Tax Credits for Hiring VeteransUpdated: July 10, 2021
Hiring veterans is a great way to show support for the men and women who defend our freedoms. Veteran employees can benefit your business in many ways, but did you know that you can also earn money-saving tax credits for hiring veterans? The Work Opportunity Tax Credit is one of several tax benefits employers can take advantage of when they hire qualified veterans.
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a program developed by the Internal Revenue Service that allows companies to pay a reduced amount of taxes in exchange for hiring members of groups, including eligible military veterans, that have traditionally had difficulty finding a job, such as individuals who had been unemployed for an extended period. The program began in the 1990s, and in 2011, veterans were added to the list of eligible groups, due to the unique challenges these individuals face in finding employment after they leave the military.
The WOTC is designed to help employers who are experiencing shortages in labor, as well as individuals who may need additional assistance finding employment. WOTC not only helps to lower taxes for employers, but also encourages the creation of new jobs. Under this program, approximately one billion dollars in tax credits are claimed annually.
Which employers are eligible to receive a tax credit for hiring veterans?
All private-sector employers are eligible for the credit, and some tax-exempt employers are eligible as well. There are two categories of employers that are eligible to claim the WOTC:
- Taxable employers: Once they have certified that their new hire is eligible for WOTC, these employers are able to claim the tax credit as a general business credit against their income tax.
- Tax-exempt employers: These employers can claim the WOTC for qualified veterans who began work on or after Dec. 31, 2014, and before Jan. 1, 2021. Tax-exempt employers can claim the WOTC against their social security tax.
How much is available?
The WOTC reduces an employer’s tax bill dollar-for-dollar; for every dollar of WOTC, the employer is able to save one dollar in the amount of taxes they owe. The credit is based on the amount of wages an employer pays to a WOTC-eligible veteran during their first year of employment. For veterans who worked at least 400 hours, the tax credit percentage is 40 percent; for those who worked at least 120 hours but less than 400 hours, the percentage is 25 percent.
The amount of tax credit a company can receive ranges from $1,200 to $9,600 for every eligible new veteran hire. Often, veterans can qualify in multiple categories for tax credits, and can be eligible for more credits than civilians, allowing employers that hire veterans to receive additional tax credits.
On average, the value that a veteran tax credit can provide employers is nearly $4,500. For tax credits that civilians are eligible for, that amount is only about $$3,500. Additionally, only about 20 percent of civilians qualify for WOTC, while 40 to 50 percent of veterans qualify, resulting in significant tax savings for employers.
More Tax Credits For Hiring Veterans
In order for an employer to receive a tax credit, the veteran they hire must be eligible for WOTC. Qualifications for eligibility include:
- Veterans who have a family member who receives benefits from the Supplemental Nutrition Assistance Program (SNAP); the family member must be on SNAP for at least three months of the veteran’s first year of employment.
- Veterans who were unemployed for fewer than six months, but for at least four weeks in the year prior to their hiring date.
- Veterans who were unemployed for at least six months during the year prior to their hiring date.
- Disabled veterans who are entitled to compensation due to a service-connected disability that are hired in the year after they are released from active duty or discharged.
Hiring veterans who fall into more than one category may allow employers to qualify for additional tax credits. There are also tax credits for employing veterans with service-connected disabilities:
- Employers that hire veterans with service-connected disabilities within a year of the veteran’s discharge can receive up to $9,600 in tax credits.
- Employers that hire veterans with service-connected disabilities who have received unemployment compensation for six months or longer can receive up to $9,600 in tax credits.
There are several other tax credits available to companies that hire veterans:
- Qualified Long-term Unemployment: This credit is for new hires that will be employed for at least 27 weeks consecutively, and includes a time period where the employee received unemployment compensation under Federal or State law. Employers can claim up to $1,500 for new hires working at least 120 hours, and up to $2,400 for those working 400 hours or more
- Short-term Unemployment: This credit is for new hires who have received unemployment compensation for at least four weeks. Employers can claim up to $2,400
- Long-term Unemployment: This credit is for new hires who have been receiving unemployment compensation for six months or longer. Employers can claim up to $5,600
What are the requirements?
In order for employers to receive tax credits for hiring veterans, the employer must claim the veteran hire(s) on their tax return. Before being able to claim a tax credit through WOTC, an employer must certify that the potential hire is a member of an eligible group. Eligible employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. The form must be filed with the state workforce agency within the eligible employee’s first 28 days of work. If the veteran employee has already qualified for tax credits, the employer must also submit ETA Form 9061 or ETA Form 9062 to confirm that the employee meets the WOTC eligibility criteria.
In order to help employers with the veteran hiring process, the U. S. Department of Labor developed a tool kit with strategies to recruit veterans, how to support veterans with PTSD or traumatic brain injuries, and how to retain them as employees.
There are many components to the WOTC that can help businesses and veterans. More information about the WOTC can be found here. Additional information on the requirements for eligibility for WOTC when hiring a veteran can be found on the Vocational Rehabilitation & Employment Services Work Opportunity Tax Credits Fact Sheet. By hiring veterans, employers can provide jobs to those who have served their country, with the added benefit of having to pay fewer taxes each year.
Heather Maxey works at a non-profit that addresses military ineligibility. She is an Army spouse, and met her husband while working as a Health Educator at Fort Bragg.