On February 19, 2015, the Internal Revenue Service (IRS) issued Notice 2015-13, which provides transition relief for employers that are claiming the Work Opportunity Tax Credit (WOTC) pursuant to the Tax Increase Prevention Act of 2014, which was enacted on December 19, 2014. The WOTC is available to taxpayers that hired members of a targeted group, such as qualified veterans, family care assistance recipients, and qualified ex-felons, to name a few, on or after January 1, 2014 and before January 1, 2015. The WOTC provides up to 40 percent of the eligible employee's wages as a tax credit to the employer for the 2014 tax year. An employee's wages eligible for the tax credit are limited to the lesser of $24,000 or actual wages paid for certain veteran groups, with less wage limitations for other target groups.
Pursuant to the rules in place prior to this transition relief, the employer must submit the required paperwork (IRS Form 8850 and ETA Form 9061) to the appropriate state agency (typically the Department of Labor) within 28 days of the employee start date to qualify for the credit. Because the WOTC was not extended until late in 2014, it is our understanding that, throughout the year, employers were being told by state agencies that they would disallow the application, since the credit was not available during this time. As a result of this relief, employers must submit the required paperwork to receive the certification from the designated state agency no later than April 30, 2015. An employer must receive certification from the state that the employee meets one of the targeted group requirements prior to claiming the credit on its 2014 income tax returns.
If you have any questions regarding the transition relief or the WOTC, please contact a member of Schneider Downs Tax Advisory Services.