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Much has been written about the new work opportunity tax credits (WOTC) that are now available for hiring veterans, thanks to the Vow to Hire Heroes Act of 2011 which was signed into law on November 21, 2011.  Almost all of the articles have focused on the amount of tax credit your employer can claim for hiring a qualified veteran, which ranges from $2,400 – $9,600 per veteran hired, depending on whether the service member has a disability and how long he/she has been unemployed.   For a very clear break down of tax credit amount by veteran type, check out this link from LarsonAllen CPA’s.

However, beyond the amount, there are three other more significant things you need to know:

  •  The credits expire at the end of this year!  Employers may take the credit for any qualified veterans hired between November 22, 2011 and December 31, 2012. 
  • There is no time limit associated to when the veteran left the service.  Previous versions of veteran-related WOTC’s stipulated that the veteran had to have been separated/retired from the service within the last 5 years in order to qualify.  This is not a stipulation for this latest version, so if you are considering hiring a veteran who left the service 10+ years ago and who has been unemployed more than 4 weeks, you can receive a tax credit for the hire.
  • Qualified tax exempt (i.e., 501 ( c ) ) organizations may now claim a WOTC by hiring veterans.  This eligibility does not apply to hires made from the other WOTC categories, only the veteran categories.  So, non-profits – STEP UP!  Take advantage of this while you can.

There is no limit to the number of qualified veterans you can hire and claim the credit.  So, hire 1, 10 or 100!  The IRS allows a company to carry the credit back 1 year or forward 20 years, so this could be a particularly attractive option for small businesses and non-profits.

So what is the process to claim the tax credit? Depending on how you found the veteran applicant there are a total of two forms that require completion in order to attain certification.

If you found the veteran through your state workforce agency (SWA), you will need to complete the employer’s portion of the:

  1. Conditional Certification, Work Opportunity Tax Credit, ETA Form 9062, and the
  2. Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit, Form 8850

If you found the veteran on a commercial job board or at a military job fair, or if he or she applied directly to your company, you will need to complete the employer’s portion of the:

  1. Individual Characteristics Form (ICF) Work Opportunity Tax Credit Form 9061, and the
  2. Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit, Form 8850

If you found the veteran through your SWA, his or her veterans’ status may already be conditionally certified by the SWA. Either the SWA or the applicant should provide you with a copy of the Conditional Certification, Work Opportunity Tax Credit, ETA Form 9062. All you need to do is complete the employer portion of the form, which asks for:

  • Your company name,
  • The position/job title the applicant is being hired to fill,
  • The employment start date, and
  • The starting wage.

Both the Form 9062 and the Form 8850 must be sent back to the SWA no later than 28 days after the applicant starts work. If all information can be verified, you will receive a WOTC Employer Certification Form for that veteran.

If you found the veteran on a commercial job board or at a military job fair, or if he or she applied directly to your company, you can still request certification of his or her status by completing the Individual Characteristics Form (ICF) Work Opportunity Tax Credit Form 9061, collecting a copy of the required documentation (listed on the form) from the veteran, and providing it and the Form 8850 to your SWA for verification.

With the Form 9061, you must first determine if the applicant is willing to provide the required information. Prospective employees are not required to provide information of this sort to an employer – their participation must be voluntary. A simple way to do this is to make this a routine document that is presented to all applicants. 

  • If your company accepts paper applications, attach a cover sheet with an invitation to self identify and state that status disclosure is completely voluntary and does not adversely affect hiring decisions.
  • If all of your applications go through an online Applicant Tracking System (ATS), depending on your ATS vendor, you have easy flexibility to add check boxes that ask for this information as part of the application process.

If you are concerned that you cannot ask this information of someone until an offer of employment is made, know that the Office of Federal Contracts Compliance Programs (OFCCP) has proposed that employers ask applicants to self-identify as a veteran and/or a person with a disability upon applying for a job.

If the veteran self identified at the point of application, and you are now prepared to offer the job, add a step to your hiring process that requires the veteran to complete blocks 6-8 and 12-19 of Form 9061. As with the earlier situation, both the Form 9061 and the Form 8850 must be sent back to the SWA no later than 28 days after the applicant starts work.

If all information can be verified, you will receive a WOTC Employer Certification Form for each veteran hired. Those certification forms serve as documented proof that will back up the claim you make on the IRS Form 5884 when your company files its taxes.

There are some military placement companies and military job boards already collecting this information as a service to the employer. If you are considering using a placement company and/or a job board as part of your military hiring strategy you should inquire if it collects this information for you.

There are also 3rd party vendors who will handle all of this paperwork (for all WOTC categories, not just the veteran ones) on your behalf in exchange for a percentage of the credit as a fee-for-service.  This can be a helpful option, particularly for large, nation-wide employers.

The state workforce agencies have been given interim instructions on the Forms 9061 and 9058, as those forms have not yet been updated to reflect the new veteran categories.  So, continue to use the current forms and write at the top of the form the new veteran category to which you are applying for credit.

UPDATE (Jan 3, 2011):

I’ve received a number of inquiries from non-profits on HOW they are to take the credit, as most do not file income taxes.  For everyone’s benefit, here is what I have determined (and thanks to Ken Brice from Employer Incentives for directing me to the IRS’s page on this question):

Non-profits, charities, and other tax-exempt organizations are generally required to file Form 990 or Form 990-EZ with the Internal Revenue Service each year to maintain their tax-exempt status. Form 990 is an “information return” and is required to be filed under the provisions of Internal Revenue Code Section 6033.

So for those orgs, the IRS says (http://www.irs.gov/formspubs/article/0,,id=177948,00.html): “This new law provides an expanded work opportunity tax credit to businesses that hire eligible unemployed veterans and for the first time also makes part of the credit available to tax-exempt organizations. Businesses claim the credit as part of the general business credit and tax-exempt organizations claim it against their payroll tax liability.  The credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2013. More information will be posted soon.”

Non-profits that engage in for-profit business enterprises may be subject to corporate income taxes on its unrelated business income. To be considered unrelated business income, the income must be generated by a business that is “regularly” carried on and that is “unrelated” to the exempt function of the non-profit. Unrelated business income is defined and explained in the Definitions section of the Instructions for Form 990-T.

For example, one of my non-profit clients provides job training and employment services to persons with disabilities.  It generates business income to fund its mission through the manufacture of frames and battery terminal lugs and the services of custom framing, chair caning, and the sorting of commingled recyclables. So, as it has more than $1,000 in gross income from an unrelated business, it must file Form 990-T. Non-profits are that not otherwise required to file Form 990 (such as religious organizations) are required to file Form 990-T if they have unrelated business income.

On Form 990-T the WOTC is claimed on Part 4, Line 40c.  The org must also attach Form 3800 (General Business Credit), where, in Part III Line 4b you claim the total amount of credit as determined from the Forms 5884 (Work Opportunity Credit) you submitted to your SWA.  The WOTC Employer Certification Forms you’ve received for each qualified hire are your documentation that you retain as proof that you have earned the credit.

A Washington Post opinion piece from November argued that tax credits don’t incentivize employers to hire.  Now that you know a lot more about the new tax credits for hiring veterans, please take a moment to answer the poll below (all responses are anonymous) and let me know what you think.

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