There are many good reasons to hire veterans. Their discipline, work ethic, and focus on getting things done can be an asset to many small businesses. But there’s another incentive that often gets overlooked: a tax break.
The Work Opportunity Tax Credit (WOTC) can provide a substantial tax incentive for your small business when you hire qualified veterans. Employers may earn a tax credit equal to 25% or 40% of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs. Employers will earn 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours. This can mean a tax credit of $1200 – $9600 in the first year. Use the WOTC calculator to see how much your business can earn in tax credits.
For many small businesses, those funds can be a lifesaver, allowing them to take a leap and hire another employee.
“The ‘high risk’ period for any employer relative to a new hire is during the initial training and mastery stage of that employee’s time with the company,” says Jason Ziccarelli, partner at Stryde Solutions, which helps companies identify and take advantage of savings opportunities, including tax credits. “These credits offset the cost/risk,” he says.
Veterans who may help an employer qualify for the WOTC include those who are:
- A member of a family that has received Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date.
- Unemployed for a period or periods totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date.
- Unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
- Entitled to compensation for a service-connected disability and is hired not more than 1 year after being discharged or released from active duty in the U.S. Armed Forces.
- Entitled to compensation for a service-connected disability and was unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date.
“Most companies we speak to either have no knowledge of the program or they have tried to participate in the past but the the process was too time consuming or taxing on their staff,” says Ziccarelli.
The WOTC doesn’t just apply to veterans, however, it can also apply to any qualified members of targeted groups. These include qualifying individuals receiving SSI (Supplemental Security income), TANF (Temporary Assistance to Needy Families) or SNAP (Supplemental Nutrition Assistance Program) benefits, those who have been unemployed for a certain amount of time, some seasonal workers and more. More details can be found here.
An employer of any size may qualify for this tax credit, but the process can be daunting, especially to small businesses. Steps required include:
- No later than the day the job offer is made; complete page 1 of IRS Form 8850
- No later than 28 calendar days of the veteran begins employment, complete page 2 of IRS Form 8850 and submit to the state workforce agency of the state in which they are located. Also complete and submit ETA Form 9061 or ETA Form 9062 if the employee has been conditionally certified as belonging to a WOTC target group. (Documentation is required, depending on the worker’s status.)
- File IRS Form 5584 with the employer businesses’ tax return after an employee is certified as WOTC-eligible by the state workforce agency.
If your accountant or human resources agency has experience with this tax credit and the forms required, he or she may be able to help you complete the necessary paperwork. Ziccarelli’s firm provides a proprietary automated platform that will walk you through the the process to take advantage of this tax credit – and potentially find other savings opportunities as well.
Hiring a veteran can be a wise and productive decision for your small business, and the government offers incentives to make it more affordable. What better way to thank a veteran than to offer them a job?