New Tax Credit Gives Employers 20% Back for Upskilling Lower-Wage Workers

The Investing in American Workers Act introduces a serious incentive for businesses to invest in their employees—specifically the ones who aren't in the executive suite. This bill creates a new federal tax credit designed to encourage employers to pay for formal training and education for their non-highly compensated staff.

The Training Credit: How the Math Works

Think of this as a reward for boosting your training budget. The core of the credit is 20% of the amount by which a company’s current-year training expenses exceed the average of what they spent over the last three years (adjusted for inflation). This means if a business usually spends $100,000 annually on qualified training but spends $150,000 this year, they get a credit on the $50,000 difference—or $10,000 back.

This calculation has a catch: it rewards companies that significantly ramp up their training investment but might not be as generous to companies that already have consistently high training budgets. If a company is just starting a training program and has no historical spending, the credit drops to 10% of their total current spending, which is a decent starting point but less aggressive than the 20% offered for exceeding the historical baseline.

What Counts as 'Qualified' Training?

This isn't a credit for sending the team out for a motivational seminar. To qualify, the training must lead to a “recognized postsecondary credential.” This focuses the incentive on real, measurable skills. The training also has to be provided through specific, established channels, such as federally or state-registered apprenticeship programs, community colleges, or programs run by labor organizations or industry trade groups. Crucially, the bill specifies that costs for things like meals, lodging, and transportation are excluded from the calculation. This exclusion might make it harder for companies to send employees to necessary, multi-day training sessions far from home, especially if those workers are on tight budgets.

Who Gets the Upskilling?

This credit is specifically targeted at non-highly compensated employees. The bill defines this group as anyone whose pay is less than 60% of the threshold set for highly compensated employees. In short, this is aimed squarely at the middle and lower rungs of the pay scale, encouraging employers to invest in the people who often need those credentials the most to advance their careers and earning potential. For an employee working in manufacturing or logistics, this could mean their employer pays for a certification in robotics maintenance or supply chain management, leading directly to a better job title and higher pay.

A Break for Small Businesses

Recognizing that many small businesses and non-profits don’t have large income tax bills to offset, the bill includes a vital option: qualified small businesses (generally those with less than $5 million in gross receipts) and qualified tax-exempt organizations can elect to apply up to $250,000 of this credit against their employer-side Social Security payroll tax liability instead of their income tax. This is a game-changer for smaller operations. Instead of waiting for an income tax benefit, they get immediate relief on their operating costs, making the training investment much more accessible and tangible. For a small construction firm, this means they could fund an apprenticeship program and see the tax benefit immediately reflected in their quarterly payroll filings.