Tax News & Views

 INSIGHTS FROM OUR NATIONAL TAX OFFICE

APRIL 6, 2016 
Claiming the Work Opportunity Tax Credit
 
The Work Opportunity Tax Credit (WOTC) generally allows employers who hire someone from certain targeted groups to get a tax credit against income tax for a percentage of first year compensation. In order to claim the WOTC, employers must do one of the following:
  1. Obtain certification from a designated local agency (DLA) that an employee is a member of a targeted group on or before the day the person begins work.
  2. Complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the day an individual is offered employment, and submit it to the appropriate DLA no later than 28 days after an employee begins work. The employer must also submit a Department of Labor (DOL) Employment and Training Administration Form 9061 (Individual Characteristics Form) or Form 9062 (Conditional Certification).
The IRS encourages employers to file the required DOL form with the DLA at the same time as Form 8850. A DLA is typically a state employment security agency.
 
WOTC Extended Through 2019
The WOTC was one of the tax measures that expired at the end of 2014. Fortunately, the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), signed into law on December 18, 2015, extended the WOTC from January 1, 2015, through December 31, 2019. However, it was not clear how employers who had hired someone from one of the targeted groups in 2015 would comply with Form 8850's 28-day filing requirement. 
 
IRS Notice 2016-22, released on March 7, 2016, cleared up the 28-day filing requirement by providing additional time, until June 29, 2016, for an employer to submit Form 8850 to a DLA to obtain certification for eligible employees hired in 2015.
 
Targeted Groups for 2015
The WOTC is generally 40 percent of the first $6,000 of qualified wages, although actual credit amounts can vary by targeted group and for individual hours worked. Targeted groups include:
  • Qualified IV-A recipients
  • Qualified veterans
  • Qualified ex-felons
  • Vocational rehabilitation referrals
  • Qualified summer youth employees
  • Designated community residents at least 18 years of age but under age 40
  • Qualified food stamp recipients
  • Qualified supplemental security income recipients
  • Long-term temporary assistance recipients
New Target Group for 2016
In addition to extending the WOTC through 2019, the PATH Act added "qualified long-term unemployment recipients" (i.e., those who have been unemployed for 27 weeks or more) to the list of targeted groups effective January 1, 2016, for taxable employers only.
 
To give the IRS and DOL time to update the necessary reporting forms and instructions, IRS Notice 2016-22 also extends the time for submitting Form 8850 for members of targeted groups, including long-term unemployed individuals, hired this year to no later than June 29, 2016, though this is limited to those hired and beginning work prior to June 1, 2016. For WOTC-qualified employees beginning work on or after June 1, 2016, the usual 28-day filing requirement applies.
 
Review Hiring Records
Employers need to receive certification from a DLA before claiming the WOTC. Consequently, employers that have not yet filed tax returns for 2015 should review their employment records to determine whether they hired someone in one of the targeted groups during 2015. While the transition relief provided in IRS Notice 2016-22 for claiming the WOTC may have come too late for some employers that have already filed their 2015 income tax returns, they should still review their records and consider whether the WOTC warrants the filing of a substitute or amended return for 2015. In light of the WOTC's extension through 2019, employers should put in place a regular process to review new hires for membership in one of the target groups.
 
Please contact your local Eide Bailly tax professional if you have any questions about the WOTC or other tax credits.

Eide Bailly's National Tax Office serves as a resource for clients to help analyze complex tax issues related to business decisions. Our professionals are committed to helping clients stay informed about tax news, developments and trends through various specialty areas, including cost segregation studies, wealth transfer, state and local taxation, international tax, IRS controversy and procedures, R&D tax incentives, tax-exempt organizations, tax legislation, accounting methods and pass-through entities.

855.889.5508
eidebailly.com/taxNationalTaxOffice@eidebailly.com

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Eide Bailly LLP and the author do not assume responsibility for any individual's reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique before recommending the technique to a client or implementing it on the client's behalf. To request reprints of this publication, send a written request to RequestReprints@eidebailly.com. © 2016 Eide Bailly LLP.