If your business needs additional workers, you may be able to achieve a number of goals at the same time: obtain qualified help for your business, reward those who served this country, and get a special tax break. Federal tax law allows employers to claim a work opportunity tax credit (WOTC) for hiring certain veterans. But to claim the credit, you must follow the rules.
Which veterans give employers a tax credit?
While hiring any vet can be beneficial for an employer because of the skills and training the vet has had, not all vets entitle an employer to the tax credit. Qualified vets for purposes of the WOTC include someone who:
- Has served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or has been discharged or released from active duty for a service-connected disability, and
- Has not had a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date.
Even if these tests are not met, a vet can still be considered qualified for the tax credit if he or she is:
- A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least a 3-month period ending during the 12-month period ending on the hiring date.
- Veteran is unemployed for a period or periods totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date.
- Veterans unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
- Entitled to compensation for a service-connected disability and hired not more than 1 year after being discharged or released from active duty in the U.S. Armed Forces.
- Entitled to compensation for a service-connected disability and unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
What is the amount of the tax credit?
You can reduce your tax bill by the full amount of the WOTC you’re entitled to. The amount of the credit depends on the number of hours the vet works for you (at least 120 hours to claim any credit) and the category in which he or she falls. The credit ranges from a minimum of 25% of first-year wages up to $6,000 (for a top credit of $1,200) to 40% of $24,000 (for a top credit of $9,000). You can find a complete listing of the credit amounts from the IRS (www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/VOW-to-Hire-Heroes-Act-Frequently-Asked-Questions-and-Answers).
There is no limit on the number of Veterans you can hire for this credit. However, the credit is part of the general business credit, which has an overall annual limit on the amount of credits you can claim currently (unused amounts can be taken in other years).
What steps must employers take?
You must hire a qualified vet before the end of 2013. While the credit may be claimed in 2014 with respect to the employee’s wages, the last day to hire is December 31, 2013 (unless Congress extends this break).
The vet must be certified by your state workforce agency as being qualified for purposes of the WOTC. To do this, you must submit IRS Form 8850 to your state workforce agency (usually the state’s unemployment department) within 28 days of the vet’s first day on the job. Have all new employees who might be qualified sign Form 8850 on their first day so you can submit it and find out whether a worker entitles you to a tax credit.
For any employee hired on or after January 1, 2012, and before April 2, 2013, you have until April 29, 2013, to submit the form and have it considered to be timely.
If a worker indicates that he or she believes he or she is eligible, you can claim the credit if the workforce agency fails to respond to your submission.
Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® at www.barbaraweltman.com. She was named one of the 100 Small Business Influencers for 2012. Follow her on Twitter @BarbaraWeltman.