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

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.

President Promptly Signs Government Funding and Tax Extenders Legislation – WOTC Survives through 2019

President Obama signed a huge tax and spending package into law on Friday following congressional votes that avoided a year-end showdown over the budget and ended legislative business until lawmakers return in 2016

Empowerment zones were reauthorized only through 2016.  Interestingly, however, the bill included a provision that expanded empowerment-zone benefits into some census tracts outside of actual zone boundaries.

It’s not yet clear to me if this empowerment-zone expansion will also affect WOTC’s Designated Community Resident target group.

Read about it in USA Today: “President Obama signs massive spending bill, tax measures into law.”


Extenders and Funding Bills Passed by House and Senate

The tax extenders and government funding legislation passed the House and Senate today and is now on its way to the President for his pen.  Of primary interest to WOTC Planet readers is the 5-year extension of the Work Opportunity Tax Credit (WOTC) with Vow to Hire Heroes Act.  These will become law upon receiving the President’s signature.

From USA Today, “Senate clears massive spending bill, tax measures“.

You can read the bill here, at least until they move the file.  For the WOTC extension and revision, scroll to page 38 of the PDF.

Under the 5-year extension, WOTC will be expanded to include a new target group, “Long Term Unemployment Recipients.”  Here’s the language from the bill:

The term ‘qualified long-term unemployment recipient’ means any individual who is certified by the designated local agency as being in a period of unemployment which is not less than 27 consecutive weeks, and includes a period in which the individual was receiving unemployment compensation under State or Federal law.

Based on this language alone (no IRS interpretation available yet), my understanding is that a new employee must be unemployed at the time of hire and the condition of unemployment must have existed for at least the last 27 weeks (which equals one week more than 6 months).  At some point during that 27-week period, the new hire must have received unemployment insurance compensation.

I won’t be surprised if the IRS interprets this to permit one or more short periods of inconsequential employment during the 27-week period (similar to the HIRE Act which required 60 consecutive days of unemployment but still allowed up to 40 hours of work during that period). BUT, that’s just me hoping out loud.

After the President signs this legislation, we anticipate the IRS will issue a notice providing transition relief for employers that did not file timely WOTC application during the program’s 12-month hiatus.

WOTC – Calm Before the Storm in Congress

Is it the calm before a storm? Congress is on vacation. The Senate is scheduled to reconvene on January 23rd. The House on January 17th.

Before members of Congress left for the holiday in December, they had tumultuously agreed on a 2-month extension of the 2011 payroll tax cut and left many expiring tax items floating into limbo. The Work Opportunity Tax Credit, of course, is counted among these unfinished items.

Although nothing has made significant news yet, the conference that was promised last month by House and Senate leaders is already busy behind the scenes. According to Paul Suplizio, lobbyist and President of the WOTC Coalition, conferees for the Senate and House respectively are in discussion with their own members but not yet with each other. The first meeting between Senate and House conferees will likely take place next week.

The goal of the conference is to hammer out a compromise that will allow Congress to pass a full-year extension of the payroll tax cut, in addition to other high-priority items. They need to do it before the end of February when the 2-month extension expires.

Our goal is to include WOTC and other tax items in that legislation. The conferees, however, face historically difficult and stressful circumstances. WOTC remains in a very precarious situation. If the tax extenders do not make it into the anticipated payroll tax cut bill, it will be difficult to see another vote on these items until after the November election.

During the past 15 years, WOTC has expired and been renewed at least 7 times. Three of these renewals took place well into the next calendar years — as much as 11 months after expiration.

If the program is not renewed in February, business will continue as usual. Employers will continue to screen for all of the WOTC target groups. The State Workforce Agencies, however, will receive instructions to place a hold on WOTC employee certifications — except for those who qualify under the military veteran categories, which have been extended already through December 2012.

Then, as soon as the renewal legislation is passed, the State Workforce Agencies will complete and issue the rest of the outstanding WOTC employee certifications.  We’ve lived through it before. But let’s hope it doesn’t come to that.

My office will be following the lead of the WOTC Coalition by contacting key legislators during the upcoming weeks. I’ll post new information and guidance as it becomes available.

Please feel welcome to contact me personally if you would like to discuss (or simply commiserate). vah@WOTCPlanet.com

Renewal of WOTC and Payroll Tax Cut Still Possible This Year

If you’ve been following the news during the past few days, you might be aware that Congressional leaders are sparring over legislation to extend the existing payroll tax cut. Over the weekend, the Senate rejected the House’s proposal and responded with a proposed 2-month extension, obviously intended to buy time for further negotiations.

Neither version of the legislation included WOTC nor other sought after tax-extenders. This is not, however, the end of the game.

The limited 2-month extension is not looked upon favorably by the House Republican leadership, which is demanding a full year.  The House is scheduled to vote on the bill this evening.

According to Bloomberg,

With the House set to return to Washington [Monday], Republican leaders are studying their options, Laena Fallon, a spokeswoman for House Majority Leader Eric Cantor, a Virginia Republican, said in an e-mail.

When the House meets [Monday evening], it will either vote to amend the Senate-passed measure “so that it is responsible and in line with the needs of hard-working taxpayers and middle class families” or vote to appoint representatives to a House-Senate conference to reconcile differences between the two chambers, she said.

Got that? The House will either amend the Senate bill and return it. Or it will vote to appoint a conference with the Senate to negotiate revisions. If the House does call for a conference, the Senate leadership (aka Senator Harry Reid) could accept or reject it. But rejecting it in that case would result in a tax increase on January 1 as the payroll tax reduction expires. Not a pretty political sight.

If a conference is called, Paul Suplizio, President of the WOTC Coalition sees still another opportunity to get WOTC and other tax extenders passed this year.

“If it gets to a conference, Ways and Means Chairman Dave Camp of Michigan would be one of the conferees for the House (he was floor manager for the House bill) and Finance Chairman Max Baucus of Montana a likely conferee for the Senate.”

“Chairman Camp has been the target of much of our lobbying and knows the situation of WOTC and the extenders. Senator Baucus has been a champion for including WOTC and the other extenders in the payroll bill.”

If you have any opportunity to encourage Representative Dave Camp or Senator Max Baucus, now is the time. Senator Harry Reid and his friends in the Whitehouse should also be contacted.  Senator Reid will likely require encouragement from the Whitehouse to include WOTC and other tax extenders in any negotiated resolution to this legislative conflict.

Vow to Hire Heroes Act: DOL Publishes Summary of New WOTC Provisions

Thank you to Rik Moore of the National Telecommuting Institute, Inc. for bringing this to my attention early last week.

The US Department of Labor has offered new guidance bringing into focus the WOTC provisions of the recently passed Vow to Hire Heroes Act of 2011.   A summary of WOTC-related provisions from the act has been published on the Department of Labor’s website.  The following is copied directly from that document.  Please download the entire document in order to see footnotes and introductory content not included here.

• Extends the current target group for Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits with the same qualified wages cap ($6,000) and maximum tax credit ($2,400).

• Extends the current target group for Veterans with a service-connected disability with the same qualified wages cap ($12,000) and maximum tax credit ($4,800).

• Extends the current target group for Veterans with a service-connected disability unemployed for at least 6 months with the qualified wages cap increased to $24,000 and the maximum tax credit increased to $9,600.

• Establishes a new target group for unemployed Veterans, similar to the Recovery Act of 2009 unemployed Veteran group that expired on December 31, 2010:

o Veterans unemployed for at least 4 weeks with a qualified wages cap of $6,000 and maximum tax credit of $2,400.

o Veterans unemployed for at least 6 months with qualified wages cap of $14,000 and maximum tax credit of $5,600.

o State Workforce Agencies will certify veterans as meeting the required periods of unemployment based on receipt of unemployment insurance compensation.

Note: The 5-year period ending on the hiring day requirement that was part of the Recovery Act unemployed veteran group was rescinded.

• Qualified “tax-exempt” (i.e., 501(c)) organizations can now participate by hiring qualified veterans and are now eligible to claim the WOTC.

• These provisions became effective the day after the President signed the Vow to Hire Heroes Act into law, November 22, 2011, through December 31, 2012.

• The Vow to Hire Heroes Act does not extend any of the other (non-Veteran) WOTC target groups, which currently expire on December 31, 2011.


Now Is Time to Contact Congress – Include WOTC in Tax Extender

If you or your clients would be adversely affected by the expiration of the WOTC program on December 31 (just one month away), then NOW is the time to contact your member of Congress.

You don’t have to speak with the member directly. Speak with the staff member that answers the phone. Send them a fax. Send them a letter. (Unless, you have an existing relationship with a specific member of your Congress person’s office, I don’t recommend relying on email.) Tell them your story and ask them to support including WOTC in the year-end tax extenders legislation.

Contact information for members of Congress is available at www.senate.gov and www.house.gov  or (202) 224-3121 or (202) 225-3121.  An online directory I recently discovered, provided by the Conservative Caucus appears to be a thorough resource also, including fax numbers, email addresses, and links directly to each Member’s website.  http://www.conservativeusa.org/mega-cong.htm

Below are some informational points that I sent to my Congressman Dan Lungren just this morning. Since we already know each other, I sent my correspondence directly to Congressman Lungren’s District Director in California. She very kindly responded to my e-mail in less than twenty minutes.

“I am going to forward your email to our Legislative Counsel in DC as he will brief the Congressman on the legislation and the latest developments.”

As the year’s end approaches, Tax Extenders are, or will soon become a topic of discussion for Members of Congress. WOTC will be included in that discussion as one of the tax provisions to be extended.

I have three points that the Congressman may find important.

1. All Non-Veteran Job Categories Will Expire. While the VOW to Hire Heroes Act extended through 2012 the WOTC categories for veterans, all other WOTC job categories are still slated to expire on December 31. The categories for disabled workers, at-risk youth, people living in distressed communities, etc. will all expire abruptly THIS YEAR unless WOTC is included in a tax extender bill.

2. Ending WOTC = Crushing Tax Increase on Employers: An abrupt end to these WOTC categories will result in a large tax increase to employers who have incorporated WOTC’s public-private sector partnership into their hiring practices.

3. Tax Extender Now – Followed Later By Due Diligence. The future of the WOTC program ought to be determined by a reasoned discussion in Congress – – not by letting it slip through the cracks at year-end. The recent VOW to Hire Heroes Act demonstrates that the effectiveness of WOTC is still recognized on both sides of the aisle — after 15 years in operation! If the rest of the WOTC program is to be discontinued, it should be done in an orderly way that allows employers to anticipate the change . . . after Congress has given due consideration to the issues.

Bottom Line: extend the entire WOTC program now for at least 12 months, giving Congress time to discuss its merits in 2012.

For my readers, I would also point out that if WOTC is not extended by the end of the year, it is still far from over.  There will be additional opportunities for reauthorization in 2012.  Although inconvenient, this would not be at all unusual for the WOTC program.

WOTC has been extended 7 times already since it’s origination in 1996.  Frequently, that process has involved “retroactive” reauthorization during the calendar year after its technical expiration.  In each such case, business continued as usually, with the exception that WOTC certification offices nationwide had to keep back their certifications until the reauthorization legislation finally went through.

My point: Be diligent now, but don’t worry yet.

Michigan State Tax Incentive Proposed for Hiring Unemployed Veterans

State of Michigan Representative Charles Smiley (D)

Michigan State Representative Charles Smiley (Dem) is the leading sponsor for new state legislation that would offer a significant tax break to employers who hire an unemployed veteran.

House Bill 5144 . . . would provide 25 percent of compensation paid by an employer with less than 100 employees to their employee or $4,000, whichever is less.

“We must do better to make sure Michigan veterans get a good job” said Smiley, a member of the House Military and Veterans Affairs and Homeland Security Committee.

Read the article by Roberto Acosta.

WOTC Legislation to Go Before Senate This Week – Expected To Pass

As Democrats continue their efforts to shepherd portions of President Obama’s jobs bill piecemeal through the Senate, leading Democrats have expressed optimism that the President’s expanded hire-a-veteran tax credits will receive bipartisan support later this week.

This is according to an article published by The Hill on Friday afternoon. See “Senate Democrats try new tack on jobs, push bill without millionaire surtax.”

As proposed by the President, the new tax credits would be implemented through an expansion of the existing Work Opportunity Tax Credit (WOTC) program. WOTC is slated to expire on December 31 of this year. Passage of the President’s veteran’s tax credits proposal would therefore also necessitate renewing the WOTC program itself.

While I am aware of extensive lobbying efforts in support of extending WOTC, this is the most optimistic and timely expression on the subject I have heard to date. According to the article in The Hill:

“Democratic Sens. Patty Murray (Wash.), Debbie Stabenow (Mich.) and Jon Tester (Mont.) told reporters Friday that they were hopeful that Republicans would jump on board with the veterans’ legislation.”

It’s expected to pass. It should pass, Stabenow said, saying the legislation is meant to ensure that veterans would not stand in the unemployment line.”

An important feature of the Senate Democrats’ strategy will be to attach the veteran’s bill to another bill already passed with broad bipartisan support in the House of Respresentatives.

The veterans’ legislation is also expected to be attached to a GOP priority — a House-passed measure that would repeal a yet-to-be-implemented requirement that federal, state and many local government agencies withhold 3 percent of certain payments to contractors.

For more, click through to read the entire article. It is short and to the point.


Confusion about 5 -Year WOTC Carry Back Provision – Only Good for Credits Earned in 2010

We’ve stumbled upon a situation that might create confusion for businesses that qualified for the 5-year carryback of General Credits under a provision of the Small Business Jobs Act of 2010. 

I received a call on October 11 (just a couple weeks ago) from an Arizona restaurant owner who was a little confused by conflicting information about the carryback provision for the Work Opportunity Tax Credit.

The language on the IRS website, as of October 11, clearly stated that credit carried forward to 2010 AND credit earned in 2010 could all be carried back 5 years.  Since this seemed slightly counterintuitive to me, I called the IRS.  An agent confirmed that indeed this was the case.

But wait!

One day later – on October 12, 2011 — the IRS revised the language on its website.  Here’s the entire revised section, for your convenience.  Please notice the very last sentence, here underlined for emphasis. 

 **** begin quote:

Sect. 2012: General business credits of eligible small businesses for 2010 carried back 5 years

The new law allows an eligible small business to carry back general business credits five years. Previously, the credits could only be carried back one year. The carryback is for credits determined in the first taxable year beginning after December 31, 2009.

An “eligible small business” in general is defined as follows:

A corporation whose stock is not publicly traded, a partnership, or a sole proprietorship, and

The taxpayer must have $50,000,000 or less in average annual gross receipts over the three preceding tax years.

This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009). The five-year carryback period is available only for credits earned in the tax year 2010.

****end quote.  See IRS Website.

Prior to October 12, the last sentence used to say:

“The five-year carryback period is available only for credits carried forward to the tax year 2010 and/or earned in the tax year 2010″


QUESTION: What about tax payers who may have already relied on the previous language, amending 5 years of federal tax returns with carrback that incorrectly included tax credit earned prior to 2010?  Are you one of them?  Please let me know.