In a letter to the chairmen and ranking members of both tax-writing committees in Congress, ADP says it supports a five-year extension of the Work Opportunity Tax Credit, which has been proposed in legislation by lawmakers in the House of Representatives and the Senate, as opposed to a short-term stopgap extension of the federal tax credit.
Created through the Small Business Job Protection Act of 1996, employers can claim the WOTC for hiring individuals from certain groups who consistently face significant barriers to employment, such as veterans, ex-felons, designated community residents, qualified summer youth employees, and qualified long-term unemployment recipients, according to the IRS.
For most eligible workers, the credit equals 40% of up to $6,000 in first-year wages, capping the annual credit at $2,400 per worker.
However, the federal tax credit expired on Dec. 31, 2025, and has yet to be extended by Congress.
The “Improve and Enhance the Work Opportunity Tax Credit Act,” which was introduced in both the House (H.R. 1177) and the Senate (S.492) last November, would extend the WOTC for five years, bringing the new deadline to Dec. 31, 2030. The bipartisan bill also would increase the credit percentage from 40% to 50% of qualified wages. Congress has yet to pass the legislation.
In the Dec. 8 letter to House Ways and Means Committee Chairman Jason Smith (R-MO), Ways and Means Ranking Member Richard Neal (D-MA), Senate Finance Committee Chairman Mike Crapo (R-ID), and Finance Committee Ranking Member Ron Wyden (D-WA), ADP said in its most recent fiscal year, it processed and delivered more than 78 million employee year-end tax statements in the U.S. and completed millions of pre-screenings for WOTC eligibility.
“ADP supports extending WOTC and appreciates the merits of the program to encourage the targeted hiring and retention of certain categories of job applicants that face barriers to employment. WOTC also benefits American taxpayers by reducing the burden on government-sponsored support programs,” the letter, signed by Daniel Lewis, vice president of compliance programs and government affairs at ADP, says.
The letter states that any five-year extension of the WOTC program “should include statutory enhancements to encourage employers with effective guidance and incentives to pursue and hire targeted job applicants, in particular incorporating legislative clarity regarding the program’s job offer and eligibility pre-screening requirements.”
“Without statutory reinforcement that job applicants must be pre-screened before any offer of employment and effective guidance for employer targeted hiring, longstanding non-compliant practices among some WOTC service providers—by screening for WOTC eligibility after an offer of employment—risks undermining Congressional intent, diluting the program’s impact, and jeopardizing WOTC’s future viability,” Lewis says in the letter.
Without corrective legislative language, certain WOTC service providers will continue to screen applicants only after a job offer is made—conditional, contingent, or otherwise, ADP states.
The following is an excerpt from the ADP letter:
[T]he WOTC program requires an employer to obtain pre-screening information on WOTC eligibility set forth on the IRS Form 8850 “on or before” the job offer date. The pre-screening requirement is intended to ensure that employer hiring decisions are influenced by a job applicant’s WOTC eligibility. Contrary to this requirement, some service providers — third-party organizations that assist employers in securing credits under the WOTC program — encourage and enable screening job applicants for eligibility after a job offer is made.
The WOTC eligibility pre-screening requirement was intentionally incorporated into WOTC to ensure the credit serves as a true hiring incentive, influencing hiring decisions rather than providing a post-hire windfall to employers who learn, post-job offer, that their preferred hire is WOTC eligible (that is, the employer made a hiring decision regardless of the availability of the WOTC tax incentive). Congressional intent governing the WOTC statute under Internal Revenue Code (IRC) Sec. 51(d)(13) requires employers to pre-screen candidates for eligibility prior to an offer of employment as part of their hiring process. This pre-screening requirement was not included in the tax incentive program that preceded WOTC, the Targeted Jobs Tax Credit (TJTC). The addition of eligibility pre-screening in WOTC was an intentional enhancement by Congress to make it a true hiring incentive unlike its predecessor program, and this requirement must be adhered to by service providers and employers. Companies that justify their screening practices by claiming that so-called conditional or contingent job offers do not constitute offers of employment under WOTC are intentionally circumventing the law and adversely impacting the program. These practices provide windfall tax benefits to employers who make hires regardless of WOTC eligibility and narrow job opportunities for the intended beneficiaries of the program.
Legislative Fix
Legislation to extend or expand WOTC, particularly for another 5-year term (as opposed to a short-term/stopgap extension), should incorporate statutory clarity that eligibility pre-screening must occur prior to any form of job offer, including written, verbal, conditional or contingent — that is, screening must occur prior to an employer making a determination to hire a job applicant, regardless of any subsequent administrative steps in the hiring process. With legislative clarity, Congress incentivizes and rewards employers actively seeking and hiring WOTC eligible candidates, supports the disadvantaged job seekers the program targets, and also protects the program’s integrity and Congressional intent. Failure to address the job offer eligibility pre-screening requirement ultimately harms the very individuals WOTC is supposed to help — and it signals an unwillingness to reinforce the rules that ensure WOTC remains a hiring incentive instead of a windfall tax benefit.
Without corrective legislative language, certain WOTC service providers will continue the non-compliant practice of screening applicants only after a job offer is made, conditional, contingent or otherwise. While this may reduce administrative costs and simplify the hiring process for those providers, it fundamentally undermines Congressional intent and converts WOTC into a post-hire benefit rather than an incentive to support the recruitment and hiring of individuals facing barriers to employment. There is no legitimate basis to oppose the requested legislative clarity — objections by service providers facing burdens in compliantly supporting WOTC cannot override the need to support Congressional intent and the integrity of WOTC.
“We strongly urge Congress to incorporate a statutory clarification requiring WOTC eligibility prescreening prior to ANY offer of employment, aligning legislative text with Congressional intent, existing IRS guidance, and compliance obligations under the law,” the letter concludes.
Photo credit: JHVEPhoto/iStock
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Tags: ADP, Congress, Legislation, Payroll, tax credit, tax credits, Taxes, Work Opportunity Tax Credit, WOTC
