Regulations

IRS Issues WOTC Directive on When to Apply a Certification

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The IRS has issued a new directive that should make it easier for employers administering the Work Opportunity Tax Credit (WOTC) program to receive tax credits in the year employer certifications are issued.

The issuance of WOTC certifications by State Workforce Agencies are often delayed and employers sometimes don’t receive them until the following year. This process leads to many employers filing amended federal and state income tax returns each year.

As a result, employers are often faced with a decision of when to apply the earned tax credit certification; the year in which the tax credit is approved or when the actual certification is issued. The decisions can have real financial consequences. Employers can earn up to $9,600 in tax credits through the WOTC program per qualified candidate.

The joint directive titled, LB&I and SB/SE Joint Directive on the Work Opportunity Tax Credit per Internal Revenue Code Section 51 (IRC § 51), acknowledges the delay in tax credit certifications employers sometimes experience when administering the WOTC program.

The IRS directive does suggest that employers should migrate towards claiming the tax credit certification in the year it is issued rather than the year in which the tax credit is approved to prevent having to amend federal and state tax returns annually.

According to the new directive, “If the taxpayer consistently claims the WOTC in the Certification Year, then the examiner should follow this Directive and allow the taxpayer to claim the WOTC in the Certification Year. The taxpayer should be allowed an initial transition year to convert from its previous computation methodology to claiming the WOTC in the Certification Year.”

The directive says that IRS examiners should not challenge the timing of when a taxpayer claims the WOTC certification. By not challenging the timing of when employers claim the certification, employers and tax examiners will both “use resources efficiently and reduce administrative burden.”

You can read the full directive by clicking here.

Employers seeking more information about the WOTC program or have questions about when their organization should apply the certification can find out by clicking here. To learn how WOTC can be an asset for your business, click here.