The IRS has recently granted transitional relief to eligible employers who are planning to claim the Work Opportunity Tax Credit (WOTC). The relief outlined in IRS Notice 2016-22 comes in the form of an extended deadline — June 29, 2016 — to file a form necessary to claim the credit for certain eligible workers, if they are hired within a specific time period.
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended the WOTC through 2019. The credit is for employers that hire individuals who are members of a “target group.” The PATH Act also expanded the credit beginning this year to apply to employers that hire qualified individuals who have been unemployed for 27 weeks or more.
The amount of the tax credit depends on the target group of the individual hired, the wages paid to that individual, and the number of hours that individual worked during the first year of employment. The maximum tax credit that can be earned for each member of a target group is generally $2,400 per adult employee. The credit can be as high as $9,600 per qualified veteran. Employers are not subject to a limit on the number of eligible individuals they can hire. In other words, if there are 10 individuals that qualify, the credit can be 10 times the amount listed.
The target groups that qualify are below:
- TANF recipients
- SNAP (food stamp) recipients
- Designated community residents (living in Empowerment Zones or Rural Renewal Counties)
- Vocational rehabilitation referral
- Supplemental Security Income (SSI) recipients
- Summer youth employee (living in Empowerment Zones)
- Long-term unemployed individuals (credit available in 2016)
Employers that hired targeted group members can claim the tax credit as a general business credit against their income tax. (Nonprofit organizations may be eligible for a credit against their payroll tax liabilities.) However, before an employer can claim the credit, it must obtain certification from a designated local agency (DLA) that the hired individual is indeed a targeted group member.
An employee is not treated as a member of a targeted group for WOTC purposes unless the employer obtains certification from the DLA that the employee is a member or the employer completes IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” and submits it to the DLA no later than the 28th day after the individual begins work for the employer. As stated in the IRS’ recent transitional relief, however, employers who hirequalified employees from Jan 1, 2015, through May 31, 2016, have until June 29, 2016, to timely submit the form.Employers who hire after May 31, 2016will be held to the deadline of 28 days following the hire.
June 29 is also the extended deadline for employers that hired (or hire) long-term unemployment recipients between January 1, 2016, and May 31, 2016, as long as the individuals start work for that employer on or after January 1, 2016, and on or before May 31, 2016. For long-term unemployment recipients hired on or after June 1, Form 8850 must be submitted by the 28th calendar day after the individual begins work.
An employer also must submit a Department of Labor Employment and Training Administration (ETA) Form 9061 (Individual Characteristics Form) or 9062 (Conditional Certification) to the DLA.
Form 8850 Modified
In light of the guidance in Notice 2016-22, the federal government is modifying Form 8850 and ETA Forms 9061 and 9062 so that employers can use them to request certification from the DLAs for qualified long-term unemployment recipients. Those modified forms and instructions will indicate the information that must be provided in order for the employer to receive certification from the DLA that the individual is a qualified long-term unemployment recipient.
The IRS anticipates that the modified forms will include a requirement that the individual signing the form attest that he or she meets the requirements to be a qualified long-term unemployment recipient and a requirement that the individual attest to the period(s) during which the individual was unemployed and received unemployment compensation.
Take Action Soon
The WOTC can lower your company’s tax liability or the tax liability of each owner of the company when you hire qualified new employees. However, a timely request for certification does not eliminate the need to receive a certification before claiming the credit. So you may need to file for a tax return extension. We can help you determine whether an employee qualifies, calculate the applicable credit and answer other questions you might have.
Contact a member of your service team for further discussion.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.