Valuable tax incentives available for hiring returning heroes
April 13, 2013
By Stacey May, Director of Tax Credits
Veterans returning from active duty possess an array of skills that translate well into the civilian workforce, but they are historically underemployed. As a result, both the federal government and an increasing number of states are rewarding businesses of all sizes with tax credits as an incentive to help our heroes find meaningful and valuable employment.
Tax credits can be lucrative for employers, and being informed about what they are and how to claim them is the first step towards taking advantage of these opportunities.
The federal government has several employee tax credit programs through the Work Opportunity Tax Credit (WOTC) incentives. These incentives encourage employers to hire workers from specific target groups. The most recent addition to WOTC is from the VOW to Hire Heroes Act of 2011.
The VOW to Hire Heroes Act was signed into federal law in November 2011. It provides new incentives and enhances existing credits for businesses hiring qualifying veterans. The Act created the Returning Heroes Tax Credit and the Wounded Warrior Tax Credit. The administration and application for the credits follow the WOTC process and are available to businesses who hire qualifying veterans meeting the program criteria.
The Returning Heroes Tax Credit is specific to hiring veterans who are unemployed for a designated length of time. By hiring a veteran who has been unemployed for at least four weeks, employers would receive a credit of 40 percent of the first $6,000 in wages (up to $2,400). An employer hiring a veteran who has been unemployed for longer than six months would be eligible for a credit of 40 percent of the first $14,000 of wages (up to $5,600).
The Wounded Warrior Tax Credit recognizes veterans who have service-connected disabilities and may or may not be unemployed for a length of time. It maintains the existing WOTC credit (maximum of $4,800) for veterans with service-connected disabilities. However, it also created a new credit for veterans with service-connected disabilities who have also been unemployed longer than six months. Employers would receive a credit of 40 percent of the first $24,000 of wages (up to $9,600).
The Act also allows qualified tax-exempt organizations to claim these credits against payroll taxes at rates of up to 26 percent of qualified wages for newly hired veterans.
On the heels of the VOW to Hire Heroes Act, individual state legislatures enacted their own credits as well. Currently, ten states have employment related income tax credits for businesses hiring veterans, and ten more states are in the process of creating programs. The following states offer incentives: Alabama, Alaska, Connecticut, Delaware, Illinois, New Mexico, New York, Vermont, West Virginia and Wisconsin. In order to earn state credits, the business must be paying income tax in that particular state.
Iowa does not currently include a state tax credit specifically for hiring veterans. They do, however, offer additional employee related tax credits for other target employee groups.
So, how does an employer apply for these credits? Upon hire, employees need to complete two required forms for determining WOTC qualification. Companies also need the following documents from veterans to complete the forms for certification: DD-214 or discharge papers, unemployment insurance claim records and documentation to verify VA disability, if applicable. The forms for qualified employees are sent to the state for certification. If the employee meets the qualifications for any target group, has worked the necessary hours and the employer has received the certification letter, the business is eligible to claim the credit on their 5884 tax form.
Because the process is heavy in administrative tasks and paperwork, many businesses partner with an experienced firm to process WOTC credits for them. The firm submits forms for certification and returns the certified letters to the businesses. This partnership not only saves a business time, but also helps find other potential opportunities as an experienced firm helps their clients stay current with changes in tax credits.
Be sure your business is not leaving thousands of dollars on the table. Don’t let the complexity of tax credit programs hinder your business from pursuing them. They are a low-hanging fruit that can help increase your bottom line.