IRS Provides Relief for Certain Employers Claiming the Work Opportunity Tax Credit

August 10, 2021

The IRS recently issued Notice 2021-43, which provides transition relief to certain employers claiming the Work Opportunity Tax Credit (WOTC). The WOTC is a federal income tax credit available to employers that hire certified members of certain groups specified in the Internal Revenue Code who face significant barriers to employment, including Designated Community Residents or Qualified Summer Youth Employees.

The notice extends the 28-day deadline for employers to submit a request to a designated local agency (DLA) to certify that an employee hired between Jan. 1 and Oct. 8 of this year is a Designated Community Resident or a Qualified Summer Youth Employee. To be certified as a Designated Community Resident or a Qualified Summer Youth Employee under the WOTC, an employee must have a principal place of residence within an Empowerment Zone where the employee continuously resides.

Empowerment Zone designations terminated on Dec. 31, 2020, but the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted as Division EE of the Consolidated Appropriations Act, 2021, permitted the designations to be extended through 2025. On May 26, 2021, all Empowerment Zone designations were extended from Dec. 31, 2020, to Dec. 31, 2025. The transition relief under this notice allows employers to submit Form 8850 for these employees until Nov. 8, 2021.

The notice also provides guidance to certain employers who submitted a Form 8850 to a DLA for these employees during the period of transition relief and received a denial due to the termination of Empowerment Zone designations on Dec. 31, 2020, or who received a certification before Empowerment Zone designations were extended.