With the number of COVID-19 cases continuing to rise, Senate Republicans have proposed new legislation to support the economy and provide financial help to businesses and individuals throughout the United States. Four months after the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, they recently introduced the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act to provide additional relief to individuals and businesses impacted by the COVID-19 pandemic.
The tax provisions of the HEALS Act would expand upon and modify several provisions of the CARES Act, and introduce additional tax relief to individuals and businesses, together with the Work Opportunity Tax Credit provision. The HEALS Act is actually comprised of eight smaller bills that are linked together and can be modified as the bill moves its way through Congress.
The HEALS Act vs. the CARES Act
As a package of individual bills, the HEALS Act covers four major business tax relief provisions, including the Work Opportunity Tax Credit provision to incentivize hiring and retaining employees. It also includes a new tax credit for employers investing in protections against the spread of COVID-19 in the workplace, and tax assistance for independent contractors.
The CARES Act provided a refundable employee retention payroll tax credit equal to 50% of qualified wages paid to employees by certain eligible employers impacted by COVID-19. The CARES Act also limited the Employee Retention Payroll Tax Credit to $10,000 of qualified wages per employee for all calendar quarters. However, the HEALS Act proposes to increase the percentage of qualified wages from 50% to 65% and increases the annual qualified wage limitation to $30,000 of qualified wages per employee per calendar year.
Under the CARES Act, an employer conducting a trade or business during 2020 has to prove that it:
- was required by a governmental authority to fully or partially suspend its trade or business, or
- experienced a significant decline in gross receipts.
While the CARES Act requires that an employer experienced a more than 50% reduction in gross receipts for a 2020 calendar quarter compared to the same calendar quarter in 2019, the HEALS Act would reduce the threshold to 25%.
Finally, the HEALS Act aims to expand what wages count as qualified wages for purposes of the Employee Retention Payroll Tax Credit. Under the CARES Act, employers with up to 100 employees can receive the Employee Retention Payroll Tax Credit for all wages paid to employees, regardless of whether an employee is providing services. However, employers with more than 100 employees may only claim the Employee Retention Payroll Tax Credit for wages paid to employees who are not providing services. On the other hand, the HEALS Act would raise this threshold from 100 employees to 500 employees.Use this detailed guide on WOTC eligibility and the process of claiming the credit, and find out how this Federal tax incentive benefits employers and employees.
Work Opportunity Tax Credit Provision and Temporary Expansion of Target Groups
The Work Opportunity Tax Credit (WOTC) program is a federal government initiative designed to increase employment opportunities for people who typically experience certain barriers to employment. The credit amount for WOTC can be up to $9,600 for each qualified new hire, depending upon the new hires’ target group. The credit is equal to a percentage of the eligible employee’s wages, and the employee has to work at least 120 hours for the employer to receive credit.
Under current law, the credit is available to employers who hire individuals from WOTC target groups, including veterans, families receiving federal assistance under certain programs, qualified ex-felons, at-risk youth, and other vulnerable populations. The Work Opportunity Tax Credit provision within the HEALS Act would temporarily expand the WOTC to include a new target group defined as 2020 qualified COVID-19 unemployment recipients. Employers hiring such unemployment recipients, previously certified by the applicable employee’s state workforce agency, would receive a tax credit equal to 50% of the first $10,000 of qualified wages paid to such employees. According to this Work Opportunity Tax Credit provision, the eligible employee has to begin working between the enactment of the HEALS Act and January 1, 2021, in order to qualify for the expanded WOTC.
Taking Advantage of New Work Opportunity Tax Credit Provision
As COVID-19 continues to pose a great risk to society in general and the workplace in particular, the HEALS Act contains significant new and expanded tax provisions designed to encourage hiring. Among them, the Work Opportunity Tax Credit provision provides additional incentives for businesses to hire individuals with barriers to employment, including COVID-19 unemployment recipients.
Even though WOTC is one of the best tools to promote the employment of underprivileged individuals, it is not a permanent program. It is available through 2025, allowing businesses a few more months to capture thousands in credits. While WOTC administration can be challenging, it has greatly improved in both efficiency and accuracy due to automated WOTC solutions. Integrating applicant screening and work opportunity tax credit certification questions into one automated application process increases compliance, enhances the applicant experience, and improves the accuracy and efficiency of screening and applying for credit certification.