On March 9, 2023, the U.S. Department of Treasury released the Greenbook (formally known as the General Explanation of the Administration’s Revenue Proposals) for FY 2024 to explain revenue proposals included in the Administration’s budget.  One proposal is to increase the number of hours required to be worked by an individual for the employer to be eligible for the Work Opportunity Tax Credit (WOTC).

The WOTC generally provides a tax credit equal to 40 percent of qualified wages paid in the first year of employment for employers who hire individuals from one or more of 10 targeted groups.  Currently, the WOTC credit is reduced to 25 percent of qualified wages if the individual works between 120 and 400 hours in the first year of service.  The WOTC does not apply if the individual works fewer than 120 hours in the first year of service. 

The WOTC applies to individuals from the following groups: (a) recipients of Temporary Assistance for Needy Families; (b) veterans; (c) people recently convicted of, or released from incarceration for, a felony; (d) residents of an empowerment zone or a rural renewal community who are at least 18 but not yet 40 years old; (e) referrals from State-sponsored vocational rehabilitation programs for the mentally and physically disabled; (f) summer youth employees who are 16 or 17 years old residing in an empowerment zone; (g) Supplemental Nutrition Assistance Program benefits recipients at least 18 years old but not yet 40 years old; (h) Supplemental Security Income recipients; (i) long-term family assistance recipients, and (j) long-term unemployment recipients.  An individual must be certified by a designated local agency as a member of a targeted group.  For most groups, qualified first-year wages are capped at $6,000; however, the cap is as high as $24,000 for long-term unemployed veterans who are disabled.

The Administration’s proposal would raise the minimum number of hours worked in the first year of service by an individual to 400 hours for an employer to be eligible for the WOTC.  This would eliminate the 25 percent tax credit provided under current law if the individual worked between 120 and 400 hours.  The proposal would be effective for individuals hired after December 31, 2023, and seeks to align the credit with the WOTC’s goal of providing long-term employment opportunities for members of targeted groups. By establishing a 400-hour threshold to qualify for the WOTC and eliminating the incentive for fewer hours worked, the Administration hopes to encourage employers to hire more permanent rather than temporary employees.

Photo of Adam Spiegel Adam Spiegel

Adam Spiegel is an associate in the firm’s Washington, DC office. He is a member of the Employee Benefits and Executive Compensation practice group, and the Tax practice group.

Photo of S. Michael Chittenden S. Michael Chittenden

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden…

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden advises companies on their obligations under FATCA and assists in the development of comprehensive FATCA and Chapter 3 (nonresident alien reporting and withholding) compliance programs.

Mr. Chittenden advises large employers on their employment tax obligations, including the special FICA and FUTA rules for nonqualified deferred compensation, the successor employer rules, the voluntary correction of employment tax mistakes, and the abatement of late deposit and information reporting penalties. In addition, he has also advised large insurance companies and employers on the Affordable Care Act reporting requirements in Sections 6055 and 6056, and advised clients on the application of section 6050W (Form 1099-K reporting), including its application to third-party payment networks.

Mr. Chittenden counsels clients on mobile workforce issues including state income tax withholding for mobile employees and expatriate and inpatriate taxation and reporting.

Mr. Chittenden is a frequent commentator on information withholding, payroll taxes, and fringe benefits and regularly gives presentations on the compliance burdens for companies.

Photo of Michael M. Lloyd Michael M. Lloyd

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits…

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits, cross-border compensation, domestic information reporting (e.g., Forms W-2, 1099, 1095 series returns), penalty abatement, and general tax planning and controversy matters. Mr. Lloyd advises large U.S. and foreign multinationals regarding compliance with information reporting and withholding issues, as well as a range of other federal and state tax issues.