On June 17, 2016, the IRS released Notice 2016-40 and the Department of Labor released a new Training and Employment Guidance Letter (TEGL 25-15) Together, these documents provide employers with additional guidance on the Work Opportunity Tax Credit (WOTC) relating to changes made by the Protecting Americans from Tax Hikes (PATH) Act of 2015 (Public Law 114-113.) (See Tax Alert 2016-589)

Highlights of these documents include:

— An extension of the transition relief period for all WOTC categories to August 31, 2016 (previously May 31, 2016). The transition relief provides employers with relief from the 28-day timely filing requirement for IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.

— Authorization to use revised ETA Form 9061, Individual Characteristics (revised May, 2016).

— Publication of a new Self Attestation Form, ETA Form 9175, Long-Term Unemployment Recipient Self-Attestation Form (SAF), to be submitted as supporting documentation for the new Qualified Long-term Unemployment Recipient (LTU) target group.

Guidance to State Workforce Agencies to begin issuing certifications for new employees which qualify for the LTU target group. For LTU applications that were submitted prior to June 17, states are permitted to determine eligibility using UI claims and wage records and do not need to rely on the SAF. Where that data is insufficient to make a determination, states will send a "needs letter" to the employer requesting that they submit a completed SAF signed by the employee in question within 30 days of the receipt date of the letter.

There appears to be no remediation for cases in which it would be impractical to obtain a completed SAF.

According to the TEGL, applications for the LTU target group submitted on or after June 17 must include a signed SAF with IRS Form 8850 or, if filed separately, within a reasonable period of time. However, some states may be able to certify the LTU target group without the SAF.

— Officially authorizes states to release determinations for certification requests submitted for hire dates of January 1, 2015, to current.

Ernst & Young LLP observations

1. Employers now have more time to capture retroactive WOTC credits. Employers should consider taking steps to screen employees hired on or after January 1, 2015, to determine if they are eligible for one of the WOTC target groups (January 1, 2016, for the LTU target group).

Retroactive screening must be completed by August 31, 2016, and IRS Forms 8850 must be filed with State Workforce Agencies by September 29, 2016, in order for transition relief to apply.

2. Employers should ensure that they have a process in place to screen for the LTU target group using ETA Form 9175 and ensure that they are using the most up to date versions of all WOTC forms.

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