Hire qualifying veterans before 2013 to qualify for enhanced WOTC

The work opportunity tax credit (WOTC) expired at the end of 2011 for all new qualifying hires.  There is however an exception for qualified veterans, but this provision expires the end of 2012. As we have been writing, there is a great deal of uncertainty regarding tax provisions going into next year. We are not certain of the future viability of this provision in the law, so it makes sense to maximize the benefit before the end of the year.

So it is important to understand these provisions to make sure you lock this valuable credits.

The WOTC allows employers who hire members of certain targeted groups, including qualified veterans, to claim a credit against income tax of a percentage (generally 40%, but 25% for certain part-time workers) of qualifying first-year wages. For non-veterans, the individual must have begun work for the employer before Jan. 1, 2012 for the WOTC to apply.

In general, an individual isn’t treated as a member of a targeted group unless: (1) on or before the day the individual begins work, the employer obtains certification from the designated local agency (DLA) that he is a member of a targeted group; or (2) the employer completes a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) on or before the day the individual is offered employment and submits the notice to the DLA to request certification not later than 28 days after the individual begins work.

WOTC extended for certain veterans. Under the “3% Withholding Repeal and Job Creation Act”, employers may claim the WOTC for qualified veterans who begin work for the employer before Jan 1, 2013. Effective for individuals who begin work for the employer after Nov. 21, 2011, the categories of qualified veterans also were broadened and the WOTC was increased for hiring some of them, as follows:

  1. The individual is a member of a family receiving assistance under a qualifying food stamp program for at least three months, all or part of which is during the 12-month period ending on the hiring date. The maximum WOTC for hiring qualified veterans in this category is $2,400 (.4 × $6,000 maximum qualifying first-year wages).
  2. The individual is entitled to compensation for a service-connected disability, and has a hiring date that isn’t more than one year after having been discharged or released from active duty in the U.S. Armed Forces.The maximum WOTC for hiring these veterans is $4,800 (.4 × $12,000 maximum qualifying first-year wages).
  3. The individual is entitled to compensation for a service-connected disability, and has aggregate periods of unemployment during the 1-year period ending on the hiring date that equal or exceed six months. The maximum WOTC for hiring these veterans is $9,600 (.4 × $24,000 maximum qualifying first-year wages).
  4. The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed four weeks (but are less than six months). The maximum WOTC for hiring these veterans is $2,400 (.4 × $6,000).
  5. 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 WOTC for hiring these veterans is $5,600 (.4 × $14,000 maximum qualifying first-year wages).

Tax-exempts also may claim WOTC for qualified veterans. Effective for individuals who begin work for the employer after Nov. 21, 2011, a tax-exempt employer also may, subject to special limits, claim a credit for the WOTC it could claim for hiring qualified veterans if it were not tax-exempt .

It is important to remember the rules related to veterans when making your hiring decisions for the remainder of the year.  We are uncertain as to if these provisions will be adopted next year, so we need to preserve the benefit where applicable.

If you have any questions regarding this credit or want to discuss your specific circumstances, please do not hesitate to contact us.

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