Have you recently hired a veteran and heard your business might be eligible for tax credits for hiring veterans? It’s true. There are a few different work opportunity tax credits (WOTC) you may be able to get.
But to receive a WOTC, you’ll first need to apply for the credit with all the necessary documentation. We’ll explain how to qualify for the tax credit, including specific information on what you should file and when.
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Tax Credits Available to Your Business for Hiring Veterans
There are several different tax credits your veteran employee may qualify for:
Unemployment Tax Credits
- Qualified Long Term Unemployment: For veterans who were receiving unemployment compensation and worked for more than 27 consecutive weeks, your business can receive a maximum of $1,500 for employees who worked at least 120 hours or a maximum credit of $2400 for employees who worked more than 400 hours during their first year on the job.
- Short-Term Unemployment: This credit pays 40% of the first $6,000 of wages ($2,400) for veterans that have received at least four weeks of unemployment compensation.
- Long-Term Unemployment: This credit pays 40% of the first $14,000 of wages ($5,600) for veterans that have received unemployment compensation for more than six months.
Related Link: Easily Calculate the R&D Tax Credit for Great Returns
Wounded Warrior Tax Credits
- Veterans with Services-Connected Disabilities: This tax credit gives 40% of the first $12,000 of wages ($4800) for veterans with service-connected disabilities and is hired within a year of being discharged from military service.
- Long-Term Unemployed Veterans with Services-Connected Disabilities: This tax credit gives 40% of the first $24,000 of wages ($9,600) for veterans with service-connected disabilities and has received unemployment compensation for more than six months.
- The Returning Heroes Tax Credit: This credit offers up to $5,600 for hiring unemployed veterans.
Which Veterans Qualify for WOTC?
To qualify for WOTC, the employee must certify as one of the specific targeted groups. These groups can vary, but the following always receive the tax credit:
- An unemployed veteran for a specific amount of time
- A veteran that receives SNAP (food stamp) benefits
- A veteran with a service-related disability
Even if your veteran employee doesn’t fit into one of these categories, they may qualify for another targeted group, such as long-term family assistance. These other categories can vary depending on your state.
Do you need help applying for the various tax credits for veterans? Contact Parachor Consulting to leverage their corporate tax expertise.
Related Link: How R&D Credits Help with Payroll Taxes [2021]
How to Apply for the Tax Credits for Hiring Veterans
Once the veteran has joined your team, there are a few things you need to do to be eligible for the tax credit for hiring veterans. Parachor offers a fully digital solution to manage the process of screening and claiming tax credits for hiring veterans and other applicants in WOTC target groups The process seems pretty straightforward, but it also has a few requirements that will necessitate some attention to detail:
1. File IRS Form 8850
First, you’ll need to file IRS Form 8850 after you hire a veteran. This form must be filled by the applicant and the employer on or before the applicant’s first day of work. Also, this must be filed within 28 days of your employee’s first day of work. IRS Form 8850 is the Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This form allows the IRS to verify your employee’s eligibility as a WOTC target group.
This two-page form may require your employee to verify disabilities. Typically, this wouldn’t be allowed because of the Disabilities Act, but the Equal Employment Opportunity Commission has specific guidance about how to approach this for WOTC.
2. Submit ETA Form 9061 or ETA Form 9062
Along with IRS Form 8850, you’ll need to submit ETA Form 9061 or ETA Form 9062 to the state workforce agency within 28 days after the new hire’s start date. ETA Form 9061 is an Individual Characteristics Form (ICF) for WOTC and helps certify that your new employee is a qualified member of a WOTC target group. The ETA Form 9062 is a Conditional Certification of WOTC that can prove veteran status or require a TANF case number.
Some additional verification forms may be required depending on your state workforce agencies, so you will want to know what your area requires. If you do not submit these documents within 28 days of their first day, your tax credit will be denied.
3. Receive a Determination
Once the state workforce agency receives the necessary documents, they will require additional information or send a determination certifying the tax credits you can claim on your business tax returns with the IRS.
4. Eligible Employees Must Work At Least 120 Hours in the First Year
To claim a tax credit for any veterans you hire, the eligible employee must work a minimum of 120 hours in the first year of employment before filing for the tax credit. They must work at least 120 hours because the credit is based on a set percentage of paid wages to the veteran during the first year.
The minimum percentage is 25% for those eligible employees that worked more than 120 hours but less than 400 hours. The maximum percentage is 40% for employees that work at least 400 hours.
5. File the IRS Form 5884 with Your Business’s Income Tax Return
Once your employees qualify and have worked at least the minimum of required hours, you can file IRS Form 5884, Work Opportunity Credit, with your business’ tax return. If you run a tax-exempt organization, then you’ll need to file the Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans IRS Form 5884-C.
The WOTC Tax Credit is a Nice Benefit of Employing Veterans
While not the primary reason you employ veterans, it is helpful to have a tax credit that can save a significant amount of money for your business. To ensure that your business gets every tax break, contact Parachor Consulting, whose expertise in specialty tax credits and incentives can provide substantial savings.
Parachor Consulting specializes in tax consulting services for small to medium-size enterprises. With large firm experience, our tax experts will ensure your business receives the best in tax advisory services so that no money is left on the table. Want professional help filing your business tax return? Contact Parachor Consulting to learn how we’ll maximize your return.
