In many ways, it pays to hire veterans. Not only are they a dedicated, skilled, versatile, and resilient workforce, many employers are also eligible to claim tax credits for hiring them.
The IRS Work Opportunity Tax Credit (WOTC) program provides options for tax breaks that can save employers thousands of dollars per year. The program was created to help those who have had historic difficulties with being hired. Although military veterans provide an excellent talent pool for employers, at various points in history the veteran unemployment rate has been higher than average.
In recent years, the unemployment rate has dropped (3.0% for males in 2019 and 3.7% for females), yet many veterans still face unique difficulties with obtaining quality employment after leaving the military.
Also, in 2020, data suggests that the average veteran unemployment rate will likely end up being higher than last year’s. In April of 2020, the veteran unemployment rate was 11.8%, up from 3.8% in the prior month. As a result, the Work Opportunity Tax Credit program has been extended to the end of 2020 at minimum.
How much can employers save?
Employers can save up to $9,600 for each eligible veteran hire. The specific amount (clarified below) depends on the new hire’s qualifying WOTC group.
The tax credit is a percentage of the employee’s wages and each qualifying employee is required to work a minimum of 120 hours in order for the employer to qualify for the credit.
Which veterans are eligible for the WOTC?
Not every military veteran hire will make an employer eligible for the WOTC.
However, a range of different circumstances are covered under this program. With recent unemployment rates increasing recently, there may be higher numbers of veterans who fall into these eligible WOTC groups:
|Veteran Groups||Maximum Tax Credit|
|Veterans with a service-related disability and who also have been unemployed for at least 6 months in the past year.||$9,600|
|Veterans who have been unemployed for a minimum of 6 months.||$5,600|
|Veterans with a service-related disability and who are hired within 1 year of their discharge or release date.||$4,800|
|Veterans who are receiving Supplemental Nutrition Assistance Program benefits (SNAP)||$2,400|
|Veterans who have been unemployed for at least 4 weeks but less than 6 months||$2,400|
When and how to claim the WOTC
Employers are able to claim the credit against federal taxable income for the year that the credit is awarded, not the year that the employee is hired.
The tax credit is non-refundable, therefore the employer must have a tax liability to use the credit for. An unused credit can be carried back up to 1 year and carried forward up to 20 years.
To qualify for the credit, the employee must complete IRS form 8850 before starting the position and it must be postmarked within 28 days of the employee’s start date.
Interested in hiring veterans?
If you are interested in hiring veterans and want to ensure that you optimally leverage the WOTC program , TangoAlpha3 can assist you. From contact centers to data centers, we can help you build teams composed of veterans that developed relevant experience in the military. Moreover, if needed, we have partners whose core business is helping customers maximize the multifaceted benefits of WOTC.
If you are interested in the potential tax savings of the WOTC and would like to learn more, contact TangoAlpha3 today to schedule a meeting!
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