Businesses that hire eligible unemployed veterans can take advantage of the federal Work Opportunity Tax Credit (WOTC).

November 10, 2021

Why hire veterans?

Hiring a military veteran is often a very good decision as veterans bring a myriad of unique talents, work ethic, military discipline, and experience to the workplace. Hiring veterans can also be a sound business decision for a business’ bottom line through tax credits. Businesses that hire eligible unemployed veterans can take advantage of the federal Work Opportunity Tax Credit (WOTC). 

Qualifying criteria under the WOTC

A number of qualifying veteran categories are covered under the WOTC. They include:

• A veteran who is a member of a family that has received assistance under the Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) for at least 3 months during the 15-month period prior to the hire date.
• A veteran who was unemployed for at least 4 weeks (whether or not consecutive), but less than 6 months in the 1-year period prior to the hire date.
• A veteran who was unemployed for at least 6 months (whether or not consecutive) in the 1-year period prior to the hire date.
• A veteran who is entitled to compensation for a service-connected disability and who is hired not more than 1 year after being discharged or released from active duty.
• A veteran who is entitled to compensation for a service-connected disability and was unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date. (long-term unemployed veteran with service-connected disabilities.

To be considered a veteran, the applicant must:

• Have served on active duty (not including training) in the Armed Forces of the United States for more than 180 days or have been discharged or released from active duty for a service-connected disability, and
• Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date.

How much is the credit worth?

The tax credit is based on qualified wages paid to veterans following their hire date. To qualify, a veteran must work a minimum of 120 hours. Partial credit can be earned between 120 and 400 hours of work.  Once a veteran works at least 400 hours, he or she can generate the maximum tax credit per the eligibility category.  And those credits can add up quickly. For each eligible veteran who works at least 400 hours, WOTC tax credits can range from $2,400 to $9,600 in the first year of employment, depending on the eligibility category. 

Process of certifying employees to claim WOTC

To claim WOTC credits on its federal income tax return, a business needs to do a few things first.  Businesses need to receive a certification for each qualified employee from their state workforce agency (in California, the Employment Development Department, or EDD) that the newly-hired employee meets one of the eligibility criteria. In order to receive the certification, the business must submit IRS form 8850 for each qualified new hire to the state workforce agency within 28 days of the employee’s hire date. To accomplish this goal, form 8500 or a similar questionnaire is often included as part of information that a job applicant would complete as part of the interviewing and hiring process at the business. 

And the WOTC credit doesn’t just include veteran categories. Businesses can also claim WOTC credits for hiring from other target groups where job applicants face barriers to employment, such as those on public assistance, long-term unemployed, or an ex-offender. 

With WOTC certifications received from the state workforce agency, a business would be able to claim the tax credit on IRS form 5884, which is attached to the employer’s federal income tax return.

Next Steps

If you think that the Work Opportunity Tax Credit (WOTC) might be applicable to your business, please contact one of the HCVT State & Local Tax professionals listed below:

Douglas Andersen, Partner  douglas.andersen@hcvt.com 
Brett Johnson, Principal  brett.johnson@hcvt.com