Important! There was an important update to WOTC credit eligibility since this blog was published. Please refer to this newer blog post for time-sensitive tax credit information.
The WOTC Credit Program, allowed to lapse for nearly all of 2014, was retroactively reinstated in late December.
Many employers know by now that a lapse in the federal Work Opportunity Tax Credit (WOTC) program should not deter them from making strategic hiring decisions and submitting timely WOTC certification requests.
It’s become a tradition for the WOTC credit program to expire and go unrenewed throughout the year (a “hiatus” period), only to be retroactively reinstated. Since the creation of WOTC by the Small Business Job Protection Act of 1996, Congress has renewed the credit nine times in 18 years. Renewal periods typically range from 12 to 44 months, and for renewals passed following a hiatus, retroactive reauthorization of WOTC is the norm.
The catch? “Retroactive” may apply to agency processing of certification requests, but that doesn’t mean it applies to employers’ certification submissions. Employers who fail to submit their WOTC certifications timely throughout a hiatus risk missing out on an important savings opportunity.
Employers who did submit WOTC certification requests throughout the 2014 hiatus will soon see their diligence rewarded. Just before the end of 2014, President Obama signed the Tax Increase Prevention Act of 2014 (P.L. 113-295), extending WOTC retroactively through December 31, 2014 with no change to program requirements or target groups. This also means that as of January 1, 2015, the WOTC program is again on hiatus.
In addition to WOTC, the Federal Empowerment Zone Credit and Indian Employment Credits were also extended for one year.
- Federal Empowerment Zone Credits are available to businesses in 23 states, with a 15% credit on up to $20,000 of wages paid to employees living and working in Empowerment Zones.
- Indian Employment Credits are available to businesses employing enrolled members of an Indian tribe or their spouses who live and work on or near a reservation. The credit is 20% of up to $20,000 in wages, but employees with wages of over $45,000 are ineligible.
With the WOTC hiatus period extending across all of 2014 (it had expired December 31, 2013), there is a backlog of 2014 requests to be processed by the state agencies — which means delays are to be expected…but the faucet has been turned on and things are now flowing.
In 2014, the Employment and Training Administration (ETA) issued Training and Guidance Letter (TEGL) No. 8-13 which advised that state workforce agencies (SWAs) must accept (and date stamp, log and retain, as well as possibly start to process) applications — but postpone final processing until WOTC was reinstated — and they are advising the same thing now. For reference, see the ETA’s recently published Interim Instructions for State Workforce Agencies on Recent Congressional Reauthorization of the Work Opportunity Tax Credit (WOTC) Program, and on Authorization Lapse for 2015, issued January 7, 2015.
Employers shouldn’t be deterred by the hiatus in WOTC program authorization. They can continue to hire, complete WOTC forms 8850 and 9061, and submit them to the states under the same timeliness and compliance regulations as always. Employers will only face the minor inconvenience of a longer processing period as state agencies work their way through the backlog.
Takeaway: Don’t be discouraged by the hiatus or the delay in processing your WOTC credits. Employers should continue to submit all WOTC certification requests within 28 days of signing by the new hire to ensure all forms remain timely and compliant. These efforts will pay off with important savings.
- Get the latest information about WOTC eligibility and tax credit calculations here from the ETA.
- Read more about technical aspects of applying for WOTC credits on our blog here.
- Read about the savings potential of WOTC credits here on our blog.
- Learn about our hiring credit services here.
Disclaimer: This article is general in nature and is not intended to replace the guidance of an employment tax expert and/or legal professional with regards to an appropriate course of action in your particular circumstances. Please consult with a professional for appropriate advice in your case. Pursuant to IRS “Circular 230” rules, any information included herewithin is not intended or written to be used for the purpose of avoiding penalties under the federal Internal Revenue Code.