Let’s Us Know! How Do You Handle Delayed WOTC Certifications?

Written by Vaughn Hromiko on August 25th, 2016

Hello friends and readers, this is Vaughn Hromiko, here.  This post is meant as a question to employers and agents . . . and anyone involved with the Work Opportunity Tax Credit program.  I would love to hear from you.

The Question:  How do you (or your CPA, or your company, or others you have observed), handle the claiming of Work Opportunity Tax Credits for employees whose WOTC certifications are delayed until after the tax-return filing deadline?

Perhaps you would:

  • Lump the employee’s credit into the following tax year?
  • Claim the tax credit by amending the employer’s return?
  • Something else?

You can post a response in the comments or you are welcome to respond privately by email to response@WOTCPlanet.com.  I won’t share identifying information about anyone who responds privately.

Background. This problem is destined to be more significant than ever for WOTC employees hired in 2015. State workforce agencies nationwide are experiencing extended delays in issuing Work Opportunity Tax Credit (WOTC) certifications for 2015 hires. This problem stems from Congress’ long delay in passing legislation to reauthorize WOTC after it expired in 2014.

The reauthorization bill, which was finally passed on December 18, 2015 also created a new WOTC Target Group, the “Long Term Unemployment Recipient”.  While this program expansion was welcomed, it placed new demands on state workforce agencies. They now have to update their procedures, databases and management software to handle the new eligibility criteria.

As soon as the bill passed, agencies knew this work would be required.  However, before any substantial planning or development could happen, they would need updated forms and specific guidance from both the IRS and Department of Labor.

The IRS issued an updated Form 8850 at the end of March, 2016. The updated ETA Form 9061 and related guidance were then finally issued on June 17, 2016.  It was only then, with all requirements finally defined, that agencies could make substantial headway in updating their systems.

Given the uncertainties created by this elongated series of updates, the IRS has given employers until September 28, 2016 to submit WOTC applications for their 2015 hires.  As of this late date in August, many agencies are still working to update their information systems and can not yet process the new WOTC target group.

Lay this schedule over the basic tax-return requirements for companies on a calendar-year filing schedule. Original tax-return filing dates passed months ago in March and April. Businesses and individuals that have requested a filing extension from the IRS will hit their final deadlines in mid-September and October.

Many WOTC certifications for 2015 hires will still be pending, even at that late date.

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7 Comments so far ↓

  1. Rich Stupansky Director of Tax Credits says:

    Hello Vaughn

    I could not agree with you more.
    However another large issue is we have received from our clients over 20,000 potentially eligible transitional relief individuals documents. Many states in fact the majority of them will not accept these documents because they still show as being too late. They tell us they are working on their system to accept them in the meantime they do not want us to mail them. Tennessee for example recently mailed them back to us. I can just see it now on September 25th they will get it all updated and expect all of us to e-file until midnight on the 28th thousands of potentially eligible documents.

    • It’s definitely going to be tricky this year. Are your clients having a difficult time with it? I’m sure many would liked to have filed their returns earlier but are held hostage, as it were, by their need for the credits they know they’ve earned but cannot yet access.

  2. Ted says:

    Filing amended income tax returns for the payroll year giving rise to the credits is generally the only safe method to claim delayed credits. Credits reported on returns of years after the underlying payroll are subject to dis-allowance because of the statute of limitations, unless the taxpayer has received prior approval to do so by the IRS.

    • In your experience, does the IRS treat credits of all kinds equally? It would be reasonable to be lenient on WOTC because of the nature of the certification process, which doesn’t apply to Empowerment Zone wage credits, for example.

      In tactical terms, how often does the IRS really dig into WOTC benefits deep enough to identify this issue and then actually come out against the tax payer?

  3. David Kenney says:

    Certainly a tricky issue, but one that all CPA’s and companies have been dealing with for multiple years, but now is compounded for all the reasons you have stated.

    As a WOTC Processor, our customers tell us when they are going to file their tax return and they request a claim report for 2015. In this report we lock down all the certified credits calculated to date.

    This year many certs won’t be returned by states in time for the extension filing dates in Sept or Oct. Our clients still file the return timely with the WOTC they have calculated at that time.

    Most clients choose to recognize and certs that come in after returns have been filed on the following year return and we have never seen the IRS take issue with this approach.

    Some clients will receive a significant amount of certs after they file their return and some of them will choose to amend their return. Typically they will only amend once and then any remaining certs that come are apply to the next year.

    • David, thanks for sharing your observations. I guess I would ask, have you or your associates observed the IRS look directly at this issue and not take issue?

      I talked a CPA recently who worked through an audit that included, among other things, WOTC benefits. The auditor, however, never addressed the specific issue of when the wages were paid. He simply asked for the wages and the employee certifications . . . and made sure the credit amounts were determined correctly, etc.

  4. JT Gonzales says:

    i’ve had two clients that have been through IRS audits. In both cases the auditor wanted to verify how credits were calculated and wanted to document the certifications but that was it. No questions were asked about the years.

    Nevada is currently releasing 2012 certifications. Those returns can no longer be amended. I have been told unofficially that auditors will look at the issue date and not the certification date when determining statue.

    But you are correct some official guidance would be nice and reassuring.