IRS Issues Guidance on Expansion of Work Opportunity Tax Credit

The IRS issued Notice 2009-28 and a revised Form 8850 dealing with new classes of individuals who are eligible for the work opportunity tax credit under §51. The new classes that were added by the American Recovery and Reinvestment Tax Act of 2009 in February included unemployed veterans and disconnected youth.

While the definition of an “unemployed veteran” is taken directly from the law, the issue of what is a “disconnected youth” is given additional clarification in the notice.

Definitions under the law:

Veteran under this provision means an individual certified by a designated agency as:

• (1) having served on active duty (other than active duty for training) in the Armed Forces of the United States (Armed Forces) for a period of more than 180 days; or
• (2) having been discharged or released from active duty in the Armed Forces for a service-connected disability.

Unemployed veteran means a veteran certified by the appropriate agency as:

• (1) having been discharged or released from active duty in the Armed Forces at any time during the 5-year period ending on the hiring date; and
• (2) being in receipt of unemployment compensation under State or Federal law for not less than four weeks during the one-year period ending on the hiring date.

Disconnected Youth under the law is defined as an individual certified by a designated agency as:

• (I) as having attained age 16 but not age 25 on the hiring date;
• (II) as not regularly attending any secondary, technical, or post-secondary school during the 6-month period preceding the hiring date;
• (III) as not regularly employed during such 6-month period; and
• (IV) as not readily employable by reason of lacking a sufficient number of basic skills.

The IRS noted that the Conference Agreement left it to the IRS to outline more details on this definition, and the IRS proceeds to do so in this notice.

An individual is considered not regularly attending any secondary, technical or post-secondary school if the individual states, in writing that during the six months before his or hire date, that individual has not attended a secondary, technical or post-secondary school for more than 10 hours a week, not counting any periods the school is closed for school vacations.

The schools covered are defined to include:

Secondary School: The term “secondary school” means:

• (1) A secondary school as defined in 20 U.S.C. § 7801(38); or
• (2) a for-profit secondary school that otherwise meets the definition in 20 U.S.C. § 7801(38).

Technical or Post-Secondary School: The terms “technical school” and “post-secondary school” mean institutions of higher education as defined in 20 U.S.C. §§ 1001; 1002(a)(1), (b) and (c); and 1059c(b)(3).

The individual will be considered to be “not regularly employed” using a moving 3 month test during the six months immediately proceding the date of hire. The individual must not have, for each consecutive three month period during the six months preceeding his/her hiring, earned an amount that is equal to or more than the amount the individual would have earned had he/she worked 30 hours a week during each week of the period had he/she been paid the minimum wage. That minimum wage is the higher of the federal minimum wage or, if applicable, the state minimum wage.

The individual will be considered to be not readily employable by reason of lacking a sufficient number of basic skills if he/she meets one of two tests:

• The individual does not possess either a certificate of graduation from a secondary school or a GED certificate or
• The individual has a certificate of graduation from a secondary school or GED granted less than six months before his/her date of hire and the individual has not held a job or been admitted to a technical or post-secondary school since receiving the certificate

While the rules are applicable for individuals who began work after December 31, 2008 and before January 1, 2011, the IRS does grant transition relief from the pre-certification requirements. Though generally an employer must obtain a pre-screening certification of the individual prior to hiring, for individuals in these two classes that were hired after December 31, 2008 and before July 17, 2009 may be certified after the fact as long as the employer transmits the prescreening notice to the designated local agency no later than August 17, 2009.

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