Work Opportunity Tax Credit Transitional Relief Provides a Short Retroactive Window

The Work Opportunity Tax Credit (WOTC) program had been in hiatus since Jan 1, 2015. On December 18, 2015 the President signed into law the Protecting Americans From Tax Hikes Act of 2015 that extends the Work Opportunity Tax Credit (WOTC) to new employees hired from January 1, 2015 through December 31, 2019. The legislation also added a new target group to WOTC for long-term recipients of unemployment benefits.

The WOTC is equal to 25% or 40% of a new employee’s first-year wages depending upon the target group to which the employee belongs. The maximum credit per employee ranges from $1,800 to $9,600. Most target groups qualify for a credit of $2,400. Employers must screen applicants and certify eligibility for the credit and file Form 8850 within 28 days of hire. Since the program has been on hiatus, this 28 day period may have passed for employees hired on or after January 1, 2015.

A Temporary Retroactive Solution

The IRS issued Notice 2016-22 that allows transition relief for employers to file WOTC form 8850 for new employees hired between Jan 1, 2015 and May 31, 2016. Notice 2016-22 provides specific relief for two provisions of the WOTC program. First, it allows employers to retroactively screen applicants hired during the applicable time period. Second, it allows employers to satisfy the 28 day timeline for submitting the 8850 for certification so long as the application is made by June 29, 2016.

Jump-Starting the WOTC Process

The transitional relief provides an opportunity to capture otherwise lost tax credits. In addition, once a process is in place to capture employees hired on or after January 1, 2015, taxpayers can begin screening and certifying new hires real-time to capture the future benefits of the program.