Blake Christian

Veteran WOTC hiring incentives liberalized with new IRS announcement

The IRS provides guidance on new tax credits for hiring veterans.

May 14, 2012
by Blake Christian, CPA

Section 261 of the VOW to Hire Heroes Act of 2011 (2011 Act) (passed as part of the Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56) was signed into law Nov. 21, 2011. These provisions extended the work opportunity tax credit (WOTC) incentives for veterans, but did not extend the WOTC benefits for categories such as welfare recipients and others, which generally expired Dec. 31, 2011.

The 2011 Act enhances the WOTC by creating the returning heroes and wounded warriors work opportunity tax credits, which are available to taxpayers hiring certain returning military veterans.

Employers who hire eligible veterans after Nov. 21, 2011, and before Jan. 1, 2013, may be eligible for the following credits.

Under the returning heroes’ tax credit, an employer can claim a credit of:

  • Up to $2,400 ($6,000 maximum wages × 40%) for hiring a veteran who has been unemployed for at least four weeks.
  • Up to $5,600 ($14,000 maximum wages × 40%) for hiring a veteran who has been unemployed for more than six months.

Under the wounded warriors’ tax credit, an employer may be eligible to claim a credit of:

  • Up to $9,600 ($24,000 maximum wages × 40%) for hiring a veteran with a service-connected disability and who has been unemployed for more than six months.
  • Up to $4,800 ($12,000 maximum wages × 40%) for hiring a veteran with a
    service-connected disability (who has not been unemployed more than six months). (Note: The 2011 Act maintains the existing maximum WOTC amount for this group.)

In addition, employers may continue to claim a credit of up to $2,400 ($6,000 wages × 40%) for hiring a veteran who is a member of a family receiving assistance under a supplemental nutritional assistance program for at least three months, all or part of which is during the 12-month period ending on the hiring date.

New guidance from the IRS

IRS Notice 2012-13, issued Feb. 9, 2012, provides a number of clarifying guidelines for employers.

The most significant provision relates to the ability for employers who hired or hire qualifying veterans between the Nov. 22, 2011, effective date and May 22, 2012, an extended period of time, until June 19, 2012, to complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, and submit it to the designated local agency (DLA) (e.g., economic development departments and similar organizations). This represents a favorable departure from the standard 28-day certification limit and allows employers to retroactively certify qualified veterans for a brief period. Therefore, employers should evaluate new hires made since Nov. 22, 2011 carefully, to determine if they qualify for a WOTC under Sec. 51(d)(13).

The notice clarifies the procedures for filing the WOTC pre-screening form (Form 8850) and now allows facsimiles and electronic signatures from the applicant/employee and/or the employer to any DLA as required pursuant to Sec. 51(d)(3). The employer is required to use precise formats and perjury statements and must retain the forms in electronic format in the event of an audit. The IRS is also requesting taxpayer input regarding other acceptable methods for employers to submit Form 8850.

Finally, the notice provides instructions for how tax-exempt organizations must claim the WOTC against Social Security taxes. The IRS instructs tax-exempt organizations to not offset the WOTC against the balance due on Form 941 payroll tax returns. Instead, Notice 2012-13 requires employers to first pay their full payroll tax liabilities, then file Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, to claim the appropriate refund. Form 5884-C should be filed after filing the quarterly Form 941, but must be filed within the later of:

  1. Two years after the date of the payroll tax deposit/payment, or
  2. Three years from the date of filing the related payroll tax return(s).

These clarifications offer some needed direction for taxpayers, as well as some retroactive tax benefits for late calendar 2011 and early 2012 hiring, where the normal 28-day Form 8850 filing requirement was missed.

As employers and veterans become more aware of these valuable tax breaks under the WOTC program, an uptick in veteran hiring may ensue.

For more on the credit, see Christian, “Hire a Hero, Enjoy the Benefits,” Corporate Taxation Insider (Dec. 8, 2011).).

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Blake Christian, CPA, MBT, is a tax partner in the Long Beach, Calif., office of Holthouse, Carlin & Van Trigt LLP. He can be reached at 562-216-1800.