What if your company could reduce your tax liability by hiring a newly minted CFI who also happens to be a veteran? That sounds too good to be true, but it is.
Businesses small and large are always looking for ways to maximize earnings and reduce costs. Employee overhead is one of the most commonly stated reasons companies downsize, use independent contractors, or don’t hire at all. The Work Opportunity Tax Credit (WOTC) provides a way for employers to hire veterans (or other targeted groups) and receive tax credits. It’s a hiring incentive worth a look.
The WOTC is a federal tax credit available to employers hiring individuals from certain targeted groups—namely veterans. The credit can range from $2,400 to $9,600 depending on the employee hired. Employees must work at least 120 hours in the first year of employment to be eligible for the tax credit. There is also a maximum tax credit that can be earned.
- If the individual works at least 120 hours, the employer may claim a tax credit equal to 25 percent of the individual’s first year wages, up to the maximum tax credit.
- If the individual works at least 400 hours, the employer may claim a tax credit equal to 40 percent of the individual’s first year wages, up to the maximum tax credit.
The WOTC website gives the following eligibility guidelines for hiring veterans.
A veteran who is:
- A member of a family that received SNAP benefits (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date
- Entitled to compensation for a service-connected disability
- Hired within one year of discharge or release from active duty
- Unemployed at least six months in the year ending on the hiring date
- Unemployed:
- At least four weeks in the year ending on the hiring date
- At least six months in the year ending on the hiring date
Please note that to be considered a veteran eligible for WOTC, an individual must meet these two standards:
- Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or have been discharged or released from active duty for a service-connected disability
- Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date
Unlike many other government programs this one is really pretty simple. However, the employer must provide information on the new hire by way of a pre-screening process and there is an important application timeline to consider in order to meet the tax credit guidelines.
As an employer you will need to file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with your state’s workforce agency within 28 days after the eligible worker begins work. In the state where I live we are also required to submit ETA Form 9061, in addition to a copy of the veteran’s DD form 214 (Certificate of Release or Discharge from Active Duty). Be sure to contact your state’s workforce coordinator before you send in the application. When I contacted our state’s workforce agency I discovered that they were months behind in processing these tax credit applications but that they had placed a higher priority on applications from employers who are hiring veterans.
WOTC reduces employers’ tax liability and there is no limit to the number of individuals you can hire to qualify to claim the tax credit. If you want to get a better idea of the amount of tax credits you can earn there is a handy WOTC tax credit calculator on the WOTC community partner’s section of the website.
While there is no substitute for hiring the right person for a job, by hiring a veteran your company gets tax saving credits and you can be proud of your efforts in helping those who have given so much to the service of our country.
For further information visit the WOTC website, contact your state’s workforce agency, and your tax accountant.
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