Article written by:
Ryan Kilpatrick, CPA, CEPA
Senior Manager, Tax & Business Advisory Services
On October 10, 2019, the IRS issued a joint directive to its Large Business & International (LB&I) and Small Business/Self-Employed (SB/SE) examination divisions to not challenge the timing of claiming a Work Opportunity Tax Credit (“WOTC”) in the case of a delayed certification from their State Workforce Agency (“SWA”).
Taxpayers are able to claim WOTC on certain hard-to-hire employees. As part of claiming WOTC, the taxpayer must first submit a certification to their SWA to certify that the employee is eligible for the credit. Second, the employer is required to calculate the amount of the credit based on wages paid, among other criteria. The credit is to be claimed in the year that the certification was obtained and qualifying wages paid or incurred. However, delays in obtaining certifications from the SFA often did not allow taxpayers to claim the credit on a timely-filed tax return.
As a result of the directive, the IRS will no longer challenge the timing of claiming the credit as a result of a delayed certification. If a taxpayer pays or incurs the qualifying wages in Year 1, but does not obtain the certification until Year 2, the taxpayer will be allowed to claim the credit in Year 2. The IRS will not challenge a taxpayer who has consistently followed this method of claiming the credit due to delayed certifications. Additionally, the IRS will allow a “transition” year for any taxpayers who wish to claim the credit in accordance with the directive rather than under an existing methodology.
By way of background, WOTC is available for a portion of first-year wages paid to employees who belong to certain targeted groups and begin work by December 31, 2019. Those targeted groups include qualified IV-A recipients, qualified veterans, qualified ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified supplemental nutrition assistance recipients, qualified SSI recipients, long-term family assistance recipients, and qualified long-term unemployment recipients. These individuals must be certified, either in advance or immediately after employment, by employers through a certification process. GBQ provides WOTC services to yield maximum benefits while making minimal demands on employers. To learn more, please contact Marti Brenner, Director, Credit & Incentive Services, Chris Dean, Director, Tax & Business Advisory Services, or your GBQ representative.