2016 is the final year of the tax credit for telework expenses. The telework tax legislation was not extended beyond 2016. To qualify for the tax credit in 2016, Virginia businesses needed to file Form TEL-1 with the Department of Taxation by October 1, 2015.
Those businesses that applied for the 2016 tax credit should have received a tentative approval letter from the Department of Taxation. Businesses receiving tentative approval should keep documentation of their signed employee telework agreements and qualifying telework expenses incurred in 2016.
After December 31, 2016, businesses that filed Form TEL-1 and received a tentative approval letter should complete and file Form TEL-2 with the Department of Taxation by April 1, 2017.
The Telework Expenses Tax Credit is an individual and corporate income tax credit for employers who (1) incur eligible telework expenses pursuant to a telework agreement or (2) conduct telework assessments. This credit is equal to the amount of expenses incurred during the calendar year that ends during the taxable year, not to exceed $50,000 each year.
To qualify for a credit for eligible telework expenses incurred pursuant to a telework agreement, the employer must enter into a signed telework agreement on or after July 1, 2012, but before January 1, 2017. The maximum amount of expenses that can be used in determining the amount of this portion of the credit is $1,200 per employee.
The portion of the credit for telework assessment expenses is equal to the costs of preparing an assessment, not to exceed $20,000. This portion of the credit can only be claimed once by an employer.
Taxpayers may claim this credit for taxable years beginning on or after January 1, 2012, but before January 1, 2017. The aggregate amount of tax credits that will be issued is capped at $1 million annually. If credit applications exceed the $1 million cap, credits will be allocated on a pro rata basis.
The amount of credit claimed cannot exceed the tax liability of the taxpayer. There is no carryforward of any unused credit. Accordingly, even if a taxpayer is granted a credit amount, he must have sufficient tax liability in order to actually claim the full credit amount. To be eligible for this credit, the employer is not allowed to deduct the qualified expenses in any taxable year. If these expenses are deducted for federal purposes, they will need to be included as an addition on your Virginia return. Taxpayers are not eligible for this tax credit if any other income tax credit is claimed for the same expenses.
Taxpayers are required to apply to the Department to reserve a portion of the credit. The application must be filed between September 1 and October 31 of the year preceding the taxable year for which the tax credit is earned. The Department will provide tentative approval by December 31. If the applications for the credit exceed the cap, the credits will be allocated to taxpayers on a pro rata basis.
Taxpayers who received a tentative allocation letter must then confirm the amount of eligible telework expenses actually incurred by filing Form TEL-2. Any taxpayer who actually spends the estimated amount that was listed on Line 4 of Form TEL-1 will be granted a credit equal to or greater than the amount listed in the tentative allocation letter. Taxpayers who spend less than the amount estimated on Line 4 of Form TEL-1 may be granted a credit amount that is less than the tentative allocation amount. The final allocation amount depends on the number of applicants and the amount of eligible expenses incurred by each applicant.
Any credit attributable to a partnership, electing small business corporation (S corporation), or limited liability company will beallocated to the individual partners, shareholders, or members, respectively, in proportion to their ownership or interest in such business entities.
“Eligible telework expenses” means expenses incurred during the taxable year pursuant to a telework agreement, in an amount up to $1,200 for each participating employee, that enable a participating employee to begin to telework, which expenses are not otherwise the subject of a deduction from income claimed by the employer in any taxable year. Such expenses include, but are not limited to, expenses paid or incurred to purchase computers, computer-related hardware and software, modems, data processing equipment, telecommunications equipment, high-speed internet connectivity equipment, computer security software and devices, and all related delivery, installation, and maintenance fees. Such expenses do not include replacement costs for computers, computer-related hardware and software, modems, data processing equipment, telecommunications equipment, or computer security software and devices at the principal place of business when that equipment is relocated to the telework site. Eligible telework expenses may also include up to a maximum of $20,000 for conducting a telework assessment on or after January 1, 2012. Such costs shall be ineligible for this credit if they are otherwise taken as a deduction by the employer from income in any taxable year. The costs included and allowed to be taken as a credit include program planning costs, which may include direct program development and training costs, raw labor costs, and professional consulting fees. Such costs shall not include those for which a credit is claimed under any other provision of this chapter. The credit for conducting a telework assessment is allowed once for each employer meeting the requirements herein.
“Telework” means the performance of normal and regular work functions on a workday at a location different from the place where work functions are normally performed and that is within or closer to the participating employee’s residence. The term does not include home-based businesses, extensions of the workday, or work performed on a weekend or holiday.
“Telework agreement” means an agreement signed by the employer and the participating employee, on or after July 1, 2012, but before January 1, 2017, that defines the terms of a telework arrangement, including the number of days per month the participating employee will telework in order to qualify for the credit, and any restrictions on the location from which the employee will telework. This agreement must be in accordance with policies set by the Department of Rail and Public Transportation.
“Telework assessment” means an optional assessment leading to the development of policies and procedures necessary to implement a formal telework program that would qualify the employer for this credit, including but not limited to a workforce profile; a telework program business case and plan; a detailed accounting of the purpose, goals, and operating procedures of the telework program; methodologies for measuring telework program activities and success; and a deployment schedule for increasing telework activity.
When to Submit Application
File Form TEL-2, the Telework Expenses Tax Credit Worksheet, and any other supporting documentation by April 1. For any application received without a postmark, the date received by the Department will be used to determine if the application was received by the filing deadline.
Where to Submit Application
Submit Form TEL-2 and attachments to the Department of Taxation, ATTN: Tax Credit Unit, P.O. Box 715, Richmond, VA 23218-0715 or fax it to 804-774-3902.
What to Expect from the Department of Taxation
If the Department of Taxation needs additional information, they will contact you by May 1 and you will have until May 15 to respond. If you have not received acknowledgement of your application by May 31, call 804-786-2992.
The Department of Taxation will issue the credit by June 30. If you have not received your credit certification by July 15, call 804-786-2992.
What Does the Taxpayer Need to Do
If the tax return upon which this credit will be claimed is due on or before May 1, you may need to submit an extension along with a payment for any tax due or file an amended return once you have received the credit certification.
Only those taxpayers who have filed Form TEL-1 and received a tentative approval letter are permitted to file Form TEL-2.
All business taxpayers should be registered with the Department of Taxation before completing Form TEL-2. If you are not registered, complete Form R-1.
Each pass-through entity must file Form PTE with the Department of Taxation within 30 days after the credit is granted. This information should be sent to: Department of Taxation, Attn: Tax Credit Unit, P.O. Box 715, Richmond, VA 23218-0715 or you may fax it to 804-786-2800. Please do not do both.
All pass-through entities distributing this credit to its owner(s), shareholders, partners or members must give each a Schedule VK-1, Owner’s Share of Income And Virginia Modifications And Credits.
Where To Get Help
Write to the Virginia Department of Taxation, ATTN: Tax Credit Unit, P.O. Box 715, Richmond, VA 23218-0715 or call 804-786-2992.
The purpose of the Telework Tax Credit is to remove auto trips by reducing commutes to and from work. Only employees who travel to an office in Virginia qualify. Businesses must have or create a Telework Policy and teleworking employees must have a signed Telework Agreement. A business may claim a tax credit of $1,200 in expenses per new teleworker. Expenses for existing teleworkers do NOT qualify for the tax credit.
Businesses located in Northern Virginia that need assistance with developing and implementing a telework program should submit a request for assistance at www.teleworkva.org/nova. This assistance is a free service from the Department of Rail and Public Transportation (DRPT). Businesses located in other parts of Virginia should contact the Commuter Assistance service provider in your area. Go to DRPT’s Service Locator to find the Commuter Assistance provider in your area.
Businesses must develop a formal telework policy and employee telework agreement. This can be accomplished with a technical consultant, in-house staff and the resources/samples available under Telework Resources. A telework policy and agreement are not needed at the time a business applies for the tax credit. However, those documents and policies must be developed as part of the business' telework program.
To be counted as a teleworker for the purpose of claiming a telework tax credit, an employee must telework at least one day per week. A teleworking employee must enter into a signed telework agreement on or after July 1, 2012, but before Jan. 1, 2017, and must be a new teleworker (not teleworking previously) to qualify for the tax credit.
Eligible Telework Expenses for Teleworkers (up to $1,200 per teleworker)
Only expenses that are directly needed to enable an employee to telework are eligible. Expenses that would have been incurred for normal business operations, whether or not they telework, are NOT eligible. Eligible expenses may include:
- Computer equipment (laptops/notebooks/tablets)
- Networking equipment and software
- Security and antivirus systems
- Internet access and service (ISP, routers, modems)
- Communications equipment and services (VoIP, landline, or mobile phone service; standard phones, mobile phones or smartphones; video/web cams)
- Telework center fees
Telework Assessment Expenses (up to $20,000)
Consultant or other expenses to assess existing teleworking (both formal and informal), equipment and training needs, barriers/issues, management and employee support, and develop telework policies and procedures, determine employee position eligibility and performance measurement.