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WOTC and R&D Tax Credits Likely to Survive New Tax Bill

Author

Heather Bussing

More by Heather
Author

Heather Bussing

More by Heather

The Work Opportunity Tax Credit (WOTC) program has been left unscathed in the Tax Cuts and Jobs Act (H.R. 1) that passed a House-Senate congressional committee on Dec. 15, 2017. The Work Opportunity Tax Credit provides qualified employers with federal tax credits to encourage the hiring of employees from certain targeted groups that have historically faced barriers to employment.Under one section of the bill — Business Tax Reform, Section E (4) — provisions in the House version that would repeal the WOTC program clashed with provisions in the Senate bill that would keep it. Though the Tax Cuts and Jobs Act bill still needs final approval in both houses of Congress, after passing reconciliation it appears the WOTC program will be maintained with no changes.

The research and development (R&D) tax credit seems likely due for some changes. The R&D tax credit, available under Internal Revenue Code Section 41, provides general business tax credits for businesses that conduct qualified research and development in the United States. The tax credit is meant to incentivize the invention or improvement of qualified products or processes.While the reconciled version of H.R. 1 maintains the R&D tax credit, it requires organizations to spread out R&D deductions over five or more years, instead of writing them off immediately in a single year. The R&D tax credit can be carried forward up to 20 years. The big scare was the potential for the corporate tax rate to be cut to 20 percent, which could trigger the corporate alternative minimum tax (AMT) for many businesses and eliminate their ability to claim many business tax credits including R&D tax credits. However, as NPR notes, H.R. 1 currently sets the corporate rate at 21 percent and eliminate the corporate AMT altogether.

So, financial leaders may see a mixed bag with regard to the R&D tax credit. While organizations may apply less of the R&D tax credit annually because of the longer time frames required for spreading out qualified R&D expenses, the elimination of the AMT helps decrease the chances of another unintended consequence, hopefully keeping things simpler.

The final Tax Cuts and Jobs Act bill is expected to be voted on this week.

For more on WOTC and R&D tax credits, see the full article on BOOST.

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