The IRS has released the guidance and forms that employers can use to claim the newly-expanded tax credit for hiring veterans. The VOW to Hire Heroes Act of 2011 provided an expanded Work Opportunity Tax Credit (WOTC) to businesses that hire eligible unemployed veterans, and for the first time also made the credit available to certain tax-exempt organizations. The WOTC was expanded on December 18, 2015, when President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Furthermore, the PATH Act retroactively reauthorizes the WOTC program target groups from December 31, 2014 to December 31, 2019.
The Returning Heroes Tax Credit provides incentives of up to $5,600 for hiring unemployed veterans, and the Wounded Warriors Tax Credit doubles the existing Work Opportunity Tax Credit for long-term unemployed veterans with service-connected disabilities, to up to $9,600.
This new tax credit is summarized as follows:
- Qualified Long-term Unemployment: A new credit for new hires that begin work on or after January 1, 2016 through December 31, 2019, during which the individual is employed no less than 27 consecutive weeks, and includes a period in which the individual was receiving unemployment compensation under State or Federal law. For WOTC certified new hires working at least 120 hours, employers can claim 25% of the first year wages paid up to $6,000 for a maximum income tax credit of up to $1,500. For WOTC certified new hires working 400 hours or more, employers can claim 40% of the first year wages up to $6,000 for a maximum income tax credit of up to $2,400.
The previous tax accredits continue to apply for employees that work over 400 hours (as above and shown on the DoL Employment and Training Administration website, these percentages go to 25% if the employee works less between 120 and 400 hours):
- Short-term Unemployed: A credit of 40% of the first $6,000 of wages (up to $2,400) for employers who hire veterans who have been in receipt of unemployment compensation for at least 4 weeks.
- Long-term Unemployed: A credit of 40% of the first $14,000 of wages (up to $5,600) for employers who hire veterans who have been in receipt of unemployment compensation for longer than 6 months. Wounded Warrior Tax Credit
- Veterans with Services-Connected Disabilities: Maintains the existing Work Opportunity Tax Credit for veterans with service-connected disabilities hired within one year of being discharged from the military. The credit is 40% of the first $12,000 of wages (up to $4,800).
- Long-Term Unemployed Veterans with Services-Connected Disabilities: A new credit of 40% of the first $24,000 of wages (up to $9,600) for firms that hire veterans with service-connected disabilities who have been in receipt of unemployment compensation for longer than 6 months. The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 for tax-exempt organizations.
Certain tax-exempt organizations can take advantage of WOTC by hiring eligible veterans and receiving a credit against the employer’s share of Social Security taxes.
Find the PATH Act – WOTC Interim Instructions on the Department of Labor website. Further information can be found in IRS Notice 2016-22.
To see how much your business can earn in tax credits, see the WOTC Calculator.
To collect on this credit, an eligible employer must:
- Complete IRS Form 8850 by the day the job offer is made.
- Complete ETA Form 9061, or complete ETA Form 9062 if the employee has been conditionally certified as belonging to a WOTC target group by a State Workforce Agency, Vocational Rehabilitation agency, or another participating agency.
- Submit the completed and signed IRS and ETA forms to your State Workforce Agency. Forms must be submitted within 28 calendar days of the employee’s start date.
- Wait for a final determination from your State Workforce Agency. The determination will indicate whether the employee is certified as meeting the eligibility for one of the WOTC target groups.
- After the target group employee is certified by the State Workforce Agency, file for the tax credit with the Internal Revenue Service.