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President’s Fiscal Year 2016 Budget Calls for Permanent, Expanded WOTC

The Department of the Treasury’s document, “General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals,” on pages 51-53, explains the President’s budget proposal regarding WOTC and the Indian Employment Credit:

Reasons for Change

The Indian employment credit and the WOTC have been extended numerous times, but extension has often been retroactive or near the expiration date. This pattern leads to uncertainty for employers regarding the availability of the credit and may limit the incentive the credits provide for employers to employ individuals from the targeted groups. To improve the effectiveness of the credits, both credits should be made permanent. Disabled veterans may pursue educational and other training opportunities after release or discharge from military service before entering the civilian workforce, yet few who pursue such education or training would be likely to complete it within the one-year period in which they would remain qualified for the WOTC under current law. The Administration believes that such education and training is beneficial and that disabled veterans who pursue such opportunities should remain a qualified veteran for the purpose of the WOTC until six months after the education or training is completed.

The Indian employment credit is structured as an incremental credit where current year qualified wages and health insurance costs in excess of such costs paid in the base year (1993) are subject to the credit. Updating the base year would eliminate the need for taxpayers to maintain tax records long beyond the normal requirements, and would restore the original incremental design of the credit.

Proposal

The proposal would permanently extend the WOTC to apply to wages paid to qualified individuals who begin work for the employer after December 31, 2014. In addition, for individuals who begin work for the employer after December 31, 2015, the definition of a qualified veteran would be expanded. Qualified veterans would now include disabled veterans who use G.I. Bill benefits to attend a qualified educational institution or training program within one year of being discharged or released from active duty, and are hired within six months of ending attendance at the qualified educational institution or training program. Qualified first-year wages of up to $12,000 paid to such individuals would be eligible for the WOTC.

The proposal would permanently extend the Indian employment credit to apply to wages paid to qualified employees in taxable years beginning after December 31, 2014. In addition, the proposal would modify the calculation of the credit. For taxable years beginning after December 31, 2015, the credit would be equal to 20 percent of the excess of qualified wages and health insurance costs paid or incurred by an employer in the current taxable year over the amount of such wages and costs paid or incurred by the employer in the base year. The base year costs would equal the average of such wages and costs for the two taxable years prior to the current taxable year.

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