Revised Work Opportunity Tax Credit procedures

CLASSIFICATION
    EMPLOYMENT AND TRAINING ADMINISTRATION                  WOTC
                ADVISORY SYSTEM                             CORRESPONDENCE SYMBOL
           U.S. DEPARTMENT OF LABOR                         OWI
              Washington, D.C. 20210                        DATE
                                                            January 11, 2017

ADVISORY:       TRAINING AND EMPLOYMENT GUIDANCE LETTER NO. 25-15,
                Change 1

TO:             STATE WORKFORCE ADMINISTRATORS
                STATE WORKFORCE AGENCIES
                STATE WORKFORCE LIAISONS
                STATE AND LOCAL WORKFORCE BOARDS AND CHAIRS
                STATE WORKFORCE OPPORTUNITY TAX CREDIT COORIDINATORS
                AMERICAN JOB CENTERS

FROM:           PORTIA WU /s/
                Assistant Secretary

SUBJECT:        Work Opportunity Tax Credit 2015 Reauthorization Training and
                Employment Guidance Letter 25-15, Change 1

1. Purpose. This Training and Employment Guidance Letter (TEGL) 25-15, Change 1
   clarifies the U.S. Department of Labor’s policy on eligibility determinations for the new
   target group (see Section 6), changes the certification date from September 29, 2016, to
   September 28, 2016 (see Section 9), increases the number of days from 30 days to 90
   days for employers to submit a needs letter (see Section 12), and extends the 90-day
   grace period for states to modify their automated systems and grants an additional 90-day
   grace period for State Workforce Agencies (SWAs) to accept certification requests on
   “previously OMB approved” forms (see Section 13). The remainder of this TEGL
   informs and provides procedural guidance to the State Workforce Agency (SWA),
   participating agencies, and Federal and State partners on the retroactive legislative
   reauthorization of all Work Opportunity Tax Credit (WOTC) target groups, the
   Empowerment Zones that expired on December 31, 2014, and the introduction of a new
   target group and new WOTC ETA Forms. This TEGL also provides procedural guidance
   to SWAs for processing and issuing determinations for all certification requests.

2. References.
    Sections 142 and 171 of the Protecting Americans from Tax Hikes (PATH Act) of
      2015 (Pub. L 114-113);
    Internal Revenue Code of 1986, Section 51, as amended (the Code);
    Internal Revenue Service (IRS) Notice 2013-14;
    IRS Notice 2012-13;
    IRS Notice 2016-22;
    IRS Notice 2016-28;


 RESCISSIONS                                             EXPIRATION DATE
 None                                                    Continuing


      IRS Notice 2016-40; and
      PATH Act - WOTC Interim Instructions for the State Workforce Agencies.

3. Background and Overview. On December 18, 2015, President Obama signed into law
   the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) that extends and
   modifies the WOTC Program (Section 142) and the Empowerment Zones (EZs) (Section
   171). In summary, the PATH Act:

      Retroactively reauthorizes the following WOTC program target groups for a five-year
       period, from January 1, 2015 to December 31, 2019:
           o a qualified IV-A (TANF) recipient,
           o a qualified veteran,
           o a qualified ex-felon,
           o a designated community resident,
           o a vocational rehabilitation referral,
           o a qualified summer youth employee,
           o a qualified supplemental nutrition assistance program (SNAP) benefits
               recipient,
           o a qualified SSI recipient, and
           o a long-term family assistance (TANF) recipient.
      Provides for an extension of the Empowerment Zones for a two-year period, from
       December 31, 2014 to December 31, 2016.
      Introduces a new target group, Qualified Long-term Unemployment Recipients, for
       new hires that begin to work for an employer on or after January 1, 2016 through
       December 31, 2019.

4. Procedural Guidance for 2015 Hiatus New Hires.

   a. For SWAs that processed all certification requests received during the 2015
      hiatus.
      SWAs that processed all certification requests received during the 2015 hiatus, and
      filed but did not issue those determinations, should now issue those final
      determinations (certifications and denials) to employers or their representatives.

   b. For SWAs that did not process all certification requests received during the 2015
      hiatus. SWAs that received and filed, but did not process or conduct all required
      eligibility determination activities for certification requests received during the 2015
      hiatus should conduct all required eligibility determination activities for certification
      requests received during the hiatus, and issue all final determinations (certifications
      and denials) to employers or their representatives.

       Please see Section 5 of this TEGL for more detailed information on the status of the
       Empowerment Zones.


5. Empowerment Zones. The PATH Act provides an extension of the Empowerment
   Zones designations for two-years through December 31, 2016. Therefore, termination
   dates in State and Local Government Empowerment Zones designations must be
   extended from December 31, 2014 to December 31, 2016. Please see IRS Notice 2016-
   28 for additional guidance on the extension of Empowerment Zone designations at:
   https://www.irs.gov/pub/irs-drop/n-16-28.pdf.

6. Eligibility Determinations for Qualified Long-Term Unemployment Recipient.
   A qualified long-term unemployment recipient is any individual who on the day before
   the individual begins work, or, if earlier, the day the individual completes the IRS Form
   8850 as a prescreening notice in accordance with the certification provisions described in
   §51(d)(13)(A)(ii) of the Code, is in a period of unemployment that is: (i) not less than 27
   consecutive weeks; and (ii) includes a period (which may be less than 27 weeks) in which
   the individual received unemployment compensation under State or Federal law (see IRS
   Notice 2016-22 and IRS Notice 2016-40).

   a. To determine whether the individual has been in a period of unemployment for at
      least 27 weeks as described above, SWAs will need to use unemployment insurance
      (UI) wage records. To verify that the individual has been in a period of
      unemployment for at least 27 weeks, SWAs must verify that the individual has had
      zero UI wages for the two most recent completed quarters prior to the date the job
      applicant signed the IRS Form 8850.

   b. To determine whether the individual has received unemployment compensation under
      State or Federal law during a period of unemployment, SWAs will need to use UI
      claims records to verify that the individual has received unemployment
      compensation for all or part of the period of unemployment that is at least 27 weeks.
      Note: An individual is not required to be receiving unemployment compensation at
      the time they are hired. ETA recognizes that many individuals will have exhausted
      their unemployment compensation prior to the date the job applicant signed the IRS
      Form 8850. In such cases, the State UI agency will have records, either in the current
      database or in archives, of the individual’s claim series. If the individual filed a claim
      and was denied benefits, the State UI agency will have that record, too.

   When the UI data, UI wage records and/or UI claim records are available, SWAs should
   issue those final determinations (certifications and denials) to employers or their
   representatives based on the available data.

   When there is an absence of UI wage records and/or UI claims records (in other words, if
   the UI data is not available to determine whether the individual has had zero UI wages
   and has received unemployment compensation), SWAs may use the ETA Form 9175,
   Long-Term Unemployment Recipient Self-Attestation Form (SAF), provided by the new
   hire to make final determinations (certifications and denials). Further technical assistance
   will be provided on this topic.


   Note: To facilitate the SWAs’ eligibility determination and verification processes for this
   target group, ETA created a national SAF. A completed and signed SAF must be filed
   with a SWA as part of each certification request (accompanying IRS Form 8850 and ETA
   Forms 9061 or 9062) for this group or, if filed separately, within a reasonable period of
   time, as determined by the SWA.
7. Accessing Unemployment Insurance Claims and Wage Records. SWAs that have not
   already done so must negotiate with their State UI agency to determine the most efficient
   and effective way to access the UI claims records and wage data. Claim and wage
   information is required to be kept confidential by the State UI agency, and may only be
   disclosed under certain circumstances. Regulations at 20 CFR 603.5(e) permit the
   disclosure of unemployment compensation information “to a public official for use in the
   performance of his or her official duties.” Since the SWA is a public official, informed
   consent is not necessary.

   Note: Each SWA will have to enter into an agreement with its State’s UI agency that
   includes a provision for protecting the data from unauthorized access (20 CFR 603.9) and
   provides for reimbursement for costs (20 CFR 603.8) except as set out below. The
   agreement must meet the terms and conditions set forth in 20 CFR 603.10(b).

   To obtain information from the State UI agency, SWAs must provide a Social Security
   Number for each participant of whom a claim or wage data is sought. In those instances
   where the SWAs anticipate a large volume of requests for data, the State UI agency may
   require that the request be made electronically.

   State UI agencies are not required to obtain reimbursement for providing the requested
   information if the amount of staff time in responding to the request is incidental and only
   nominal processing costs are involved in making the disclosure. SWAs that choose to
   use informed consent releases from individuals will need to work with employers to
   ensure that informed consent releases are collected at the time of hire. Because
   confidentiality laws vary by State, SWAs should work with their State UI agencies to
   determine the necessary form and content of the informed consent release.

8. Qualified Wages and Tax Credit Caps Applicable to the Long-Term Unemployment
   Recipient Group. The 1996 legislative “qualified wages” provisions that apply to most
   adult non-veteran target groups also apply to the new target group, as do the amounts of
   the tax credit employers can claim for certified new hires. Qualified wages for certified
   new hires under the Long-Term Unemployment Recipient target group are capped at
   $6,000 during the first year of employment, for a maximum tax credit of up to $2,400
   depending on the number of hours the new hire works (i.e., how new hires meet the
   provisions of the Minimum Employment or Retention Period). Specifically:

   a. For WOTC certified new hires working at least 120 hours, employers can claim 25%
      of first year wages paid up to $6,000 for a maximum tax credit of up to $1,500; or

       For WOTC certified new hires working 400 hours or more, employers can claim 40%
       of first year wages up to $6,000 for a maximum tax credit of up to $2,400.


   b. Employers or their representatives may request certifications for individuals who start
      to work for an employer on or after January 1, 2016.

9. Transition Relief for Employer Submission of Form 8850. Section IV.A, page 4, of
   IRS Notice 2016-22, and IRS Notice 2016-40 available at: https://www.irs.gov/forms-
   pubs, provide employers, including qualified tax-exempt organizations, with transition
   relief from the 28-day timely filing requirement by providing additional time to file the
   pre-screening notice, IRS Form 8850, with SWAs.

   a. Additional time for employers that hired members of targeted groups (other
      than qualified long-term unemployment recipients) between January 1, 2015 and
      August 31, 2016. An employer that hired a member of a targeted group (described in
      § 51(d)(1)(A) through (d)(1)(I) of the Code) who began work for that employer on or
      after January 1, 2015, and on or before August 31, 2016, will be considered to have
      satisfied the requirements of § 51(d)(13)(A)(ii) of the Code if the employer submitted
      the completed IRS Form 8850 to the SWA to request certification no later than
      September 28, 2016.

       Additional time for employers that hired or hire long-term unemployment
       recipients between January 1, 2016 and August 31, 2016. An employer that hired
       or hires an individual who is a long-term unemployment recipient (described in §
       51(d)(1)(J) of the Code) 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 requirements of § 51(d)(13)(A)(ii) of the Code if the employer submits
       the completed IRS Form 8850 to the SWA to request certification no later than
       September 28, 2016.

   b. Application of 28-day requirement to individuals hired on or after September 1,
      2016. An employer that hires a member of a targeted group (described in §
      51(d)(1)(A) through (d)(1)(J) of the Code), 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 described in this notice.

10. WOTC ETA Forms. To help facilitate the eligibility determination and verification
    process, ETA issued the SAF and made minimal changes that reflect statutory
    requirements authorized under the PATH Act to the following Forms:
     ETA Form 9175 (May 2016), Long-Term Unemployment Recipient Self-Attestation
       Form;
     ETA Form 9058 (Revised May 2016), Report -1 - Certification Workload and
       Characteristics of Certified Individuals Form;
     ETA Form 9061 (Revised May 2016), Individual Characteristics Form;
     ETA Form Spanish 9061 (Revised May 2016), Individual Characteristics Form;
     ETA Form 9062 (Revised May 2016), Conditional Certification Form;
     ETA Form 9063 (Revised May 2016) Employer Certification Form; and


      ETA Form 9065 (Revised May 2016), Agency Declaration of Verification Results
       Worksheet.

   The revised Forms are very similar to the “previously OMB approved” Forms, with the
   addition of the new target group and updated instructions. These Forms are available at:
   https://www.doleta.gov/business/incentives/opptax/forms.cfm. Additionally, the IRS
   Form 8850, Revised March 2016 - Pre-Screening Notice and Certification Request for
   the Work Opportunity Credit, and related instructions has also been updated to reflect
   legislative changes, and is available at https://www.irs.gov/pub/irs-pdf/f8850.pdf.

11. Paperwork Reduction Act of 1995, Notice of Action and Reporting Authority. The
    SAF and ETA Forms 9058, 9061, 9062, 9063, and 9065 were approved by the Office of
    Management and Budget (OMB) under the Paperwork Reduction Act (PRA) and
    approved for use through November 30, 2016.

   According to PRA, no persons are required to respond to a collection of information
   unless such collection displays a valid OMB Control Number 1205-0371. The U.S.
   Department of Labor notes that a Federal agency may not conduct or sponsor a collection
   of information, nor is the public required to respond to a collection of information, unless
   it is approved by OMB under the PRA, and displays a currently valid OMB Control
   Number (44 U.S.C. 3507). Also, notwithstanding any other provision of law, no person
   shall be subject to penalty for failing to comply with a collection of information if the
   collection of information does not display a currently valid OMB Control Number (44
   U.S.C. 3512).

12. Guidance for SWAs and Employers Following ETA’s Interim Instructions. SWAs
    that received certification requests for the Long-term Unemployment Recipients (LTUR)
    new target group on “previously OMB approved forms” between January 1, 2016 and the
    day prior to the issue date of this TEGL can process those certification requests if they
    can access the required UI wage and claims records as described in Section 6 of this
    TEGL to make LTUR eligibility determinations. SWAs should continue to issue final
    determinations (certifications or denials) to the respective employers or representatives.

   However, if the SWA is not able to issue final determinations (certifications or denials)
   based on UI wage records and UI claims records to determine that the individual has been
   in a period of unemployment for at least 27 weeks prior to the date the job applicant
   signed the IRS Form 8850, SWAs must send “Needs Letters” to those employers and
   request that they file a signed and dated SAF within 90 days of the receipt date of the
   letter so the SWAs can process those requests and issue final determinations.

13. Grace Period for States and Employers for Automated Systems and WOTC Forms.

   Extended Grace Period to Modify Automated Systems
   To allow States and the employer community additional time to conform their automated
   systems for use/modify their automated systems, with the revised IRS and ETA Forms,


   ETA grants an additional 90-day grace period. The grace period begins on the issue date
   of this TEGL, Change 1 and ends 90 calendar days later.

   During this extended grace period, employers and their authorized representatives may
   file certification requests using other filing methods (e.g., via email, fax, scanned, mail)
   and using ETA Forms (Revised May 2016) with OMB Control Number 1205-0371 and
   IRS Form 8850 (Revised March 2016) with OMB Control Number 1545-1500 for all
   WOTC eligible groups. If you are not sure how your State accepts applications, contact
   the WOTC Coordinator in your State. A directory of State WOTC Coordinators is
   available at: https://www.doleta.gov/business/incentives/opptax/State_Contacts.cfm.

   Grace Period for Use of “Previously OMB Approved” ETA Forms and IRS Form All
   Target Groups
   Additionally, to ensure SWAs continue an uninterrupted processing of employers’ timely
   filed certification requests and issuance of determinations (certification or denials) for
   individuals who are members of reauthorized WOTC Target Groups, other than the new
   target group, LTUR, ETA grants a 90-day grace period that allows employers and their
   representatives to continue to file certification requests with the SWAs using either: 1)
   the “previously (2012) OMB approved” ETA Forms and IRS Form; or 2) ETA Forms
   (Revised May 2016) with OMB Control Number 1205-0371 and IRS Form 8850
   (Revised March 2016) with OMB Control Number 1545-1500. The 90-day grace period
   begins on the issue date of this TEGL, Change 1 and ends 90 calendar days later, April
   11, 2017.

   For certification requests for the new target group, LTUR, received on the “2012 OMB
   approved” forms, SWAs should follow the guidance under Section 12 until the 90-day
   grace period ends. SWAs should continue to issue final determinations (certifications or
   denials) to the respective employers or representatives.

   After the grace period ends, SWAs should accept certification requests for all WOTC
   target groups only if submitted on ETA Forms (Revised May 2016) with OMB Control
   Number 1205-0371 and IRS Form 8850 (Revised March 2016) with OMB Control
   Number 1545-1500.

14. Program Administration. The SWA certification and program operation responsibilities
    will remain the same under the PATH Act. These responsibilities include: a) determining
    targeted group eligibility by conducting eligibility determinations and verification
    activities and issuing certifications and denials; b) establishing working partnerships with
    different participating agencies at the State and Local levels for issuing Conditional
    Certifications; c) complying with quarterly reporting requirements; and d) complying
    with requirements for records’ retention time periods.


15. Action Requested. SWA administrators are requested to:

       Provide this information to all appropriate State WOTC coordinators and related
        program staff, employers and their representatives, participating agencies and other
        interested partners;
       Ensure that the SWAs and participating agencies administer the requirements outlined
        in this TEGL and continue to process certifications requests for all WOTC target
        groups, including LTUR; and
       Use the WOTC ETA Forms (Revised May 2016) and IRS Form 8850 (Revised
        March 2016), and share them with related program staff, employers and their
        representatives, participating agencies, and other interested partners on the issue date
        of this TEGL. Once the 90-day grace period ends as described under Section 13 of
        this TEGL, SWAs should accept certification requests for all WOTC target groups
        only if submitted on ETA Forms (Revised May 2016) with OMB Control Number
        1205-0371 and IRS Form 8850 (Revised March 2016) with OMB Control Number
        1545-1500.

16. Inquiries. Questions regarding this guidance should be directed to the appropriate
    WOTC Regional Coordinator listed on the WOTC program website at:
    https://www.doleta.gov/business/incentives/opptax/Regional_Contacts.cfm.