Recently, the IRS instructed their auditors to allow employers to take the work opportunity tax credit (WOTC) in the year in which they receive the required certification. As opposed to the year in which the employer paid or incurred certified employee’s qualified wages.
The recent IRS decision provides some administrative relief for taxpayers and tax professionals. There have been extended delays associated with the certification process that prevent some employers from being able to claim the credit on an originally-filed tax return for the year in which the qualified wages were paid. As a result, taxpayers had to file amended federal and state tax returns to claim the credit. Some taxpayers have made the decision to claim the credit in the year they receive the delayed certifications for the qualified wages paid in an earlier year. The IRS says the key is to have consistency in claiming the credit in the certification year.
The PATH Act of 2015 further extended the WOTC to December 31, 2019. The WOTC and Jobs Act was introduced in the Senate earlier this year, which would make the credit permanent. At a minimum, there should be a temporary extension of the credit, which has been done by Congress in the past. Employers are encouraged to continue to monitor the situation.
This decision is great news for both taxpayers and tax professionals who had no prior guidance as it allows employers to save time and resources vs requiring the filing amended tax returns. Have more questions? Contact a helpful Henry+Horne professional today.
Kelly P. Lynch, CPA