There has been much doom and gloom hovering over Washington as the deadline for the “fiscal cliff” neared and our leaders fought over tax revenue and deductions. One thing that Congress was able to accomplish with the tax extender bill passed on Jan 1st is that the work opportunity tax credits (WOTC) for hiring veterans were provisioned to be extended an additional year (through December 31, 2013). President Obama has said he will sign this measure. This is good news for employers who have a focus on recruiting military veterans.
Sometimes I get an employer who says “Oh, we aren’t hiring the veteran just to get the tax credit, so I am not interested in this info.” One the one hand: good – you shouldn’t hire someone just because you get a tax credit. You hire them because they have skills you need and they will improve your company through their work effort. However, if Human Resources truly wants to be seen as business partner to the organization, it should not ignore the opportunity to show how strategic hiring efforts can improve the company’s bottom line by saving it money while still bringing in great talent.
I have clients who make a real effort to hire from the various WOTC categories, and they can demonstrate that they have saved their company $1,000,000 in taxes over the course of a year. Using straight line math and the minimum credit of $2,400, that is just 417 WOTC-qualified hires in a year. You could save the organization the same amount with just 105 hires if they all happened to be veterans with disabilities who have been unemployed for at least 6 months ($9,600 WOTC credit). I guarantee your CFO will sit up and pay attention if you start throwing out tax savings like that. And, you can use your plan for tax credit savings to justify your military recruiting efforts and budgets! Tell your leadership “I saved the company $1,000,000 in taxes last year through my strategic efforts to recruit talented veterans, many of whom qualify for the WOTC. So, this year I am requesting a military recruiting budget of $XXX,XXX and a staff of XX to help me grow this program.”
Do I have your attention now? Good! So, if you are new to using WOTC to hire veterans, let’s recap:
When the President signed the Vow to Hire Heroes Act back in November 2011 there were two new veteran categories added to the WOTC. Essentially, if an employer hired a veteran who had been unemployed for at least 4 weeks there was a new tax credit for hiring him/her. Plus, if the veteran had a disability AND had been unemployed for at least 6 months, the tax credit for hiring him/her doubled.
Click on the link below to see a simple chart that breaks down all the work opportunity tax credits for hiring veterans
These new veteran categories of WOTC had additional unique features that had not been available previously:
- 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 recently 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, qualified tax-exempt organizations – STEP UP! Take advantage of this while you can. Instructions on how to do this are included at the end of the blog.
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 for-profit company to carry the credit back 1 year or forward 20 years, so this could be a particularly attractive option for businesses who may want to time the use of these tax credits to periods of unusually high revenue. For qualified tax-exempt organizations the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period in which the credit is claimed.
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:
- Conditional Certification, Work Opportunity Tax Credit, ETA Form 9062, and the
- 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:
- Individual Characteristics Form (ICF) Work Opportunity Tax Credit Form 9061, and the
- 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.
INSTRUCTIONS FOR QUALIFIED TAX-EXEMPT ORGANIZATIONS:
The IRS updated its website in August 2012 to include information on how for-profits and qualified tax-exempt organizations claim the credit. Bottom line: the process to obtain the Conditional Certification, Work Opportunity Tax Credit, ETA Form 9062 is the same whether you are a for-profit company or a qualified tax-exempt organization. How you claim the credit differs for qualified tax-exempt organizations. After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C , Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. This is a new IRS form that was created specifically for qualified tax-exempt orgs to take the credit.
The amount you can claim also differs slightly from the for-profit credits (see chart link above). The IRS has a great WOTC FAQ section for qualified tax exempt organizations.
So, what do you think? Will the extended tax credits incentivize you to recruit veterans? Take the poll below and view the results of other readers: