What is the Returning Heroes and Wounded Warriors Work Opportunity Tax Credit?
The Returning Heroes and Wounded Warriors Work Opportunity Tax Credit is an extension of the Work Opportunity Credit available for hiring different classes of veterans, established by the Vow to Hire Heroes Act of 2011. The credit is worth generally 25 or 40 percent of the employee’s first-year wages, up to $24,000 for certain disabled qualified veterans.
Who is eligible?
In order to be eligible for the credit, an employer needs to hire a qualified veteran between November 21, 2011 and December 31, 2012. To be considered a veteran for purposes of the credit, an employee 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 prior to the hire date.
The following are the different categories of qualified veterans for purposes of the credit:
- Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits for at least a 3 month period during 15 month period prior to the hire date
- Veterans with a service-connected disability and hired not more than 1 year after being discharged or released from active duty in the U.S. Armed Forces
- Veterans with a service-connected disability unemployed for at least a total of 6 months in the 1 year period prior to the hire date
- Veterans unemployed for at least 4 weeks but less than 6 months
- Veterans unemployed for at least 6 months
An employee will not be considered qualified for the credit if any of the following conditions are met:
- The employee did not work at least 120 hours
- The employee worked for you previously
- The employee is your dependent
- The employee is related to you
- 50 percent or less of the wages received were for working in your trade or business
What Must Be Done Before Claiming the Credit?
In order to be able to claim the credit, an employer must first obtain certification of the individual’s status as a qualified veteran. Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, must be submitted to obtain certification. The employee should provide the requested information to determine their eligibility for the credit. The employee and the employer must both sign the form.
The Form is filed with the state work opportunity tax credit coordinator for the state workforce agency. The IRS will allow for the form to be e-filed or faxed for submission, provided the state allows for such methods. Contact information for the work opportunity tax credit coordinators can be found at the Department of Labor Employment and Training Administration website at: www.doleta.gov/business/Incentives/opptax.
For veterans who begin working after November 21, 2011 and before May 22, 2012, the filing of the form is due no later than June 19, 2012. For veterans who begin work after May 22, 2012, the form is due no later than 28 days after the day the veteran begins work. Additionally, the employer must submit to the state WOTC coordinator either:
- ETA Form 9062, Conditional Certification Form if the employee received the form from a participating agency, such as the Job Corps, or
- ETA Form 9061, Individual Characteristics Form if the employee did not receive an ETA Form 9062
How Is the Credit Claimed?
If the employer has submitted Form 8850 and received certification of the employee’s eligibility, the employer can claim the credit. The credit is claimed on Form 5884, Work Opportunity Credit, with the employer’s Federal income tax return. The credit will be 25 percent of first-year wages if the employee worked at least 120 hours, but less than 400 hours. The credit will be 40 percent of first-year wages if the employee worked at least 400 hours. First-year wages are defined as hours worked the first year of employment beginning on the employees first day of work.
The amount of an individual employee’s wages considered for the credit will be based on the category of veteran to which the employee belongs. The credit is limited to the first $6,000 of wages for employees receiving SNAP benefits or veterans unemployed at least 4 weeks but less than 6 months. The credit is limited to the first $12,000 of wages for veterans with a service-connected disability. The credit is limited to the first $14,000 of wages for veterans unemployed for at least 6 months. The credit is limited to the first $24,000 of wages for veterans with a service-connected disability unemployed for at least 6 months.
The total calculated credit is a non-refundable credit that will be carried to the Form 3800 General Business Credit. To the extent that there is credit that cannot be used in the current year, it can be carried back for up to 1 year to reduce federal income taxes paid in previous year, or it can be carried forward for 20 years to reduce future federal income tax.