New guidance from the Internal Revenue Service seeks to clear the air on the Work Opportunity Tax Credit (WOTC) for employers and gives relief to them as well.
WOTC makes a federal income tax credit available to those employers who hire qualified workers from groups specified in the Internal Revenue Code. These groups are known to face an uphill climb for employment and can include Designated Community Residents or Qualified Summer Youth Employees.
IRS Notice 2021-43 extends the existing 28-day deadline for employers to submit a request to a designated local agency (DLA) certifying new hires are either a Designated Community Resident or a Qualified Summer Youth Employee.
Qualified employees must have been hired between Jan. 1 and Oct. 8 of this year. To qualify, workers have to live full-time in an Empowerment Zone.
Empowerment zones themselves were scheduled to be terminated at the end of 2020, but new legislation allowed them to be extended through 2025.
While all Empowerment Zone designations were extended to Dec. 31, 2025, the relief set forth in Notice 2021-43 gives employers until Nov. 8, 2021 to submit Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.
Notice 2021-43 also furnishes guidance to employers who submitted a Form 8850 to a DLA for these employees but were denied because of the original termination of the Empowerment Zones. Relief is also applied to employers who got a certification before the extension of Empowerment Zones went through.
The Work Opportunity Tax Credit can trace its roots all the way back to 1996 and the Small Business Job Protection Act. The WOTC tax credit amounts to a percentage of qualified wages paid in a given year to an employee certified by the Designated Local Agency as a member of one of the specified groups targeted for employment.