Grassley are introducing today would reinstate the tax credit and make it easier for veterans and small businesses to use. As a result, servicemen and women who have been recently discharged will be able to provide documentation directly from the Department of Defense without having to go through the tax credit’s current certification process.

Text of the bill is available here.

In this video clip, NY Senator Kirsten Gillibrand advocates a permanent extension of WOTC:

H.R. 4853 has been amended in the Senate to become the “Middle Class Tax Relief Act of 2010.” A summary of the entire bill can be found here.

As far as tax credits go, The package includes an extension of the Research and Development credit, Indian Hiring Incentive, Empowerment Zones, New Markets, the Wage Credit for Active Duty Military and the core WOTC programs through December 31, 2011. WOTC is currently set to expire Aug. 31, 2011 and this would make put it on the same schedule as all of the other programs, which should help when the time comes to extend it again.

The bill does not include an extension of various WOTC add-ons such as Katrina, disconnected youth, or the unemployed veterans credit. Nor does the bill extend the federal Renewal Communities.

There is also no extension of the HIRE ACT. Instead there is a new 2% employee payroll tax holiday. There had been earlier reports that the payroll tax holiday would reduce both the employees’ and the employers’ taxes by 2%, this was incorrect and the reduction will only apply to withholding from employees. This boosts the take-home pay of everyone on a payroll, but does not provide any incentive to businesses for hiring.

The Internal Revenue Service Advisory Council (IRSAC) issued its annual report today in Washington, DC. As described in the report, the IRSAC

serves as an advisory body to the Commissioner of Internal Revenue. The purpose of the IRSAC is to provide an organized public forum for Internal Revenue Service (the “IRS”) officials and representatives of the public to discuss relevant tax administration issues. The IRSAC reviews existing tax policy and recommends policies regarding both existing and emerging tax administration issues.

The report covers a variety of topics (157 pages in total), including the WOTC program. What they recommend is an extremely sensible solution to a highly problematic inefficiency:

After the release of IRS Announcement 2002-44, many employers automated their job application process in anticipation that state workforce agencies would allow electronic submission of Form 8850. Unfortunately, most state workforce agencies do not accept electronically-submitted Form 8850s and those that do expect employers to retain originally-signed forms. Obtaining originally-signed Form 8850s imposes a significant administrative burden on employers and prevents employers from taking full advantage of the Work Opportunity Tax Credit. To alleviate this administrative burden, IRSAC recommends that the Commissioner of the IRS take prompt action to ensure that the Secretary of Labor, or the Secretary’s appropriate designee, issue guidance mandating that state workforce agencies treat hard copies of electronically-signed Form 8850s as if they were originally-signed Form 8850s.

Over the years I have heard many people question if hiring incentive programs such as the Enterprise Zone or the federal Work Opportunity Tax Credit were consistent with anti-discriminatory statutes. The federal Equal Employment Opportunity Commission (EEOC) has recently responded to this question for WOTC in an informal opinion. Their conclusion is that screening employees with the questions presented for the WOTC does not violate equal employment opportunity laws or the Americans with Disabilities Act (ADA):

As we understand it, the WOTC program operates as an affirmative action program in support of the hiring of certain individuals with disabilities. One goal of the program generally, and of the amended provisions supporting employment of service-connected disabled veterans specifically, is to increase the employment of persons with disabilities. Therefore, employers that choose to take advantage of the federal WOTC program and, consequently, use the Form 8850 on a pre-employment basis to identify for hire veterans with service-connected disabilities are “voluntarily using the [disability-related] information [they collect] to benefit individuals with disabilities.” Additionally, Form 8850 clearly informs job applicants that completion is voluntary and the customary practice of employers using the Form is to include it among other application documents for completion.3 If completion is in fact voluntary and the collected information is held confidentially, this ADA exception would apply to the inquiry.

Read the entire letter here.

While California considers hamstringing businesses by limiting its tax incentive programs, in Washington are bipartisan efforts to expand incentives that help business create jobs.

H.R. 5685 introduced by Congressman Steve Cohen (D-TN) would increase the WOTC credit by $1,000 for employers who open a new grocery supermarket in an “under served area,” defined as federal empowerment zone, enterprise community or renewal community.

And Senator Sam Brownback (R-KS) has introduced S. 3556 which would expand the qualified employees for WOTC to include members of the Ready Reserve or National Guard.

Furthermore, Senator Schumer (D-NY) has introduced S. 3623 to extend the recently enacted HIRE Act tax credit.

Members of Congress are working on a special set of tax incentives for those in the area affected by the Gulf oil spill, including an expansion of the WOTC. The Hill reports:

Sen. Mary Landrieu on Friday joined with five other lawmakers to propose a tax package aimed at helping businesses negatively affected by the oil spill in the Gulf of Mexico.

The legislation defers the tax small businesses incur from being reimbursed by BP as long as the proceeds are reinvested in a trade or business located in the oil spill recovery zone. It also affords companies an IRS refund on taxes paid for past profits by extending the net operating loss carryback period to five years for losses related to the spill. People affected by the oil would also be able to make penalty-free withdraws from retirement accounts to better handle their hardships.

“Small businesses in Louisiana and the rest of the Gulf Coast have faced unprecedented obstacles over the last five years,” Landrieu said in prepared remarks. “Make no mistake of it, BP will be on the hook for all losses and damages caused by this disaster, but, in the meantime, thousands of small businesses are struggling to keep their doors open and workers are being let go by no fault of their own. Right now, Congress must do everything within its power to make sure that not a single Gulf Coast business is bankrupted by this oil spill.”

The stimulate economic growth, the bill extends the Work Opportunity Tax Credit to employers hiring new workers in the affected area, and allows these owners to expense investments in certain equipment, It also provides a Gulf coast hotel/car rental tax holiday to help attract out-of-state visitors and seeks a special two-year allocation for New Markets Tax Credits, which provide incentives to invest in distressed areas of the country, to be applied to the oil spill recovery zone.

Landrieu’s bill is cosponsored by members whose states have been affected by the disaster, Sens. Bill Nelson (D-Fla.), Roger Wicker (R-Miss.), George LeMieux (R-Fla.) and David Vitter (R-La.). They sent a letter today urging Senate Finance Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) to move on their legislation.

“[We] believe that federal tax policy can and should play a role in the region’s economic recovery,” they wrote, adding, “we ask you to support and include the [measures] in upcoming tax legislation.”

After the July 4 recess, the Senate is expected to return its attention to legislation providing tax relief and loan assistance to small businesses. Landrieu and Baucus are the chief sponsors for that bill, which is likely the most expedient vehicle for getting these measures enacted.

H.R. 4920 was introduced in March by Rep. Rush (D-IL) and would make a variety of changes to the WOTC program, It would expand the Disconnected Youth category by increasing the age to 24, make the Disconnected Youth and Veteran categories permanent. The bill would add a new target group called “Title I-B youth services recipient” which means “any individual who is a participant (as defined in section 101(34) of the Workforce Investment Act of 1998 (29 U.S.C. 2801(34))) who is receiving services under chapter 4 of subtitle B of title I of such Act,” and redefine the ex-felon target group as an ex-offender target group that includes those convicted of misdemeanors. The bill would also increase the credit amounts for certain categories and extend the entire WOTC program through Dec. 31, 2015.

U.S. Rep. Gabrielle Giffords (R-AZ) is introducing legislation (no bill number yet) called the “Job Opportunities Blueprint (JOB) Act” that would add a new target group to WOTC for workers 55 and older whose income is below 125 percent of the federal poverty threshold, and would extend the whole WOTC program through Dec. 31, 2012.

An earlier bill to expand WOTC to include more veterans now has a bill number in the Senate: S. 3398.

Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Chuck Grassley (R-Iowa) have proposed a bill to expand the WOTC program to include more veterans. Here is the press release, and the bill language can be found here. The Senate bill does not yet have a number, but Rep. Timothy Walz (D-MN1) has introduced the same language in the House as H.R. 5400.

The proposal expands the category of eligible veterans to any veteran who served in active duty for at least 180 days and who has been discharged within the five years preceding their hire date. The real innovation of the bill is that it requires the Dept. of Defense to educate veterans about the program and provide a form that veterans can supply to potential employers which the employers can use to claim the credit without the necessity to file an 8850 certification application.