IRS Provides Additional Transition Relief for Employers Claiming the Work Opportunity Credit

IRS issued Notice 2016-40 on Friday, which provides additional transition relief for employers claiming the Work Opportunity Credit, as extended by the Protecting Americans from Tax Hikes Act of 2015 (PATH).

The Work Opportunity Credit provides a tax benefit to employers based on a percentage of qualified wages paid during the tax year to a member of certain targeted groups. The credit, which expired at the end of 2014, was retroactively extended by Congress back to January 1, 2015, through December 31, 2019.

In order to qualify an employee for the credit, the employer must either:

1. On or before the day the individual begins work, obtain certification from a designated local agency (DLA) that the individual is a member of a targeted group; or
   
2. .Complete a pre-screening notice on or before the day the individual is offered employment and submit the notice to the DLA, to request certification, not later than 28 days after the individual begins work.

Certification is requested on IRS Form 8850.

For those hired in 2015, this certification was generally not received. Employers did not submit requests for certifications since the credit no longer existed. Furthermore, many DLAs refused to accept certification requests for an expired credit.

IRS issued Notice 2016-22 earlier in the year to establish procedures for employers to retroactively qualify employees who are otherwise eligible for the credit. Notice 2016-40 extends the transition periods in Notice 2016-22 by three months.

• An employer who hired (or hires) an individual who is a member of a targeted group (other than a “long-term unemployment recipient”) and who began (or begins) work on or after January 1, 2015, and on or before August 31, 2016, will be considered to satisfy the eligibility requirements if the employer submits the completed IRS Form 8850 to the DLA to request certification no later than September 28, 2016.
• An employer who hired (or hires) an individual who is a “long-term unemployment recipient” (a new targeted group category created under the PATH Act) who began (or begins) work on or after January 1, 2016(the effective date of this new target group), and on or before August 31, 2016, will be considered to satisfy the eligibility requirements if the employer submits the completed IRS Form 8850 to the DLA to request certification no later than September 28, 2016.

Despite this transition rule, certification must be actually received prior to the claiming the credit on one’s tax return. Employers can claim the credits on the open tax year in which the certification is received. No amending of returns to claim this credit.

If you have any questions, please contact your Marcum tax professional for assistance.