COMMITTEE ON LEGISLATIVE RESEARCH
OVERSIGHT DIVISION
FISCAL NOTE
L.R. No.:2558H.01I Bill No.:HB 1345 Subject:Taxation and Revenue - General; Tax Credits; Taxation and Revenue - General;
Tax Incentives; Employees - Employers; Department of Revenue
Type:Original Date:April 11, 2023Bill Summary:This proposal authorizes a tax credit for employers hiring certain employees
under the Federal Work Opportunity Tax Credit.
FISCAL SUMMARY
ESTIMATED NET EFFECT ON GENERAL REVENUE FUNDFUND AFFECTEDFY 2024FY 2025FY 2026
General Revenue
Fund*
($7,193)
($96,757,523)
Up to ($119,304,939)
($96,758,391) Up to
($119,305,807)
Total Estimated Net
Effect on General
Revenue ($7,193)
($96,757,523)
Up to ($119,304,939)
($96,758,391) Up to
($119,305,807)
*Oversight notes the range from an average payout per credit ($1,946) up to maximum pay out
($2,400) per tax credit. Additionally, the expense includes DOR’s 1 FTE (Associate Customer
Service Representative at $31,200 annually)
ESTIMATED NET EFFECT ON OTHER STATE FUNDSFUND AFFECTEDFY 2024FY 2025FY 2026Total Estimated Net
Effect on Other State
Funds $0$0$0
Numbers within parentheses: () indicate costs or losses. L.R. No. 2558H.01I
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ESTIMATED NET EFFECT ON FEDERAL FUNDSFUND AFFECTEDFY 2024FY 2025FY 2026Total Estimated Net
Effect on All Federal
Funds $0$0$0
ESTIMATED NET EFFECT ON FULL TIME EQUIVALENT (FTE)FUND AFFECTEDFY 2024FY 2025FY 2026General Revenue
Fund 0 FTE1 FTE1 FTE
Total Estimated Net
Effect on FTE0 FTE1 FTE1 FTE
☒ Estimated Net Effect (expenditures or reduced revenues) expected to exceed $250,000 in any
of the three fiscal years after implementation of the act or at full implementation of the act.
☐ Estimated Net Effect (savings or increased revenues) expected to exceed $250,000 in any of
the three fiscal years after implementation of the act or at full implementation of the act.
ESTIMATED NET EFFECT ON LOCAL FUNDSFUND AFFECTEDFY 2024FY 2025FY 2026Local Government$0$0$0 L.R. No. 2558H.01I
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FISCAL ANALYSIS
ASSUMPTION
Officials from the Office of Administration – Budget & Planning (B&P) note:
Starting with tax year 2024, this proposal would grant a tax credit equal to 100% of a taxpayer’s
federal work opportunity credit (WOTC) or for non-profits equal to 100% of withholdings for
qualified employees.
B&P notes that this tax credit is non-refundable, cannot be carried forward, and cannot be
transferred, sold, assigned, or otherwise conveyed. B&P also notes that while this credit is
granted for tax year 2024, it will not be taken until taxpayers file their annual tax return in FY25.
Based on information published by the U.S. Department of Labor, in federal FY22 there were
2,569,056 employers nationally and 43,820 employers in Missouri certified for a federal WOTC.
Table 1 shows the number of national and Missouri certified employers by year.
Table 1: Federal WOTC Claims per YearFederal
FY
USMissouri
%
MO
20222,569,056 43,820 1.7%20212,081,474 38,657 1.9%20201,620,806 54,033 3.3%20192,068,417 34,609 1.7%20182,204,142 77,310 3.5%
Based on additional information, total WOTC credits were worth approximately $5 billion in
federal FY22. Therefore, B&P estimates that the national average WOTC was about $1,946.24
($5 billion / 2,569,056 national claims) in federal FY22.
Assuming that the average Missouri credit is similar to the average national credit, B&P
estimates that total Missouri credits could be between $67,357,426 ($1,946.24 WOTC x 34,609
employers) and $150,463,828 ($1,946.24 WOTC x 77,310 employers) each year.
Therefore, B&P estimates that this proposal could reduce TSR and GR by $67,357,426 to
$150,463,828 annually beginning FY25.
Officials from the Department of Revenue (DOR) note:
Starting January 1, 2024 a qualified taxpayer shall be allowed to claim a tax credit against their
state tax liability for wages paid or incurred by a qualified taxpayer who hired individuals with
barriers to employment. The credit is the lessor of:
100% of the federal work opportunity credit claimed for the tax year for the employer; or L.R. No. 2558H.01I
Bill No. HB 1345
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The Missouri income tax imposed for that tax year.
These credits are not refundable, not transferrable and are not allowed to be carried forward. The
credits do have a sunset date of December 31, 2029. There is no cap on the number of credits
that can be issued. It should be noted that these credits will not impact the state until FY 2025
when the first returns are filed claiming the credit.
The Federal Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers
for hiring and employing individuals from certain targeted groups who have faced significant
barriers to employment. Those targeted groups include:
program;
Food and Nutrition Act of 2008;
SSA; and
Before receiving the federal credit the employer must be preapproved from the state designated
agency, which is the Department of Higher Education and Workforce Development (DHEWD)
in Missouri. The preapproval involves verifying that the employee is in one of the targeted
groups. Once approved, they can apply for the credit at the federal level. The credit is equal to
approximately 40% of the first $6,000 in wages paid with no more than $2,400 per credit. The
credit also requires the employee to work a minimum number of hours. If less hours are worked
then a lesser amount of credit may be earned.
The Department notes that the state credit is 100% of the federal amount or the amount paid in
Missouri income tax. The Department was able to find data on the number of Missouri residents
approved by DHEWD to claim the credit.
Federal Fiscal YearApprovedDenied202243,82072,929202138,65767,123202054,03375,355201934,60941,062201877,310109,495Average49,686 L.R. No. 2558H.01I
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The Department was unable to determine how many of them actually completed the number of
required hours to receive the full amount of the credit. Additionally, the Department was unable
to determine the pay of these employees that qualified for the credit. Therefore, for the purposes
of the fiscal note only, they assumed that all 49,686 people would qualify for the state credit and
that they will only chose to receive the 100% of federal credit for their state credit. Therefore, all
49,686 would tax as their state credit the full $2,400 federal credit amount. This would result in
a loss of general revenue of $119,246,400 ($2,400 credit * 49,686 employees) annually.
The Department notes this is a new credit and it would need to be added to the MO-TC form, the
website and the individual income tax computer system. This is estimated to cost $7,193.
DOR assumes they will need at least 1 Associate Customer Service Representative ($31,200) to
handle the new credits being redeemed. Additional FTE may be needed in the future if the
number of new credit redemptions exceed the following amounts. DOR would ask for additional
FTE through the budget process if justified.
• 1 FTE Associate Customer Service Representative for every 6,000 credits redeemed
• 1 FTE Associate Customer Service Representative for every 7,600
errors/correspondence generated
Oversight notes the DOR assume the need for 1 new FTE (Associate Customer Service
Representative at $31,200 annually. However, reserves the right to request additional FTE in
future depending on volume of the tax credit redemption. Oversight does not have any
information to the contrary. Therefore, Oversight will reflect the DOR FTE cost in the fiscal note
beginning in FY 2025.
Oversight notes the DOR assume one-time cost of $7,193 for the updates to the MO-TC form,
the website, and the individual income tax computer system in FY 2024.
Oversight notes Work Opportunity Tax Credit (WOTC), is a federal tax credit available to
employers who hire individuals from target groups, which include qualified Veterans,
individuals on food stamps and more. (For full list of the individuals, please visit
https://www.cmswotc.com/wotc-categories/).
Oversight provides full list of Missouri candidates applying and approved below:
WOTC
Certifications
Currently
PendingDenials
Total
Request
202243,82079,65072,929196,399202138,657113,67567,123219,455202054,033657,37775,355786,765201934,60942,98641,062118.657201877,31061,608109,495248,413 L.R. No. 2558H.01I
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201770,36667,27960,774198,419201634,00558,77028,342121,117201536,74565,77831,880134,403201434,79477,45430,201142,449Average
2018-202249,686191,05973,193290,230
Average
Percentage17%25%
https://www.cmswotc.com/wotc-categories/
Oversight provides the profile of WOTC certifications in 2022:
CategoryCertificationsCertification %SNAP 28,68365.4%Long Term5,18811.8%Qualified Veteran2,8036.4%Designated Community Resident2,5505.8%Ex-Felon1,6023.6%SSI Recipient8872.0%Long Term IV-A (TANF)8171.8%Vocational Rehabilitation7521.7%IV-A (TANF) 4110.9%Ticket Holder960.2%Summer Youth310.1%
https://www.cmswotc.com/wotc-categories/
Oversight notes the proposal allows Missouri employers, after January 1, 2024, receive up to
one hundred percent of the federal work opportunity credit properly claimed on such taxpayer's
federal income tax return.
Oversight notes currently the maximum cap allowed under I.R.C. §51 is 40% of up to $6,000
wages paid to or incurred on behalf of an individual define within the specified group (as shown
above), or $2,400.
Oversight notes in 2022 there were approximately $5 Billion paid to employers for
2,569,056 WOTC certifications filed.
Oversight assume on average employer received $1,946.2 per such a credit ($5B / 2,569,056) in
the same year.
Oversight notes there were 49,686 approved application throughout the Missouri from 2018 to
2022. Therefore, Oversight will range the impact from the $96,698,504 ($1,946.2 x 49,686
assuming average payout) to the maximum payout of $119,245,920 ($2,400 x 49,686 assuming L.R. No. 2558H.01I
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maximum payout) beginning FY 2025 (taxpayers are not able apply for this credit till January 1
2024, thus file income tax for the year in FY 2025).
Oversight notes the proposal allows employers, who are exempt from taxation under Section
(501) (c ) (such as: religious, charitable, scientific, testing for public safety, literary, educational,
or other specified purposes and that meet certain) of IRS code to apply using the section as a
credit for the payment of taxes that the organization is required to withhold from the wages of
employees and pay to the State.
Oversight notes that no tax credit (under this proposal) shall be transferable, refundable, or
carried forward.
Officials from the Department of Commerce and Insurance (DCI) assume a potential
unknown decrease of premium tax revenues (up to the tax credit limit established in the bill) in
FY2025 and FY2026 as a result of the creation of the Federal Work Opportunity tax credit.
Premium tax revenue is split 50/50 between General Revenue and County Foreign Insurance
Fund except for domestic Stock Property and Casualty Companies who pay premium tax to the
County Stock Fund. The County Foreign Insurance Fund is later distributed to school districts
throughout the state. County Stock Funds are later distributed to the school district and county
treasurer of the county in which the principal office of the insurer is located. It is unknown how
each of these funds may be impacted by tax credits each year and which insurers will qualify for
the new tax credit. Oversight, for fiscal note simplification purposes, that all credits will be
taken against income tax liabilities.
The department will require minimal contract computer programming to add this new tax credit
to the premium tax database and can do so under existing appropriation. However, should
multiple bills pass that would require additional updates to the premium tax database, the
department may need to request more expense and equipment appropriation through the budget
process.
Officials from the Joint Committee on Administrative Rules assume this proposal is not
anticipated to cause a fiscal impact beyond its current appropriation.
Officials from the Office of the Secretary of State (SOS) note many bills considered by the
General Assembly include provisions allowing or requiring agencies to submit rules and
regulations to implement the act. The SOS is provided with core funding to handle a certain
amount of normal activity resulting from each year's legislative session. The fiscal impact for
this fiscal note to the SOS for Administrative Rules is less than $5,000. The SOS recognizes that
this is a small amount and does not expect that additional funding would be required to meet
these costs. However, the SOS also recognizes that many such bills may be passed by the
General Assembly in a given year and that collectively the costs may be in excess of what the
office can sustain with its core budget. Therefore, the SOS reserves the right to request funding
for the cost of supporting administrative rules requirements should the need arise based on a
review of the finally approved bills signed by the governor. L.R. No. 2558H.01I
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FISCAL IMPACT – State GovernmentFY 2024
(10 Mo.)
FY 2025FY 2026GENERAL REVENUEReduction in Revenue – Section
135.465 state compliment to the Federal
Work Opportunity Tax Credit$0
($96,698,504)
Up to
($119,245,920)
($96,698,504)
Up to
($119,245,920)
Costs – Section 135.462 6. 1 FTE Personnel Service$0($31,824)($32,460) Fringe Benefits$0($27,195)($27,427) Expense & Equipment($7,193)$0$0Total Costs – DOR ($7,193)($59,019)($59,887)FTE Change0 FTE1 FTE1 FTE
ESTIMATED NET EFFECT ON
GENERAL REVENUE ($7,193)
($96,757,523)
Up to
($119,304,939)
($96,758,391)
Up to
($119,305,807)
FISCAL IMPACT – Local GovernmentFY 2024
(10 Mo.)
FY 2025FY 2026$0$0$0
FISCAL IMPACT – Small Business
A direct fiscal impact to small businesses would be expected as a result of this proposal.
FISCAL DESCRIPTION
Beginning January 1, 2024, this bill allows a qualified taxpayer to claim a tax credit for wages
paid to an individual with barriers to employment who is employed in the state in an amount
equal to the lesser of:
(1) One hundred percent of the federal Work Opportunity Credit claimed by a qualified taxpayer
on such taxpayer's federal income tax return with respect to such wages, excluding any amount
carried back or forward from another tax year in accordance with Section 39 of the Internal
Revenue Code; or L.R. No. 2558H.01I
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(2) The Missouri income tax imposed for that tax year, except in the case of an employer that is
an organization exempt from taxation under Section 501(c) of the Internal Revenue Code.
An employer that is exempt from taxation under Section 501 26 (c) of the Internal Revenue Code
may apply the credit towards the payment of taxes that the organization is required to withhold
from the wages of employees and required to pay to the state.
Such tax credits shall not be refundable. Nor shall any tax credit be carried forward to any
subsequent tax year.
These provisions will sunset on December 31st, six years after the effective date.
This legislation is not federally mandated, would not duplicate any other program and would not
require additional capital improvements or rental space.
SOURCES OF INFORMATION
Office of Administration – Budget & Planning
Department of Revenue
Office of the Secretary of State
Joint Committee on Administrative Rules
Department of Commerce and Insurance
Julie MorffRoss StropeDirectorAssistant DirectorApril 11, 2023April 11, 2023