There are several updates for employer tax credit programs in recent weeks relevant to businesses. These include an explanation from the IRS Chief Counsel on the proper treatment of improperly forgiven PPP loans, an update from a coalition of nonprofits seeking a retroactive restoration of the Employee Retention Credit (ERC), and new guidance from the IRS on the Work Opportunity Tax Credit (WOTC).
IRS Chief Counsel Memo: Proper Treatment of Improperly Forgiven PPP Loans
A new Chief Counsel memo dated August 19, 2022, explains that while Congress excluded forgiven PPP loans from gross income in the Consolidated Appropriations Act, 2021 (Pub. L. 116–260), if forgiveness was obtained despite not meeting the requirements for that forgiveness, the loan proceeds should then be included in gross income. They conclude:
“If a taxpayer who does not factually satisfy the conditions for a qualifying forgiveness causes its lender to forgive the PPP loan by inaccurately representing that the taxpayer satisfies them, the taxpayer may not exclude the amount of the forgiven loan from gross income under 15 U.S.C. § 636m(i) or section 276(b)(1) of the CTRA 2020.”
PPP loans were administered through the Small Business Administration (SBA), and IRS does not have direct jurisdiction over the issues involving the loans or their forgiveness. However, this aspect of taxable income treatment enables the IRS to get involved in the PPP loan forgiveness area. For taxpayers who took advantage of both the PPP and ERC programs, there is also a tax implication, namely the proper interaction of forgiven PPP loan funds and ERC qualified wages. This gives the IRS yet another angle to investigate the proper use of PPP loan funds.
Nonprofits Reiterate Request to Restore ERC
A coalition of nonprofit organizations have updated and resent their letter to President Biden and Congressional leaders. The update, dated September 13, 2022, includes their request “to retroactively restore the Employee Retention Tax Credit, as proposed in the bipartisan ERTC Reinstatement Act (H.R. 6161/S. 3625), extend this refundable payroll tax credit through 2022, and modify nonprofit eligibility beyond the current ‘gross receipts’ test and definition of eligible payroll expenses to include child care and education subsidies.”
There does not appear to be any serious discussion in Congress to extend this employer tax credit program.
IRS Updates WOTC Guidance
A press release from the IRS alerts taxpayers to an update of their WOTC information webpage. As noted in the press release, the new information includes an emphasis on the pre-screening requirement that has been part of the program since its inception in 1996. It is interesting that IRS is choosing to highlight and reiterate rules that have always existed.
Prior to the update, the relevant text read:
- Pre-screening and Certification. An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850.
The revised text reads:
Pre-screening and Certification
- An employer must pre-screen and obtain certification from the appropriate Designated Local Agency (referred to as a State Workforce Agency or SWA) that an employee is a member of a targeted group to claim the credit. To satisfy the requirement to pre-screen a job applicant, on or before the day that a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer. The Targeted Jobs Tax Credit (TJTC), which preceded WOTC, did not contain a pre-screening requirement. In enacting WOTC to replace the TJTC in 1996, Congress included the requirement that employers pre-screen job applicants before or on the same day the job offer is made. In doing so, Congress emphasized that the WOTC is a subsidy designed to incentivize the hiring and employment of individuals who are members of targeted groups.
- On page two of Form 8850, there are four dates that must be provided before Form 8850 can be submitted to a SWA. They are the dates that the job applicant Gave information, Was offered job, Was hired, and Started the job.
- To confirm that the employer pre-screens the job applicant, and obtains information provided by the job applicant on the basis of which the employer believes that the job applicant is a member of a targeted group, the date the applicant Gave information about being a targeted group member must be a date that is the same as, or before the date the applicant Was offered job. The dates that the job applicant Was hired and Started the job must be on or after the dates the applicant Gave information and Was offered job. Form 8850 including the dates entered on page two of Form 8850, must be signed under penalties of perjury and must be submitted to the SWA (or postmarked, if mailed) no later than 28 days after the date that the job applicant Started the job.
- Some individuals have a Conditional Certification (DOL-ETA Form 9062) issued by partnering agencies or SWAs. Employers can contact their SWAs for more information on Conditional Certifications. If an employer does not receive a certification on or before the day that the individual begins work, the employer must request certification by submitting Form 8850, to the SWA of the state in which their business is located (where the employee works) within 28 days of the individual beginning work.
- Employers should contact their SWA with any specific processing questions for Form 8850.
Experian Employer Services tax experts regularly monitor and track updates to employer tax credit policies. Learn more about our tax credit solutions here.