Getting “Credit” For Hiring Veterans

Todd Merriam
Manager, CPA

25 April 2017

A few months ago a dealership owner called me regarding an employee he had just hired. The employee, a previously unemployed veteran, had just come into his office and mentioned that the dealership qualified for a tax credit for hiring him. After looking into the matter, I was happy to inform the owner that this employee may earn the dealership a tax credit of up to $5,600. Needless to say, this new employee was off to a great start in the eyes of the owner.

By hiring this veteran, the dealership qualified for the Work Opportunity Tax Credit (the “WOTC”). This is a federal tax credit that employers may receive for hiring individuals from certain recognized groups who have consistently faced significant barriers to employment. In December of 2015, President Obama signed the Protecting Americans from Tax Hikes Act (the “Act”) which extended this credit until 2019. Under the provisions of this Act, unemployed veterans represent one of the recognized groups qualifying for the WOTC. While this article focuses on the hiring of veterans, other groups qualifying for this credit include those receiving SNAP benefits (food stamps), Supplemental Security Income recipients, long-term unemployed individuals, and ex-felons.

When a qualifying veteran is hired, the WOTC is based on a percentage of qualified wages paid to the veteran during the first year of employment. Subject to the maximum amounts (see chart), an employer can earn a tax credit of up to 25{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c} of an employee’s wages if they work at least 120 hours and 40{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c} of the employee’s wages if they work at least 400 hours. The maximum credit for hiring qualifying veterans ranges from $2,400 for veterans who have been unemployed for four weeks or receive SNAP benefits to $9,600 for veterans who have a service-connected disability and who have been unemployed over six months.

There is no limit to the number of eligible employees for which an employer can receive a tax credit for. Therefore, if an employer has several qualifying employees, this credit may be very beneficial to their tax situation.

While the WOTC is a Federal tax credit, it is administered at the state level. In order to earn the credit, the employee must be certified by a state agency. Here in Massachusetts, that agency is the Department of Career Services. To begin the process, all newly hired employees should fill out IRS Form 8850 – Pre Screening Notice and Certification Request for the WOTC. This form asks the new employee questions to determine if their situation may result in a potential WOTC tax credit for the employer. If any questions are answered yes, then the employee meets the criteria.

After identifying the qualifying employee, the next step is to receive a certification from the State of Massachusetts. This is done by completing the Department of Labor’s Form 9061. This questionnaire asks some additional questions corroborating that the employee qualifies as one of the certain groups that the WOTC is meant to assist. In the case of veterans, applicants will need to provide a copy of their driver’s license, discharge papers and documentation supporting a service-connected disability, if applicable. The IRS Form 8850 and Department of Labor Form 9061 will then be mailed to the state Department of Career Services. Both forms must be postmarked no later than 28 days after the employee begins employment.

While involving a state agency in this process can sound like more trouble than its worth, we have found most of our dealers who submitted their completed documentation have received a certification from the state in a timely fashion. Once certified, the tax credit will be taken on the dealership’s corporate tax return. If the dealership is a Subchapter “S” Corporation then the tax credit will flow to the individual owner’s personal tax return.

For dealers who have expanded or have increased their employee headcounts and have hired veterans, taking advantage of the WOTC is a beneficial way to decrease your tax liability. The best course of action dealerships should take is to identify qualifying employees when hired and to prepare the appropriate paperwork to be filed timely with the state Department of Career Services.

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