IRS Provides Transition Relief Regarding Changes to the Work Opportunity Tax Credit.

(Parker Tax Publishing MARCH 2016)

The IRS has issued guidance and transition relief for employers claiming the work opportunity tax credit (WOTC), as extended and expanded by the Protecting Americans from Tax Hikes (PATH) Act. Notice 2016-22.

Background

The work opportunity tax credit (WOTC) under Code Sec. 51(a) provides a credit to employers based on a percentage of qualified wages paid during the taxable year. Generally, the amount of the WOTC is equal to 40 percent of the qualified first-year wages of members of a targeted group of employees who worked 400 or more hours during the year for the employer. Code Sec. 51(d)(1) lists the targeted groups, which include qualified supplemental nutrition assistance program (SNAP) benefit recipients, qualified veterans, and qualified ex-felons.

PATH extended the WOTC through December 31, 2019 for taxable employers that hire members of a targeted group and for qualified tax-exempt organizations that hire qualified veterans. PATH also amended Code Sec. 51(d)(1) to add qualified long-term unemployment recipients to the list of targeted groups, effective as of January 1, 2016.

Under Code Sec. 51(d)(13)(A), an individual is not treated as a member of a targeted group unless:

(1) on or before the day the individual begins work, the employer obtains certification from the designated local agency that the individual is a member of a targeted group; or

(2) the employer completes a pre-screening notice on or before the day the individual is offered employment and submits such notice to the designated local agency to request certification not later than 28 days after the individual begins work.

To request certification, an employer submits IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to the designated local agency no later than the 28th day after the day an individual who is a member of a targeted group begins work for the employer. An employer also must submit a Department of Labor Employment and Training Administration Form 9061, Individual Characteristics Form, or Form 9062, Conditional Certification.

Transition Relief Provided for Submitting Pre-Screening Notices

Because PATH extended the WOTC retroactively for 2015 for members of targeted groups, and because PATH created a new targeted group (qualified long-term unemployment recipients), the IRS noted that employers will need additional time to comply with the pre-screening notice requirements in Code Sec. 51(d)(13)(A)(ii) for those targeted groups.

Accordingly, Notice 2016-22 provides that an employer that hired or hires a member of a targeted group, including a long-term unemployment recipient, who began or begins work for that employer on or after January 1, 2015, and on or before May 31, 2016, will be considered to have satisfied the pre-screening notice requirements if the employer submits the completed Form 8850 to the designated local agency to request certification no later than June 29, 2016.

An employer that hires a member of a targeted group, including a long-term unemployment recipient, who begins work for that employer on or after June 1, 2016, is not eligible for the transition relief described in Notice 2016-22 with respect to any such new hire.

For purposes of the transition relief in Notice 2016-22, a qualified long-term unemployment recipient is any individual who, on the day before the individual begins work for the employer (or the day the individual completes the IRS Form 8850 as a prescreening notice, if earlier), is in a period of unemployment that is:

(1) not less than 27 consecutive weeks, and,

(2) includes a period in which the individual received unemployment compensation under state or federal law.

The IRS noted that PATH's amendment and expansion of the targeted groups in Code Sec. 51 to include long-term unemployment recipients will require changes to the forms used by employers to request certification for such individuals hired on or after January 1, 2016. Accordingly, the IRS stated that Form 8850 and Department of Labor Employment and Training Administration Forms 9061 and 9062 are being modified consistent with the guidance in Notice 2016-22.

For a discussion of the work opportunity tax credit, see Parker Tax ¶104,500. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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