This is a follow-up to my recent post about tax benefits employers earn by hiring military veterans. In addition to strong skill sets and personal characteristics, many veterans can bring an added financial benefit to their employer through the Work Opportunity Tax Credit (or WOTC).
Employers naturally have questions about how veterans qualify. How long must a veteran have served? What if they have a service-connected disability? What are the specific tax credit amounts? Today, I’ll go into these details.
If you have questions that I don’t answer here, please feel welcome to email or call me at WOTC Planet.
Which Veterans Are Eligible? To be considered for WOTC, a veteran first must have served more than 180 days of active duty (not including training) – unless, of course, they were discharged sooner because of a service-connected disability. Additionally, their last period of “extended active duty” must have ended at least 61 days prior to their date of hire.
These are the two threshold considerations and most veterans you hire will pass them both with colors flying.
They must then also meet at least one of the WOTC-eligibility criteria shown in the table below, where I also list the maximum amount of tax credit your business can earn. Please notice that the amount varies, depending on why a veteran qualifies for WOTC.
||Maximum Tax Credit
|Member of a family that received SNAP benefits for at least 3 of the past 15 months
|Unemployed for at least 4 weeks (any 4) during the past year
|Discharged within the past year and entitled to compensation for a service-connected disability
|Unemployed for at least 6 months (any 6) during the past year
|Entitled to compensation for a service-connected disability and unemployed for at least 6 months (any 6) during the past year
These tax credits amounts are per eligible employee and there is NO LIMIT to the number of WOTC-qualified employees you can hire. If your business can sustain 5, 10 or 50 new veterans annually, all the better for both you and them!
Keep in mind that non-veterans also qualify for WOTC. So, if a veteran’s circumstances do not match any of the veteran-specific criteria listed above, they might still qualify under another WOTC target group. We’ll cover those in another post.
How the Tax Credits Add Up. This part gets a little technical. WOTC tax credit amounts are equal to a percentage (40%) of the wages you pay the veteran during his or her first year of work. The amount of wage you can use in the calculation is capped at a maximum amount — and that amount varies according to why a veteran qualifies. This is why the tax credit amounts listed in the table above range between $2,400 and $9,600.
A few other details can also affect the tax credit amount. If a veteran works less than 400 hours before leaving your company, the percentage used to calculate the tax credit must be reduced from 40% to 25%. If the veteran works less than 120 hours, it’s reduced to 0%. That means no tax credit is available if an employee leaves or is terminated before they’ve worked at least 120 hours.
Walk the Line . . . but Make It Easy. Anything having to do with the military or federal tax code will have strict rules to follow, especially when you’re going to reduce your federal tax bill. To qualify for WOTC, new hires must provide eligibility information on or before the day you offer them a job. There are forms to complete, applications to submit and certifications that you need. The rules allow just 28 days to submit employee application to your state workforce agency.
It sounds difficult. It can be.
That’s where a good WOTC services provider can be very useful. Hint. . . make it easy on yourself and look into it.
Veteran Hiring Programs. Hiring veterans is advantageous for many reasons. Their experience and training make them uniquely valuable employees. The financial benefit of the Work Opportunity Tax Credit is maximized for veterans and offers one more way veterans can be an asset to your organization.