MLR

Technicality will no longer deny credit to eligible employer

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In a new notice, the IRS now provides transitional relief for eligible employers who want to claim the work opportunity tax credit.

Previously, the American Taxpayer Relief Act (ATRA) retroactively extended the work opportunity tax credit (WOTC). The WOTC allows employers who hire members of certain targeted groups to receive a credit against income tax for a percentage of first-year wages. Targeted groups include certain veterans and certain members of other groups deemed difficult to employ.

Before passage of the taxpayer relief act, eligibility for the WOTC had expired on:

  • Dec. 31, 2011, for non-veterans, or
  • Dec. 31, 2012, for veterans.

The act retroactively extended the credit through Dec. 31, 2013, for eligible veterans and non-veterans. It also extended the provisions of the VOW to Hire Heroes Act, which made the WOTC credit available as a credit against the employer's Social Security tax for tax-exempt organizations that hire qualified veterans.

However, ATRA failed to deal with one technical aspect of the work opportunity tax credit. The problem is that an individual is not treated as a member of a targeted group for WOTC purposes unless:

  • On or before the day the individual begins work, the employer obtains certification from a designated local agency showing that the individual is a member of a targeted group; or
  • 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 employer offers the individual employment and submits such notice to the designated local agency to request certification not later than 28 days after the individual begins work.

Eligible employers may have hired members of targeted groups months before they retroactively became eligible for the WOTC. The new notice (Notice 2013-14) provides that the 28-day deadline for filing Form 8850 will not end earlier than April 29, 2013, for employers who became eligible for the credit under the retroactive extensions.