December 12, 2013

Get a Hefty Tax Credit if You Act Fast

What business can’t use a tax credit? As the year comes to a close, smart business-people take advantage of the waning days of December to minimize their tax bills for the year. If you are planning to hire soon and you choose a qualified veteran to fill that position, you could scoop up a tax credit worth up to $9,600. It’s called the federal Work Opportunity Tax Credit (WOTC). There is a catch, however. Unless Congress acts to renew this credit, you will lose the chance to take advantage of it when the calendar flips to 2014.

Here’s what you need to know about this valuable credit

The WOTC was originally part of the American Taxpayer Relief Act of 2012. The intention was to stimulate employers to hire from two groups: veterans and disadvantaged individuals. Later the law was extended through 2013 (though only for veterans). So far, Congress has not moved to extend the credit into 2014 and beyond, but they still may.

  • Employers who operate taxable businesses and hire qualified veterans before January 2014 may be eligible for a credit of up to $9,600 per eligible veteran.
  • Tax-exempt businesses can also get the credit, but it is limited to $6,240.
  • The credit can be carried back or carried forward.
  • The amount of the credit depends on certain factors, including: the veteran’s wages on your payroll during the year, how many hours the vet works for you, and how long he or she was unemployed before being hired by you.
  • Employers who hire disabled veterans may qualify for the maximum credit.

How do you know if the veteran you are considering is qualified?

Generally the individual must have served for at least 180 days on active duty. An exception may apply if the vetsustains a service-related injury and is therefore released early. The 180 day period does not include basic training.

If this hurdle is met, you must:

Start by filling out Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. This form is a questionnaire, which you submit to your state employment security agency. It requires input from both you and the veteran.

Ideally, you should submit it before you hire the individual. Regardless, it must be sent within 28 days of the hire date. If the request is rejected, the state agency must tell you why it was rejected. Then, you have the right to appeal.

Assuming your request is accepted, when you file your business tax return for the year you will also fill out and submit Form 5884, Work Opportunity Credit. You can also submit it with an amended return if you prefer.

There are five basic categories of qualified veterans, which partially determine the amount of the credit available. The maximum credit in each category depends on the number of hours worked.
  1. Veterans who are members of families receiving “supplemental nutrition assistance,” subject to certain time limits. Maximum credit: $2,400.
  2. Veterans unemployed for 4 weeks to 6 months. Maximum credit: $2,400.
  3. Disabled veterans hired within one year after discharge or release from active duty. Maximum credit: $4,800.
  4. Veterans unemployed for at least six months, aggregate, in the year before hiring. Maximum credit: $5,600.
  5. Disabled veterans unemployed for at least six months, aggregate, in the year before hiring. Maximum credit: $9,600.
You can learn more about the Work Opportunity Tax Credit by visiting the U.S. Department of Labor WOTC Website.