Guidance Extends Certification Deadlines for Reinstated Work Opportunity Tax Credit

On Monday, the IRS announced it is extending the time for employers to file the paperwork to claim the work opportunity tax credit (WOTC) for employees (other than those qualifying under the credit as long-term unemployed) hired from Jan. 1, 2015, to May 31, 2016, and for employees hired from Jan.1, 2016, to May 31, 2016, under the new category for the long-term unemployed (Notice 2016-22).

Employers qualify for the credit by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, which is usually due no later than 28 days after an employee begins work. Timely filing of the form by the employer is a prerequisite to claiming the WOTC for hiring the employee. When the credit was extended retroactively to the beginning of 2015 by the Protecting Americans From Tax Hikes Act of 2015 (PATH), P.L. 114-113, it was unclear how employers who hired eligible employees in 2015 would be able to timely file the form and certify those employees. (PATH extended the WOTC through Dec. 31, 2019.)

Notice 2016-22 answers those questions. Under the notice, employers who hire a member of a targeted group (not including the long-term unemployed) on or after Jan. 1, 2015, and before May. 31, 2016, will be considered to have timely filed Form 8850 if it is filed with the designated local agency (DLA, a state employment security agency established under 29 U.S.C. §§49–49n) by June 29, 2016.

The notice also provides an extension of time to obtain the certification for qualified long-term unemployment recipients, which is a category of recipients newly added by PATH. A qualified long-term unemployment recipient is defined as any individual who is certified by a DLA as being in a period of unemployment that is not less than 27 consecutive weeks and includes a period in which the individual was receiving unemployment compensation under state or federal law.

The long-term unemployed employees only qualify under the credit if they are hired beginning Jan. 1, 2016, through Dec. 31, 2019. For the long-term unemployed who began or begin work for an employer on or after Jan. 1, 2016, and on or before May 31, 2016, the employer has until June 29, 2016, to submit the completed Form 8850 to the DLA to request certification.

For employees hired after May 31, 2016, the IRS has not extended the due date of Form 8850. It must still be filed within 28 days.

—Sally P. Schreiber (sschreiber@aicpa.org) is a Tax Adviser senior editor.