The Internal Revenue Service (IRS) has recently released new forms for employers to use in claiming the recently-expanded tax credit for hiring eligible veterans.*
The most significant of these are:
- Expanded filing time for employers to claim the credit
- Clarification about how non-profit 501(c) employers can claim this credit
- Confirmation of ability to file for the credit electronically or by fax
The Work Opportunity Tax Credit (WOTC) was expanded by the VOW to Hire Heroes Act of 2011, which was enacted on November 21, 2011. Although employers must normally file Form 8850 within 28 days in order to claim the WOTC credit, the new IRS guidance temporarily expands that filing time. For veterans hired on or after November 22, 2011 and before May 22, 2012, employers will have until June 19, 2012 to complete and file the Form 8850 with their state workforce agency. For veterans hired on or after May 22, 2012, the time to file will revert back to the standard 28 days.
The IRS’ has confirmed that Form 8850 may be transmitted by employers electronically or by fax to the state workforce agencies, provided that the state agency is able to accept submissions in those formats.
For-profit employers may be able to claim as much as $9,600 per veteran when they file their income tax return by using Form 5884 to calculate their credit and then incorporating it into their general business credit claimed on Form 3800.
Qualified tax-exempt employers are eligible for the first time to claim WOTC credits under the VOW to Hire Heroes Act expansion. Nonprofit employers may claim as much as $6,240 per eligible hired veteran by filing Form 5884-C. of the recently-released IRS guidance are devoted to addressing how tax-exempt organizations should claim this credit.
Highlights for Nonprofit Employers Include:
- Unlike for-profit employers, nonprofits’ claimed credit does NOT reduce their employer social security tax liability at the time of filing.
- Form 5884-C is filed separately, AFTER the employment tax return for the period in which the credit is being claimed has been filed.
- The IRS will process Form 5884-C separately, and refund the amount properly claimed, subject to the limit of the amount of employer social security tax liability for the period in which the credit is claimed.
- Excess credit (credit exceeding the social security tax liability for that period) may be carried forward.
- The IRS recommends that organizations NOT reduce their required deposits in anticipation of any credit.
- For any tax period in which it is claimed, the credit must be calculated cumulatively going back to November 22, 2011, and then reduced by any credits claimed via Forms 5884-C for prior tax periods.
*Eligibility is based on length of unemployment, to be certified by the state workforce agencies. The amount of the credit depends on length of unemployment before hire, number of hours a veteran works, amount of first-year wages paid, and whether the veteran has service-related disabilities.
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