Many employers have realized that veterans make outstanding employees. They tend to be easily trainable and have qualities like honesty, loyalty, and responsibility. If these traits alone don’t convince employers to hire veterans, tax laws provide further incentives. The tax law encourages hiring certain groups by offering a tax credit tied to the wages of these new employees, and certain veterans are considered a targeted group. Here are the key points to know when hiring so you can claim this tax credit.
### Which Veterans Qualify?
As a small business owner, you can qualify for the Work Opportunity Tax Credit (WOTC) if you hire a veteran who fits into one of these categories:
– Has a service-related disability
– Unemployed for a specified period
– Receiving SNAP (food stamp) benefits
Even if a veteran doesn’t fall into any of these categories, they might still be part of another targeted group, which would still enable you to claim a tax credit. For instance, a veteran from a family that received TANF payments for at least 18 consecutive months is treated as a member of a targeted group for long-term family assistance recipients.
### What is the Tax Credit Amount?
The tax credit directly reduces your tax bill, so every $1 of WOTC saves you $1 in taxes. The credit is based on the amount of wages paid to an eligible veteran in their first year of employment. The maximum tax credit is calculated as a set percentage of first-year wages, determined by law, and the number of hours worked. For example:
– For veterans, the basic percentage of first-year wages is 25% for those who worked at least 120 hours but fewer than 400 hours.
– It is 40% for those who worked at least 400 hours.
The maximum credit for a veteran who worked at least 400 hours is:
– $9,600 for a veteran with a service-related disability unemployed for at least 6 months ($24,000 in wages x 40%).
– $4,800 for a veteran with a service-related disability hired within 1 year of discharge or release from active duty ($12,000 in wages x 40%).
– $5,600 for an unemployed veteran for at least 6 months ($14,000 in wages x 40%).
– $2,400 for an unemployed veteran for at least 4 weeks ($6,000 in wages x 40%).
– $2,400 for a veteran receiving SNAP benefits ($6,000 in wages x 40%).
There’s no limit on the number of eligible employees you can hire for the credit. For example, if you hire 3 veterans with service-related disabilities who have been unemployed for at least 6 months, your credit would be $28,800 ($9,600 x 3).
The WOTC is available through 2019, and you can claim the credit year after year as your staff grows. So, even if you claim the credit for hiring a veteran in 2016, you can do so again the next year.
### Other Rules
Simply being eligible for the credit isn’t enough to claim it on your return. You must submit IRS Form 8850 to your state workforce agency within 28 days of the veteran’s first day of employment. Additionally, you need to submit ETA Form 9061, or ETA Form 9062 if the employee has already been conditionally certified as belonging to a targeted group. These submissions confirm that your new employee is part of a targeted group.
The credit is claimed on IRS Form 5884, which is attached to the employer’s income tax return.
### Conclusion
When hiring, keep the WOTC in mind. While it might not be the main reason for your hiring decision, it can certainly be a deciding factor between two qualified applicants.
