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.
Veterans Tax Credit eligibility is based on length of unemployment, to be certified by the state workforce agencies. The amount of Veterans Tax Credit 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.
The most significant forms 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.Learn about the latest WOTC extension and how this program benefits employers and employees as well as the government and taxpayers.
Highlights for Nonprofit Employers
- Unlike for-profit employers, credit claimed by nonprofit employers 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, or credit exceeding the social security tax liability for that period, may be carried forward.
- The IRS recommends that nonprofit employers should 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.
Can Nonprofit Employers Still Participate in WOTC
Nonprofit employers can take advantage of WOTC in a limited scope, under the Qualified Veteran category. According to the IRS, qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after December 31, 2014, and before January 1, 2020.
A qualified veteran is a veteran certified as any of the following:
- A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) for at least 3 months during the first year of employment.
- Unemployed for a period totaling at least 4 weeks but less than 6 months in the 1-year period prior to the date of hire.
- Unemployed for a period or periods totaling at least 6 months in the one-year period ending on the date of hire.
- Entitled to compensation for a service-connected disability and hired not more than one year after being discharged or released from active duty in the U.S. Armed Forces.
- Entitled to compensation for a service-connected disability and unemployed for a period totaling at least six months in the one-year period that ended on the date of hire.
When it comes to qualified tax-exempt organizations, the credit is limited to the amount of employer Social Security tax owed on wages paid to all employees for the period the credit is claimed. A nonprofit that otherwise qualifies can generate a credit of up to $6,240 in its first year of employment. There are many other IRS rules and regulations employers need to know about in order to efficiently manage their business. This is a reason enough to outsource WOTC administration and stay abreast of constant changes while taking advantage of this Federal tax incentive.Find out how to maximize your participation in the WOTC program by adopting an electronic solution created to fit the needs of your business.
Editor’s Note: This post has been updated for accuracy and comprehensiveness.