Employers: Gain Extra Time to Claim the Work Opportunity Tax Credit

The IRS announced it is providing an extension of time to employers that want to claim the Work Opportunity Tax Credit (WOTC). Specifically, employers have more time – up to April 29, 2013 – to file the required IRS form to claim the valuable tax credit (IRS Notice 2013-14).

The WOTC can be claimed by employers hiring individuals who are members of targeted groups. The amount of the credit is a percentage of wages paid in the first year. The maximum credit a for-profit employer can claim is $9,600 for each worker ($6,240 for tax-exempt organizations).

Which individuals are members of targeted groups?

  • Veterans who meet certain requirements;
  • TANF recipients (those receiving benefits under the Temporary Assistance for Needy Families program);
  • SNAP (food stamp) recipients;
  • Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties);
  • Vocational Rehabilitation Referral (an individual with a disability who completed, or is completing, rehabilitative services from a state-certified agency, an employment network under the Ticket to Work program, or the U.S. Department of Veteran Affairs);
  • Ex-felons (an individual who has been convicted of a felony and has a hiring date that is not more than 1 year after the conviction or release from prison);
  • Supplemental Security Income recipients;
  • Summer Youth Employee (16 or 17 year old living in Empowerment Zones and working between May 1 and September 15).

The WOTC was retroactively extended by the American Taxpayer Relief Act, which was enacted on January 2, 2013. Before the law passed, wages for purposes of the WOTC didn’t include amounts paid or incurred to:

  • A non-veteran worker who began a job after December 31, 2011; or
  • A veteran worker who started a job after December 31, 2012.

The American Taxpayer Relief Act retroactively extended the WOTC so that it applies to eligible veterans and non-veterans who start working for an eligible employer before January 1, 2014.

The problem is the law granted a two-year WOTC extension for qualifying non-veterans (one-year for qualifying veterans), but it didn’t provide a procedure for employers to meet a requirement for claiming it.

Here is the general process:

  • An employer must obtain certification that an individual is a targeted group member before the employer can claim the credit.
  • Certification of an individual’s targeted group status is obtained from a state employment office called a Designated Local Agency (DLA).
  • An employer must submit IRS Form 8850 to the DLA no later than the 28th day after the individual begins work.

Therefore, employers who qualify for the credit may have had eligible workers on their payrolls for months before the American Taxpayer Relief Act made them retroactively eligible for a WOTC.

Under IRS Notice 2013-14, here is the relief:

1.      If you are a for-profit (taxable) employer that hired a member of a targeted group, other than an eligible veteran, between January 1, 2012 and March 31, 2013, you can submit IRS Form 8850 to your DLA by April 29, 2013.

2.      If you are an employer (tax-exempt or taxable) that hired an eligible veteran between January 1, 2013 and March 31, 2013, you can submit IRS Form 8850 to your DLA by April 29, 2013. Tax-exempt organizations can only claim the WOTC for hiring eligible veterans – and not other targeted groups.

If you have questions about how to claim the WOTC for certain employees your business or organization hires, contact your tax adviser.