In October 2019, Joint Directive on the Work Opportunity Tax Credit per Internal Revenue Code Section 51 (IRC § 51) was announced by Commissioners Douglas W. O’Donnell, Commissioner, Large Business & International Division, and Eric Hylton, Commissioner, Small Business/Self-Employed Division.

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit of up to $9,600 available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.

The Joint Directive provides instructions to Examiners on the treatment of the Work Opportunity Tax Credit (WOTC), effectively allowing taxpayers to claim WOTC in the tax year of certification rather than the tax year wages are paid to a WOTC worker.

An employer may claim the WOTC upon receipt of a certification that an individual employee is a member of a targeted group. An employer must submit IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to the Designated Local Agency (DLA), also referred to as the State Workforce Agency (SWA), to certify the employee. Given that many certifications are received after the year WOTC wages are paid, forcing taxpayers to submit amended returns to claim WOTC for a prior tax year, the IRS Directive significantly reduces the administrative burden for taxpayers and is an important advance for the WOTC program.

The Directive states in part:

To use resources effectively and to reduce administrative burden, examiners shall not challenge the timing of when a taxpayer claims the WOTC if the claimed WOTC complies with all requirements of IRC § 51, but the WOTC is claimed in the year the taxpayer receives the delayed certification (Certification Year).

To review the Joint Directive in its entirety: https://www.irs.gov/businesses/corporations/lbi-and-sbse-joint-directive-on-the-work-opportunity-tax-credit-per-internal-revenue-code-section-51-irc-ss-51#main-content


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