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Transition relief allows employers to claim retroactive work opportunity tax credit

Notice 2015-13, 2015-10 IRB

In a Notice, IRS has provided employers with additional time to obtain the certification necessary to claim the work opportunity tax credit (WOTC), which was retroactively extended by the Tax Increase Prevention Act of 2014 (TIPA, P.L. 113-295, 12/19/ 2014) to cover eligible employees who begin work before Jan. 1, 2015. An employer that hired a member of a targeted group or a tax-exempt organization that hired a qualified veteran during 2014 will meet the requirements under Code Sec. 51(d)(13)(A)(ii) if a pre-screening notice to request certification is filed with the appropriate Designated Local Agency (DLA) no later than Apr. 30, 2015.

Background. The WOTC allows employers who hire members of certain targeted groups to get a credit against income tax of a percentage of first-year wages up to $6,000 per employee ($3,000 for qualified summer youth employees). Where the employee is a long-term family assistance (LTFA) recipient, the WOTC is a percentage of first and second year wages, up to $10,000 per employee. Generally, the percentage of qualifying wages is 40% of first-year wages; it’s 25% for employees who have completed at least 120 hours, but less than 400 hours, of service for the employer. For LTFA recipients, it includes an additional 50% of qualified second-year wages.

The maximum WOTC for hiring a qualifying veteran generally is $6,000. However, it can be as high as $12,000, $14,000, or $24,000, depending on factors such as whether the veteran has a service-connected disability, the period of his unemployment before being hired, and when that period of unemployment occurred relative to the WOTC-eligible hiring date.

Before an employer may claim the WOTC, the employer must obtain certification that the hired individual is a targeted group member. Certification of an individual’s targeted group status is obtained from a DLA—a State employment security agency established in accordance with 29 USC 49 – 29 USC 49n. Targeted groups include: qualified IV-A recipients (qualified recipients of aid to families with dependent children or successor program); qualified veterans; qualified ex-felons; designated community residents (i.e., the former “high-risk youths” targeted group but with the maximum age requirement raised and the residency requirement expanded to include rural renewal residents); vocational rehabilitation referrals; qualified summer youth employees; qualified supplemental nutrition assistance benefits recipients; qualified SSI recipients; and long-term family assistance recipients, i.e., members of a family that receives or received assistance under a IV-A program for a minimum period of time. (Code Sec. 51(d))

An individual isn’t 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 DLA that the individual is a member of a targeted group; (Code Sec. 51(d)(13)(A)(i)) or (2) the employer completes a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before the day the individual is offered employment and submits such notice to the DLA to request certification not later than 28 days after the individual begins work. (Code Sec. 51(d)(13)(A)(ii))

A reduced WOTC for hiring qualified veterans is also available to a tax-exempt employer (one described in Code Sec. 501(c) and exempt from tax under Code Sec. 501(a)) as a credit against the employer share of Social Security tax imposed under Code Sec. 3111(a). (Code Sec. 52(c)(2), Code Sec. 3111(e))

Before TIPA was enacted very late in December of 2014, wages for purposes of the WOTC didn’t include any amount paid or incurred to eligible employees who began work after Dec. 31, 2013.

Extension of time provided. Because TIPA extended the WOTC retroactively for 2014 for members of targeted groups, employers need additional time to comply with the requirements of Code Sec. 51(d)(13)(A). Accordingly, Notice 2015-13 provides that a taxable employer that hired a member of a targeted group, or a qualified tax-exempt organization that hired a qualified veteran described in Code Sec. 51(d)(3), on or after Jan. 1, 2014 and before Jan. 1, 2015, will be considered to have satisfied the requirements of Code Sec. 51(d)(13)(A)(ii) if it submits the completed Form 8850 to request certification, to the appropriate DLA not later than Apr. 30, 2015.

IRS notes that a timely request for certification doesn’t eliminate the need for the employer to receive a certification before claiming the credit.

References: For the WOTC, see FTC 2d/FIN ¶  L-17775; United States Tax Reporter ¶  514; TaxDesk ¶  380,700; TG ¶  14976.

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