On December 19th, the Senate passed the “Disaster Act”. It was previously passed by the House on December 17th, and the President is expected to sign it soon. Part of the Disaster Act extends the Work Opportunity Tax Credit (“WOTC”) through 2020.
The WOTC allows employers who hire employees of certain targeted groups to potentially receive a credit against income tax of up to $9,600 per employee.
Also recently, the IRS’s Large Business & International Division (LB&I) and its Small Business/Self-Employed Division (SB/SE) have instructed their auditors to allow employers who consistently do so, 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 (which could be up to 18 months after paying the employee the qualified wages). The IRS has said that the key is to have consistency in claiming the credit in the certification year.
This is great news on both fronts as the WOTC credit has been extended another year through 2020 and both taxpayers and tax professionals now have clear guidance on what year’s tax return to actually take the credit.
Kelly P. Lynch, CPA