IRS Notice Provides Work Opportunity Tax Credit Definitions

The IRS has released a notice that defines the terms “unemployed veteran” and “disconnected youth” for purposes of the Sec. 51 work opportunity tax credit (Notice 2009-28). The notice also gives transition relief to employers who hired employees from those targeted groups after December 31, 2008, and before July 17, 2009.

Sec. 51 provides a credit for employers who hire disadvantaged workers from specific targeted groups. In February, the American Recovery and Reinvestment Act, P.L. 111-5, expanded the list of groups to include unemployed veterans and disconnected youths.

Unemployed Veteran

For purposes of the credit, an unemployed veteran is defined as any veteran who has been certified by a designated local agency (as defined in Sec. 51(d) (12)) as:

(1) having been discharged or released from active duty in the Armed Forces at any time during the 5-year period ending on the hiring date; and (2) being in receipt of unemployment compensation under State or Federal law for not less than four weeks during the one-year period ending on the hiring date. [Notice 2009-28, §I]

Disconnected Youth

Sec. 51(d)(14)(B)(ii) defines a disconnected youth as an individual who has been certified by a designated local agency as:

1. Having attained age 16 but not age 25 on the hiring date;
2. Not regularly attending any secondary, technical, or postsecondary school during the six-month period preceding the hiring date;
3. Not regularly employed during that six-month period; and
4. Not readily employable due to a lack of a sufficient number of basic skills.

The notice defines “not regularly attending” as meaning that during the six months preceding the hiring date the individual has not attended a secondary, technical, or postsecondary school for more than an average of 10 hours a week. It defines secondary school by looking to the definition in 20 U.S.C. Section 7801(38) and technical and postsecondary schools by looking to the definitions in 20 U.S.C. Sections 1001, 1002, and 1059. (Title 20 is the education title of the U.S. Code.)

The notice defines “not regularly employed” to mean that during each consecutive three-month period within the six-month period before the date of hire, the individual earned less than he or she would have if he or she had worked 30 hours a week and had been paid the minimum wage (either the federal minimum wage or the applicable state minimum wage, if higher).

To qualify as not readily employable due to a lack of a sufficient number of basic skills, the individual must either:

1. State in writing that he or she does not have a certificate of graduation from a secondary school (i.e., a high school diploma) or a GED certificate; or
2. If he or she does have a certificate of graduation from a secondary school or a GED certificate, it was awarded no less than six months before the hiring date, and he or she has not held a job or been admitted to a technical or postsecondary school since receiving the certificate.

Transition Relief

Sec. 51 requires employers to either:

• Obtain certification from a designated local agency (on or before the day the individual begins work) that the individual is a member of a targeted group; or
• Complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit (on or before the day the individual is offered employment), and submit the form to the designated local agency to request certification not later than 28 days after the individual begins work.

However, in the case of an employer who hired an unemployed veteran or disconnected youth after December 31, 2008, and before July 17, 2009, the employer will be considered to have met the deadline if the employer submits Form 8850 to the designated local agency by August 17, 2009.