The Work Opportunity Tax Credit (WOTC) can provide a significant tax advantage to employers who hire qualifying workers. However, jumping through the hoops to prove that an employee is qualified can be cumbersome. Timely submission of certification requests is an important part of the hiring and onboarding process. It is very important to submit the submissions promptly to stay within the rules for timing of WOTC claims.
According to the Department of Labor: “To verify whether a job applicant is a first-time, qualifying member of a target group, employers are required to submit IRS Form 8850 together with ETA Form 9061 or ETA Form 9062 to the state workforce agencies in which the employer’s business is located (where the employee works) within 28 calendar days after the new hire’s start date.” But submitting this request is just the first step. Receiving certification can take more time.
When Can an Employer Actually Claim the Credit on Their Taxes?
Until now, the IRS has stated that the rules for timing of WOTC claims should be claimed in the year wages are incurred for the qualifying individual. This poses a problem when an employer submits form 8850 on time but the local State Workforce Agency doesn’t complete the certification process for many months.
This creates an obvious problem in terms of efficiency. According to a recent memo from the IRS regarding Section 51 of the Internal Revenue Code:
“Extended delays associated with the WOTC certification process prevent some employers from being able to claim the WOTC on the tax return originally filed for the year in which the qualified wages were paid or incurred. This creates a need for employers to file multiple amended federal and state income tax returns, each year, to claim the WOTC in the year the employer paid or incurred the qualified wages.”
As a workaround, many employers simply claim WOTC in the year they receive certification. That way, they don’t have to amend and refile past years’ taxes over and over. Apparently, as long as employers don’t “double dip”, the IRS has decided not to waste resources challenging this practice. Inspectors will simply make sure that employers are not claiming the credits in the year the wages were incurred AND the year the certification is received or using the same qualified wages to compute other credits.
What Employers Really Need to Know About the Rules for Timing of WOTC Claims
In light of this guidance (which is not an actual law), employers should pay attention to compliance in these areas:
- Being consistent in their computation method. (claim credits in the year certification is received OR the year qualified wages were incurred)
- Not claiming other credits such as the Empowerment Zone, Indian Employment, or Research Credit using the same qualified wages.
- Following all other rules for Section 51 regarding the WOTC program including timely filing of forms and retention of accurate records.
Is your organization struggling to keep up with the complexities of WOTC administration? Efficient Hire can help. Talk to our team about our streamlined WOTC program today.