As we honor our veterans today, employers may want to consider the Work Opportunity Tax Credit (WOTC) for new hires. WOTC is a federal income tax credit available to employers that hire individuals from targeted groups that have traditionally faced barriers to employment. The Veterans Opportunity to Work to Hire Heroes Act of 2011 (“VOW to Hire Heroes Act”) extended and expanded the tax credit for veterans. To be considered a veteran under WOTC, the individual must meet the following requirements:
- The individual must have served on active duty in the U.S. Armed Forces for more than 180 days. If an individual with less than 180 days of active duty is discharged because of a service-connected disability, then he or she will be treated as having served 180 days; and
- The individual must not have finished a period of active duty (not including training) of more than 90 days within 60 days of the hiring date.
A qualified veteran is a veteran certified as any of the following:
- A member of a family enrolled in the Supplemental Nutrition Assistance Program (SNAP or “food stamps”) for at least a 3-month period during the 15 months prior to the hiring date;
- Unemployed for a period totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the one-year period ending on the hiring date;
- Unemployed for a period totaling at least 6 months (whether or not consecutive) in the one-year period ending on the hiring date;
- Entitled to compensation for a service-connected disability and hired within a year after being discharged from active duty; or
- Entitled to compensation for a service-connected disability and unemployed for a period totaling at least 6 months (whether or not consecutive) in the one-year period ending on the hiring date.
Employers receive a credit in the range of $2,400 to $9,600 per employee depending on the category, hours worked, and wages paid.
WOTC is also available to tax-exempt organizations described in IRC § 501(c) that hire qualified veterans. These organizations may claim the credit against the employer’s portion of Social Security tax by filing Form 5884-C. Although the credit is applied against the employer Social Security tax liability for the employment tax period in which the credit is claimed, the liability reported on the employment tax return (e.g., Form 941) is not reduced when that return is filed. The IRS will process Form 5884-C separately and refund the amount properly claimed on Form 5884-C to the qualified tax-exempt organization. Because Form 5884-C will generally not be processed simultaneously with the employment tax return, it is recommended that qualified tax-exempt organizations not reduce their required deposits in anticipation of any credit.