IRS offers flexibility on Work Opportunity Tax Credit

The Internal Revenue Service is giving employers more leeway in claiming the Work Opportunity Tax Credit to hire people in underprivileged areas who face significant obstacles to employment for jobs in summer youth and community programs.

The IRS issued Notice 2021-43 last week, which extends the 28-day deadline for employers to submit a request to a designated local agency to certify that an employee hired between Jan. 1 and Oct. 8, 2021 should be considered a Designated Community Resident or a Qualified Summer Youth Employee. To be certified as a Designated Community Resident or a Qualified Summer Youth Employee under the WOTC, an employee is required to have a principal place of residence within an Empowerment Zone where the employee continuously resides.

Empowerment zone designations ended on Dec. 31, 2020, but the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was enacted as part of the Consolidated Appropriations Act, 2021, allowed the designations to be extended through 2025. On May 26, 2021, all empowerment zone designations were extended from Dec. 31, 2020 to Dec. 31, 2025. The transition relief under this notice allows employers to submit Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) for these employees until Nov. 8, 2021.

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The empowerment zone program has been overshadowed in recent years by the opportunity zone program that was introduced as part of the Tax Cuts and Jobs Act, but the older program is being extended until at least 2025 to help communities that remain economically disadvantaged.

The new IRS notice also offers guidance to employers who submitted a Form 8850, “Pre-Screening Notification and Certification Request for the Work Opportunity Credit,” to a designated local agency for employees during the period of transition relief and received a denial due to the termination of empowerment zone designations on Dec. 31, 2020, or who received a certification before empowerment zone designations were extended.

The WOTC has been through several legislative extensions and modifications since it was introduced under the Small Business Job Protection Act of 1996. The amount of the tax credit under WOTC equals a percentage of qualified wages paid in a given tax year to an employee certified by the DLA as being a member of one of the groups specified under the law.