Tax Credits for Hiring Veterans

Updated: 2/21/2012

Legislation, H.R. 674, was signed into law by President Obama on November 21, 2011. It extends the Work Opportunity Tax Credits (WOTC) for qualified veterans. The WOTC is authorized tax credits for employers to hire certain targeted groups inclusive of disabled veterans, SSI recipient and various other groups. Certain groups inclusive of unemployed veterans were added temporarily under ARRA which expired December 2010.

Returning Heroes and Wounded Warriors Work Opportunity

The Returning Heroes and Wounded Warriors Work Opportunity tax credit under the legislation uses the already established WOTC, which was set to expire on all wages after December 2011. It would add additional categories of veterans to be covered by the credit, inclusive of veterans who have been unemployed for as little as four weeks within a year prior to hire. The legislation would amend the current law extending WOTC for qualified veterans and disabled veterans through Dec 31, 2012. All other targeted groups would have the credit sunset at the end of 2011. In addition, it increases the qualified wages for purpose of the credit for disabled veterans, who still qualified under current law; this would increase the maximum credit an employer may receive. It also establishes various wage thresholds for the new categories of veterans that would qualify under the expansion.

WOTC credits are taken as general business tax credits. However, the legislation also expands the credit, at a reduced percentage of qualified wages, to tax-exempt organizations. It allows it to be applied against certain payroll tax liability for these tax-exempt organizations.

Credit Amounts

For purpose of the credit, an employer may qualify for a credit of up to 40 percent of qualified wages. Maximum qualified wages vary depending on the category of veteran. Accordingly, a disabled veteran who has been unemployed for at least 6 months in the previous year prior to hire date has a wage maximum of $24,000, making the maximum credit $9,600. Where a veteran without a service connected disability who has been unemployed at least 6 months in the year prior to hire has a wage maximum of $14,000, making the maximum credit $5,600. Other categories for qualified veterans exist with varying wage limits. In addition, an employer who has a qualified individual that has worked at least 120 hrs may receive a reduced credit of 25 percent of qualified wages. It should be noted that, the percentage of the credit that may be taken on qualified wages is reduced further for tax-exempt organizations.

For further details on the current WOTC regulations please visit http://www.doleta.gov/business/incentives/opptax/

How to Claim the Extended Veterans Tax Credit

Businesses claim the credit on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800. This credit is also available to certain tax-exempt organizations by filing Form 5884-C.

 

For eligible veterans hired on or after November 21, 2011, and before May 22, 2012:
Employers have until June 19, 2012, to file the newly revised Form 8850 (view instructions) with the state workforce agency.

 

For eligible veterans hired on or after May 22, 2012:
Employers will need to file Form 8850 within 28 days after the employee begins work.

For more information on how to claim the extended veterans tax credit, please visit IRS.gov.

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