Having just recently celebrated both Memorial Day and Independence Day, it seems like an appropriate time to discuss the government’s initiative to help employ veterans of the Armed Forces while incentivizing employers at the same time. The work opportunity tax credit (WOTC) was modified this past November under the VOW to Hire Heroes Act of 2011. This modification added new classifications of eligible workers, including unemployed veterans, and made the WOTC available to most tax-exempt employers.
The credit is currently available to qualified tax-exempt organizations that hire qualified veterans during the period November 11, 2011 through December 31, 2012. The credit works as a claim against the employer’s share of social security tax up to $6,240 per certified veteran’s qualified first-year wages. Credit amounts can vary based on a number of factors including the length of the employee’s unemployment before hire, number of hours worked, and first-year wages. The IRS has issued a number of resources to help employers understand how the credit works and how to apply, including a website page and collection of FAQs.
After determining if you have recently added employees that may fit the criteria to receive the credit, the next step is to have those employees certified through Form 8850 which is filed with an appropriate state workforce agency rather than the IRS. In order to qualify for the credit, employers must file this form within 28 days after the employee begins work.
Although the credit acts as a claim against social security taxes, it is not taken directly on employment tax forms. The IRS recommends filing employment forms at the gross amount. The claim for credit should be filed through Form 5884-C for tax-exempt organizations. A separate form is filed for each qualified veteran and can be filed quarterly or on an accumulated basis.
This process involves a number of steps and restrictions but can have a significant payoff to employers as well as our veterans.