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$1.5 trillion tax overhaul to be signed into law

  ·   By Katie Brown
$1.5 trillion tax overhaul to be signed into law

On December 20th, Congress approved a $1.5 trillion overhaul of the tax code—which is now on its way to the President’s desk for a signature. No Democrats in either the House or Senate supported the legislation.

Throughout the bill’s journey through the legislative process, tax provisions related to education and the economy were debated in both chambers of Congress. Below is the updated status of these provisions, including how they were incorporated into the final tax bill.

  • Workforce Opportunity Tax Credit (WOTC) – While the House version of the tax bill proposed to eliminate WOTC, the final bill conserves this valuable credit used by millions of businesses per year. WOTC allows businesses to receive a tax credit for hiring individuals in need of additional training or other supports to improve employment outcomes—such as workers eligible for TANF and SNAP.
  • Section 127 – This section of the current tax code allows employers to contribute up to $5,250 annually towards tuition assistance for their employees—without this contribution being counted as part of their taxable income. Businesses, especially those that are considered small and mid-sized, often use section 127 as a tool for recruiting new employees. This section of the tax code will remain in the new GOP tax bill.
  • Lifetime Learning (LL) Credit – The final tax bill also preserves the LL credit, which provides a tax credit of up to $2,000 per taxpayer for education expenses. The original tax plan released in the House proposed to eliminate the LL credit and add a fifth year of eligibility to the American Opportunity Tax Credit (AOTC). Critics of this change argued that it would alienate nontraditional students—many of whom do not qualify for the AOTC.
  • Student Loan Interest Deduction – Approximately 12.4 million borrowers per year make use of this tax provision, which allows for the deduction of up to $2,500 in student loan interest. The GOP tax overhaul upholds this deduction—a relief for those who rely on it to reduce their yearly tax bills.

Of Note: The new tax bill includes a 1.4 percent excise tax on endowment income for private colleges with assets valued at $500,000 per full-time student. Lawmakers have estimated this provisions will affect about 35 institutions. Many stakeholders have expressed concern that this new tax will add to costs and hinder the ability of these institutions to provide the highest quality education.

Although the tax bill has been sent to POTUS’s desk, White House officials have reported that the President may withhold his signature until Congress passes legislation to avoid the first Statutory PAYGO sequester. While there was speculation that Congress would not address the impending sequester until after the new year, the newly unveiled short-term spending bill—which will fund the government through January 19th—contains a PAYGO waiver.

Posted In: Tax Policies
NSC releases new recommendations to update the Work Opportunity Tax Credit

On December 7, National Skills Coalition released a new brief, Opportunity Knocks: How expanding the Work Opportunity Tax Credit could grow businesses, help low-skill workers, and close the skills gap.

Businesses continue to struggle to find workers, and at the same time millions of low-skill workers lack the training to meet those business needs. Work-based learning programs offer one strategy for businesses to skill-up workers, while providing those workers with access to a paying job. These programs, however, are expensive – particularly when participants may need additional supports to ensure success or a longer training pathway to reach full productivity. Tax credits can help support businesses as they build out work-based learning programs, however there is no current tax credit that focuses on the costs businesses incur when providing work-based learning for low-skill workers.

To address this need, policymakers should expand the Work Opportunity Tax Credit (WOTC) to support businesses providing work-based learning to populations currently targeted under the tax credit.

WOTC provides credits of up to $9,600—totaling nearly $1 billion claimed by employers each year—to companies for hiring workers such as veterans, the long-term unemployed, and Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Family (TANF) recipients.

By updating WOTC to provide an additional credit for businesses who hire and train workers from these target populations, the credit can help businesses build a pipeline of workers and help workers access skills they need.

Specifically, policymakers should update WOTC in the following ways:

  • Authorize a tax credit for each worker, from WOTC targeted populations, who participates in a work-based learning program;
  • Add a definition of “qualifying work-based learning program;”
  • Update the WOTC certification process to better enable businesses to enroll participants in work-based learning programs; and
  • Allow organizations without tax liability to apply the credit to payroll taxes for work-based learning participants.

NSC releases this brief as Congress continues tax reform negotiations. Both the House and Senate have passed tax reform bills and are currently working to reconcile these bills into one package with enough support to pass in both chambers. The House version of the tax reform bill would repeal the Work Opportunity Tax Credit, while the Senate version would leave WOTC unchanged. WOTC currently authorized through 2019. 

Posted In: Tax Policies, Work Based Learning
House Republicans release tax reform bill; education and employment credits impacted

On Thursday, November 2, House Republicans released a copy of the Tax Cuts and Jobs Act, which would reform the U.S. tax code.

Several provisions in the draft legislation would impact training-related business and individual tax credits including the proposed repeals of the Work Opportunity Tax Credit (WOTC) business tax credit and section 127, the exclusion of employer-provided education assistance from individual income. The bill also proposes the elimination of the Life Long Learning credit, collapsing this provision into an updated version of the American Opportunity Tax Credit. The proposed repeals and consolidation of these provisions would be counterproductive for businesses looking for skilled workers and for workers in need of training and jobs.

  • Work Opportunity Tax Credit: Currently, businesses can claim WOTC for hiring individuals who are members of certain target populations. The credit is claimed largely for hires who are Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) eligible, two populations for whom training is crucial to improving employment outcomes. The House bill would repeal WOTC, eliminating the credit businesses attempt to claim for more than five million workers each year. NSC has a forthcoming brief that includes policy recommendations to expand WOTC to better serve the individuals for whom it is claimed and better address business needs.
  • Section 127: The tax bill also proposes the elimination of a provision that allows individuals to receive up to $5,250 in tuition reimbursement from their employer without this amount counting towards their taxable income for the year. Particularly for small- and medium-sized businesses, this tuition reimbursement credit serves as a recruitment tool for new workers, a way to retain and upskill existing talent and a foundation for partnerships with local community and technical colleges who provide workers’ classroom education.
  • The Lifetime Learning (LL) credit: The LL credit, an individual tax credit for up to $2,000 of tuition expenses, would also be eliminated under the House proposal. The bill proposes eliminating the LL credit and adding a fifth year of eligibility to the American Opportunity Tax Credit (AOTC). Under current law, many nontraditional students – those in less than ½ time programs, non-degree programs, and qualifying job training programs – qualify for the LL credit and do not qualify for either current or the proposed expanded AOTC. Cutting the program would mean that workers who attend community and technical schools to better meet business’ skill needs would no longer have access to the tax credits that can often make this kind of upskilling possible.

The House bill and the forthcoming Senate version, expected in the next week, come after both chambers agreed to a joint budget resolution that included reconciliation instructions enabling Congress to pass tax reform with only 51 votes in the Senate, negating the impact of a Senate filibuster. Members of Congressional leadership have set a goal to pass their tax reform legislation by the end of the calendar year, but have until the end of Fiscal Year (FY) 2018 – until September 30, 2018 – to do so under the current reconciliation instructions.

National Skills Coalition will continue to work with state and local partners to educate policy makers on the impact tax reform would have on workers and small- and medium-sized businesses and to oppose cuts to vital workforce education and training programs.

A number of NSC national partners have released further analysis of important components of the tax proposal, including Young Invincibles, Center on Budget Policy Priorities, and CLASP

Posted In: Tax Policies

On January 27, President Obama went to the University of Michigan to announce his “Blueprint for Keeping College Affordable and Within Reach for All Americans,” a set of proposals to address the rising costs of postsecondary education in order to meet a national goal of having the highest share of college graduates in the world. The blueprint expands on concepts the President outlined in his State of the Union address, and includes proposals designed to reward schools that keep college affordable; create new incentives to promote affordability and quality; empower families and students to be informed consumers; and redouble federal support to tackle college costs.

Among other things, the blueprint includes recommendations to:

  • Revise the current formula for Supplemental Educational Opportunity Grants (SEOG), Perkins Loans, and the federal Work Study program to reward institutions that offer low new tuition price or restrain tuition growth, offer quality education and training, and enroll and graduate higher numbers of low-income students. The proposal would increase campus-based aid funding to $10 billion per year, although the administration suggests that there would be no additional cost to taxpayers because the expansion would largely come through the Perkins Loan program.
  • Establish a $1 billion “Race to the Top: College Affordability and Completion” competition that would create incentives for states to reform their higher education financing models, better align entry and exit standards between secondary and postsecondary systems, and maintain adequate levels of funding for public institutions.
  • Create a new $55 million “First in the World” competition that would provide funding to postsecondary institutions and non-profit organizations to develop innovative strategies for improving productivity, including through activities designed to reduce the need for remediation and competency-based approaches to obtaining college credit.
  • Requiring colleges to collect earnings and employment information, and creating a new “College Scorecard” to help students and families evaluate postsecondary institutions.
  • Making the American Opportunity Tax Credit (AOTC) permanent. The AOTC is a partially refundable tax credit that can cover up to $10,000 of college costs over the first four years of a student’s postsecondary career. It temporarily replaced the Hope Credit under the Recovery Act, and has been extended through the 2012 tax year.

National Skills Coalition supports efforts to expand access to education and training for all Americans to ensure they have the skills necessary to get and keep well-paying jobs. We look forward to working with the Administration and Congress to advance policies that are consistent with this goal, while working to strengthen other key federal workforce and education programs.

Posted In: Tax Policies, Higher Education Access