New Tax Credit Gives Businesses 20% Break for Training Lower-Paid Workers, Helps Small Firms with Payroll Taxes

The new Investing in American Workers Act is setting up a substantial tax credit aimed squarely at boosting job training, specifically for employees who aren't in the highly compensated bracket. Basically, if a company spends more on training its regular workforce this year than it did on average over the last three, it can claim a tax credit equal to 20% of that extra spending.

This isn't just about sending someone to a one-day seminar, though. To qualify for the credit, the training must lead to a “recognized postsecondary credential” and be provided through established channels like registered apprenticeships, community colleges, labor organizations, or industry-recognized programs. The goal is clear: incentivize structured, credential-based upskilling for the people who often need it most—those whose pay is less than 60% of the highly compensated threshold.

The Math Behind the Upskill Incentive

Think of this as a reward for increasing your investment in people. The core calculation is designed to encourage growth: the credit is 20% of the amount by which current training expenses exceed the average expenses from the previous three years. Say a small manufacturing plant averaged $10,000 in qualifying training costs between 2021 and 2023. If they spend $30,000 in 2024, the credit is calculated on the $20,000 difference, yielding a $4,000 tax credit. If a company has no training history, the credit drops to 10% of the current year’s expenses, which is still a decent incentive to start investing.

However, there’s a crucial catch for employers: they can’t double-dip. If they claim the credit for training expenses, they cannot also deduct those same costs as a business expense under existing tax rules (Section 280C). This means the actual financial benefit is the value of the credit minus the value of the deduction they lose. It’s still a powerful incentive, but it’s important for CFOs and small business owners to run the numbers carefully.

A Lifeline for Small Business Cash Flow

One of the most practical features of this Act is how it treats small businesses and non-profits. A “qualified small business”—generally defined as one with less than $5 million in annual gross receipts—can elect to apply this new credit against its employer-share of Social Security payroll taxes, rather than waiting to use it against income tax. This is huge for cash flow.

For example, if a local construction company qualifies and earns a $50,000 training credit, they can use that money immediately to offset the Social Security taxes they owe every quarter, up to $250,000 annually. This turns a future income tax break into immediate, quarterly relief, making it much easier for smaller operations to afford the training that keeps their electricians, plumbers, and laborers competitive.

What the Fine Print Means for Workers

For the workers themselves, this bill is a signal that employers are being nudged to invest in them, not just the executives. The focus on “non-highly compensated employees” means the training dollars are directed toward the majority of the workforce. If you’re an entry-level worker, a customer service representative, or an experienced technician looking to move up, this bill incentivizes your employer to pay for the apprenticeship, community college course, or industry certification that gets you that next promotion. The Secretary of Labor still needs to issue guidance on what exactly counts as a “recognized postsecondary credential,” which will be the key to making sure this training is valuable and marketable.