Proposals for State Tax Incentives Based on the Work Opportunity Tax Credit

Recently, several state legislatures have proposed bills that would establish state tax incentive programs based on, linked to, or otherwise similar to the federal Work Opportunity Tax Credit.

Alabama

Senate Bill 197 was introduced on February 8 by four Democratic Senators. The bill would provide a state income tax credit matching up to $1,000 of the federal credit for employees that complete 12 months of consecutive employment. The bill also imposes a cap of $10 million in total state credit during any fiscal year.

Both houses of the state legislature and the governorship are in Republican control.

California

California legislators have proposed state WOTC programs in the past. On February 18, Senators Anna Caballero and Monique Limon introduced Senate Bill 1349 to create a new program linked to WOTC. As currently drafted, the bill would limit the total amount of state tax credit to a maximum of $1,000 (not $1,000 per qualified employee, just $1,000 total).

We confirmed with Senator Caballero’s office that this is a drafting error, and the intent is to provide a tax credit for each qualified employee. The bill will be amended after the 30-day in-print requirement.

Assembly Bill 2378, while not explicitly WOTC related, proposes a tax credit for employers who hire individuals that are in several WOTC target groups, namely vocational rehabilitation referrals, and SSI or SSDI recipients. The formula for calculating the credit is 40% of $6,000 in wages, the same credit calculation as WOTC in most cases.

Georgia

Georgia House Bill 1197, introduced February 7, proposes, “A credit against the tax imposed under this article shall be allowed in an amount equal  to the total amount of the federal work opportunity tax credit properly claimed for a given  taxable year by a taxpayer on its federal income tax return, provided that such amount shall  be limited to the amount of the federal work opportunity tax credit allowed on the basis of  Georgia qualified first-year wages.”

Maryland

Democratic lawmakers in the Maryland House of Delegates are proposing a package of bills aimed at providing $300 million in tax relief. According to the website Marylandmatters.org:

The largest part of the proposal is House Bill 2, from House Majority Leader Eric G. Luedtke (D-Montgomery). That bill would create a Maryland state match for the federal Work Opportunity Tax Credit, which incentivizes employers to hire workers who have trouble finding work, including veterans, people with disabilities, the long-term unemployed, those on state financial assistance programs, and people who have completed terms of incarceration.

In the first year of employment, employers can claim a credit equal to 40% of the first $6,000 of wages paid to an employee who is among the groups targeted for employment opportunities. About 56,700 Maryland companies participated in the federal tax credit program last year, the Maryland Department of Labor told legislative analysts.

The bill would reduce state revenue by an estimated $73 million in the first year due to credits claimed against income taxes, but Luedtke said savings would be realized elsewhere, including by putting people back to work and lowering the costs for state safety net programs.

“This program can change lives while paying for itself,” Luedtke said.

The claim that about 56,000 Maryland companies participated in WOTC is likely a misstatement. According to data from the U.S. Dept. of Labor for fiscal year 2021, Maryland issued about 117,000 WOTC determinations (certificates and denials).

In a letter of support, Governor Hogan’s Senior Counselor & Chief Legislative Officer, Keiffer Mitchell wrote:

During a time when employers are facing historic workforce shortages, it is critical that we do everything in our power to assist businesses with their ability to hire. Expanding the WOTC to apply to an employer’s State income tax will not only assist businesses with the costs of hiring and training new employees, but will also incentivize hiring individuals that have had difficulties finding employment.

The support from a Republican governor for a Democratic legislative proposal gives the Maryland bill a significant advantage.

New Jersey

A pair of proposals expressly modeled on WOTC have been introduced to provide tax credits to employers who hire individuals with developmental disabilities or who are ex-offenders.

  1. 1543 / A. 479 allows corporation business tax and gross income tax credits to businesses employing certain persons with developmental disabilities.
  2. 1313 / A. 1379 allows corporation business tax and gross income tax credits to businesses employing qualified ex-offenders.

New York

Assemblywoman Latoya Joyner, chair of the Committee on Labor, introduced A9171 on February 3rd. The bill would allow a refundable state income tax credit equal to the amount of federal WOTC attributable to qualified employees who are New York residents.

The Business Council of New York issued a letter in support of the bill, stating:

Data show that New York underutilizes this federal incentive program. For example, New York’s ratio of WOTC-certified employees to populations is the lowest of the 18 states with the largest number of WOTC certified employees, including Texas, Ohio, Illinois, Pennsylvania, North Carolina, Michigan, Wisconsin and Maryland, among others.

Based on data from the U.S. Census Bureau and the U.S. Department of Labor, the following table shows how the ten most populous states compare, based on those criteria:

State FY2021 WOTC certs Percentage of all WOTC certs State population Percentage of US population
CA          149,604 7.19% 39,237,836 11.8%
TX          209,363 10.06% 29,527,941 8.9%
FL            76,234 3.66% 21,781,128 6.6%
NY          101,053 4.85% 19,835,913 6.0%
PA            81,300 3.91% 12,964,056 3.9%
IL            90,109 4.33% 12,671,469 3.8%
OH          106,708 5.13% 11,780,017 3.5%
GA            80,549 3.87% 10,799,566 3.2%
NC            71,716 3.45% 10,551,162 3.2%
MI            78,143 3.75% 10,050,811 3.0%

 

Apparently, using these criteria, California and Florida are also underutilizing WOTC.

Vermont

State Senator Randolph Brock introduced S.203 in January, which includes a provision to allow a $2,000 tax credit for each new qualified employee hired on or after July 1, 2022. Qualified employees must meet minimum retention and wage requirements and be certified by the Commissioner of Labor at the time of hire as an individual facing one or more barriers to employment, including those defined within the federal WOTC program.

However, the bill also specifies that the amount of state tax credit allowable will be reduced by the amount of federal Work Opportunity Tax Credit allowed against the qualified employer’s federal income tax for the taxable year of the same qualified employee. This means that despite being included within the definition of “qualified employee,” no state credit would actually be available for WOTC certified employees since the federal credit for those meeting the minimum retention requirements would always exceed $2,000.

It should be noted that according to the Department of Labor, Vermont issued just 226 WOTC certificates for all of fiscal year 2020, and 0 for all of fiscal year 2021. Wyoming, the least populous state, issued 5,785 WOTC certificates in fiscal year 2021.

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