New Credits for Hiring Veterans

Congress recently passed legislation that extends and expands the Work Opportunity Credit (WOTC) for hiring unemployed veterans. This effectively gave a one-year lease on life to the WOTC, but only with respect to qualified veterans who begin work for the employer before January 1, 2013. For all other classifications, the credit ended at the close of 2011.

Under the new law, effective for individuals who begin work for the employer after November 21, 2011, a qualified veteran is a veteran who is certified by the designated local agency as falling within one of the following five categories:

  • Veteran Who is a Member of a Family Receiving Food Stamps for At Least Three Months – The individual is a member of a family receiving assistance under a food stamp program under the Food and Nutrition Act of 2008 for at least three months, all or part of which is during the 12-month period ending on the hiring date. The maximum qualifying first-year wage taken into account is $6,000. Thus, the maximum WOTC is $2,400 (.4 x $6,000).
  • Veteran Entitled to Compensation for a Service-Connected Disability Hired Within First Year after Separation from Service – The individual is entitled to compensation for a service-connected disability, and has a hire date that isn’t more than one year after having been discharged or released from active duty. The maximum qualifying first-year wage taken into account is $12,000. Thus, the maximum WOTC is $4,800 (.4 x $12,000).
  • Veteran Entitled to Compensation for a Service-Connected Disability with Six Months of Unemployment in the Year Preceding the Hire Date – The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date that equal or exceed six months. The maximum qualifying first-year wage taken into account is $24,000. Thus, the maximum WOTC is $9,600 (.4 x $24,000).
  • Veteran Has Aggregate Periods of Unemployment Exceeding Four Weeks in the Year Preceding the Hire Date – The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed four weeks (but less than six months). The maximum qualifying first-year wage taken into account is $6,000. Thus, the maximum WOTC is $2,400 (.4 x $6,000).
  • Veteran Has Aggregate Periods of Unemployment Exceeding Six Months in the Year Preceding the Hire Date – The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed six months. The maximum qualifying first-year wage taken into account is $6,000. Thus, the maximum WOTC is $5,600 (.4 x $14,000).

Fast-track qualification process for qualified veterans – Effective for individuals who begin work for the employer after November 21, 2011, a veteran will be treated as certified by the designated local agency as having aggregate periods of unemployment meeting the requirements of:

  • If he or she is certified by the local agency as being in receipt of unemployment compensation under State or Federal law for not less than six months during the 1-year period ending on the hiring date.
  • If he or she is certified by the local agency as being in receipt of unemployment compensation under State or Federal law for not less than four weeks (but less than six months) during the 1-year period ending on the hiring date.

Tax-exempt employers qualify for the credit – Effective for qualified veterans who begin work for the employer after November 21, 2011, a tax-exempt employer may claim a credit for the WOTC it could claim for hiring qualified veterans if it were not tax-exempt.

Credit Limited to OASDI – The credit is allowed against the OASDI (Social Security) tax that the exempt employer would otherwise have to pay on the wages of all its employees during the one-year period beginning with the day the qualified veteran goes to work for the tax-exempt organization and cannot exceed the OASDI tax for that one year period.

Other limits applicable to tax-exempt employers:

  • The general credit percentage of qualifying first-year wages is 26% (instead of 40%).
  • The credit percentage of qualifying wages is 16.25% (instead of 25%) for a qualified veteran who has completed at least 120, but less than 400, hours of service for the employer.
  • The tax-exempt employer may only take into account wages paid to a qualified veteran for services in furtherance of the activities related to the purposes or function constituting the basis of the organization’s exemption.

Steve Trojan, CPA is owner of SMT & Associates, Inc. (www.smt-associates.com), a Crystal Lake IL based tax and accounting firm. He specializes in tax and accounting issues affecting small business owners, as well as individuals with IRS and Illinois tax problems. For more posts about IRS problem resolution, see our website www.illinoistaxhelp.com.

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