2006 Work Opportunity Tax Credit changes

Accessible letter PDF: https://www.dol.gov/sites/dolgov/files/ETA/advisories/TEGL/2007/TEGL20-06_Acc.pdf

CLASSIFICATION
 EMPLOYMENT AND TRAINING ADMINISTRATION             WOTC/WtWTC
            ADVISORY SYSTEM                         CORRESPONDENCE SYMBOL
              U.S. DEPARTMENT OF LABOR              OWI
                   Washington, D.C. 20210
                                                    DATE
                                                    April 3, 2007

TRAINING AND EMPLOYMENT GUIDANCE LETTER NO. 20-06

TO:             ALL STATE WORKFORCE AGENCIES
                ALL STATE WORKFORCE LIAISONS

FROM:           EMILY STOVER DeROCCO /s/
                Assistant Secretary

SUBJECT:        Reauthorization of the Work Opportunity Tax Credit (WOTC)
                and Other Program Changes

l. Purpose. To announce the reauthorization of the Work Opportunity Tax
   Credit Program under the Tax Relief and Health Care Act of 2006 (P.L.
   109-432) and provide procedural guidance to the states for processing
   requests for certification under the amended program.

2. References. The Tax Relief and Health Care Act of 2006 (P.L. 109-432);
   Working Families Tax Relief Act of 2004 (P.L. 108-311); Training and
   Employment Guidance Letter (TEGL) No. 14-05, dated February 9, 2006;
   Internal Revenue Code (IRC) of 1986, Sections 51 and 51A, as amended;
   Employment and Training Administration (ETA) Handbook No. 408,
   Third Edition, November 2002 (the Handbook); and the May 2005
   Addendum to the Handbook.

3. Background. Legislative authority for the WOTC program and the
   Welfare-to-Work Tax Credit (WtWTC) expired December 31, 2005.
   Congress has reauthorized and extended the WOTC program through
   December 31, 2007. Congress has also modified certain provisions with
   respect to individuals who begin work for an employer after
   December 31, 2006.

4. Authorization. The Tax Relief and Health Care Act of 2006 (P.L. 109-432)
   was signed into law on December 20, 2006. Section 105 of the Act
   provides a two-year extension of the WOTC program through
   December 31, 2007, effective retroactively to January 1, 2006.


RESCISSIONS                                 EXPIRATION DATE:
None                                        Continuing


In addition, the following statutory changes apply with respect to
individuals who begin work for employers on or after January 1, 2007:

      •   The earnings test for ex-felons is eliminated;
      •   The maximum age for food stamp recipients is increased;
      •   The certification request filing deadline is increased; and
      •   The WtWTC provisions are merged into the WOTC.

Explanation of Specific Statutory Amendments and Provisions. Section
105 of the Act:

   a) Amends the statutory definitions of two WOTC target groups in
      IRC Section 51 as follows:

          1. Ex-Felons – removes economic eligibility determination
             based on family income.
          2. Food Stamp Recipients – increases eligibility age from 18-25
             to 18-40.

   b) Extends the certification request filing date from 21 to 28 days after
      the new hire begins work for the employer.

   c) Repeals IRC Section 51A by merging the WtWTC into the WOTC
      and creating a new WOTC target group I, entitled “Long-term
      family assistance recipient.” The new target group retains the
      statutory definition and the more generous tax credit provisions
      over a two-year period of the former WtWTC. With respect to this
      target group only:

          •   First-year WOTC is increased from 35 to 40 percent of
              qualified first-year wages, which are capped at $10,000.
          •   Second-year WOTC is retained at 50 percent of qualified
              second-year wages, again capped at $10,000 for a maximum
              two-year credit of $9,000.
          •   Wages taken into consideration are calculated in the same
              manner as for the other WOTC target groups. Therefore,
              wages no longer include certain amounts excludable from
              the recipient’s gross income.
          •   The minimum employment or retention period is calculated
              in the same manner as for the WOTC. Therefore, the 180
              days of service formerly required for certified WtWTC
              employees no longer applies to this target group under the
              consolidated WOTC. Note: For the other adult target


                 groups (except Summer Youth), “the 40-percent rate applies
                 to qualified first-year wages only if the employee works at
                 least 400 hours or more. If the employee works at least 120
                 hours, but fewer than 400 hours, the credit is 25 percent of
                 qualified first-year wages capped at $6,000 ($3,000 for
                 Summer Youth).”

5. Program Administration. Under the reauthorizing legislation, state
   workforce agencies’ (SWAs) certification and program operation
   responsibilities for the consolidated WOTC program remain the same as
   those described in the Handbook and the May 2005 Addendum to the
   Handbook. These include procedures for: (a) determining target group
   eligibility and issuing certifications and denials; (b) establishing working
   partnerships with different participating agencies at the state and local
   levels for resolving technical issues and issuing conditional certifications;
   (c) conducting verification activities; (d) complying with quarterly report
   responsibilities; and (e) records retention.

6. IRS Form 8850. IRS Form 8850, Pre-Screening Notice and Certification
   Request for the Work Opportunity Credit, and the instructions for Form 8850
   have been revised. The February 2007 revised form and instructions are
   available at www.irs.gov.

  SWAs are reminded of the guidance provided in Announcement 2002-44,
  “Electronic Submission of Form 8850,” contained in the IRS’ Internal
  Revenue Bulletin (IRB) No. 2002-17, published on April 29, 2002. This
  announcement describes the requirements that must be met should SWAs
  choose to establish systems to accept electronic submission of IRS Form
  8850. The text of Announcement 2002-44 is available at
  http://www.uses.doleta.gov/pdf/Appendix_IV/Appendix_IV__3_Anno
  uncement_2002-44.pdf.

7. Reporting Authority. Pursuant to the Paperwork Reduction Act, the
   Office of Management and Budget (OMB) has extended the information
   collection requested for the WOTC/WtWTC administrative and
   streamlined reporting form without changes. ETA Form 9058 - Report 1
   and ETA administrative forms 9057, 9059, 9061 - 9063, and 9065 are
   approved under OMB No. 1205-0371 through August 31, 2009. SWAs
   should continue to use the current certification and reporting forms until
   further notice. A package including revised reporting and administrative
   forms, updates to the May 2005, Addendum to the Handbook, a new
   Fourth Edition of ETA Handbook 408, a Fact Sheet “Employers: 9 ways to
   Earn Federal Income Tax Credits for Your Company,” and a revised


  Technical Assistance and Compliance Review Guide will be submitted to
  OMB for clearance. Training on WOTC program amendments, provisions,
  and new reporting and administrative forms is being planned and will be
  provided through webinars.

8. Action Required. SWA administrators are requested to:

      a) Provide this information to appropriate program staff, employers
         and their representatives, participating agencies, and other
         interested partners. They are to ensure that the SWAs and
         participating agencies administer the WOTC in accordance with
         the guidance provided in the Handbook; the May 2005 Addendum
         to the Handbook; and the Internal Revenue Code of 1986, Section
         51, as amended.

      b) Ensure that State WOTC Coordinators receive a copy of the new
         legislation. Title I, Section 105 of the Tax Relief and Health Care
         Act of 2006 (P.L. 109-432) is available at
         http://thomas.loc.gov/home/thomas2.html.

9. Inquiries. Direct all questions to the appropriate Regional WOTC
   Coordinator.