Notice 2016-40: Extended transition relief, work opportunity tax credit (WOTC)

Extended transition relief, WOTC

The IRS today released an advance version of Notice 2016-40 that provides additional relief for employers claiming the work opportunity tax credit (WOTC) for certain employees.

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Notice 2016-40 [PDF 185 KB] expands and extends by three months, the transition relief previously provided by Notice 2016-22, for meeting a 28-day deadline. Notice 2016-40 applies to employers that:

  • Hire members of targeted groups (other than qualified long-term unemployment recipients) on or after January 1, 2015, and on or before August 31, 2016
  • Hire members of the new targeted group of qualified long-term unemployment recipients on or after January 1, 2016, and on or before August 31, 2016

Background

Provisions enacted in late 2015 as part of the “Protecting Americans from Tax Hikes Act of 2015” (the PATH Act): 

  • Extend the WOTC through December 31, 2019, for taxable employers that hire members of a targeted group and for qualified tax-exempt organizations that hire qualified veterans
  • Amend section 51(d)(1) to add “qualified long-term unemployment recipients” to the list of targeted groups, effective as of January 1, 2016

Notice 2016-22 [PDF 163 KB]—issued by the IRS in March 2016—provided additional time for employers to comply with the provisions under the PATH Act. The March 2016 notice extended the WOTC retroactively for 2015 for members of targeted groups and the creation of a new targeted group “qualified long-term unemployment recipients” and extended the time to file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with designated local agencies (that is, additional time was provided for employers that hired or hire members of targeted groups between January 1, 2015, and May 31, 2016).

Employers that hired or hire members of a targeted group, including long-term unemployment recipients, who begin work for that employer on or after June 1, 2016, were not eligible for the transition relief with respect to any such new hire.

Notice 2016-40

According to today’s IRS notice, the IRS and Treasury Department (along with the Labor Department) are aware that employers need additional time to comply with the certification requirements for employees in targeted groups. Accordingly, the transition relief originally provided by Notice 2016-22, to file Form 8850, is extended so that:

  • An employer that hired or hires an individual who is a member of a targeted group and who began or begins work for that employer on or after January 1, 2015, and on or before August 31, 2016, will be considered to have satisfied the Code requirements if the employer submits the completed IRS Form 8850 to the designated local agency to request certification no later than September 28, 2016; and  
  • An employer that hired or hires an individual who is a long-term unemployment recipient and who began or begins work for that employer on or after January 1, 2016, and on or before August 31, 2016, will be considered to have satisfied the Code requirements if the employer submits the completed Form 8850 to the designated local agency to request certification no later than September 28, 2016. 

Notice 2016-40 states that an employer that hires a member of a targeted group—including a long-term unemployment recipient—who begins work for that employer on or after September 1, 2016, is not eligible for the transition relief with respect to any such new hire. 

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