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State gov'ts should offer tax credits to businesses rehiring employees

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The past several months have been anything other than business as usual. The COVID-19 pandemic shifted the way we do business and caused over 40 million jobless claims in the United States to date.

In order to bring Americans back to work, state legislatures should examine existing job creation tax credits and determine how to mold those policies into rehire tax credits. By incentivizing businesses to rehire employees laid off or furloughed due to COVID-19, states will generate a faster economic recovery and provide valuable assistance for companies to get back on their feet.

Most states have some sort of job creation tax credit program already in place. While incentives and qualifications for these programs differ from state to state, the infrastructure already exists and would only need to be tweaked to move from a job creation focus to a rehire focus.

Most states’ job creation incentives have two things in common. First, businesses typically must apply for these programs in advance. Second, most programs are controlled primarily by legislative statutes and can only be changed by legislatures and governors.

For example, Job Creation Tax Credit programs in Pennsylvania, Maryland and Ohio, or the Job Growth Incentive Tax Credit in Colorado, offer tax credits for the creation of jobs within a set number of years. However, businesses must apply for the credit before starting a project. When considering a rehiring tax credit, businesses may not have the forethought to apply in advance, and states may not have the infrastructure to accept an influx of applications. Additionally, businesses may still face uncertainty on how quickly they can rehire employees due to supply chain challenges, sales pipeline restrictions or a resurgence in the pandemic that would cause further delays.

There may be a better option.

In Georgia, the state’s Job Creation program is unique in that it is retroactive. It looks back over 12 months to determine net job growth for the year and, by considering reported monthly headcount, accounts for any fluctuations in employment based on seasonality or economic downturns. This example program utilizes simple reporting and is conveniently applied to the company’s tax return. The state’s department of revenue reviews and mitigates any discrepancies.

Another factor shared by many states is the fact that workers will soon face an end to expanded unemployment benefits. Now is the time to review and determine effective recovery policies to get individuals re-employed and out of these unemployment programs.

To act quickly, states must work with existing programs. As a majority of tax credit programs are enacted through legislative statutes, state legislative bodies would have to approve changes and consider the impact on state budgets. Elected officials and government offices would have to weigh potential risks as well.

States must begin to think critically about how to bring back their workforces after waves of COVID-19-related layoffs. A rehire tax credit would incentivize businesses to confidently — and quickly — return employees to work.

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Tax credits Coronavirus State taxes Tax breaks
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