By: Deborah G. Kosnett, CPA
Recent changes to the Work Opportunity Tax Credit (WOTC) have made incentives for hiring eligible veterans available to qualified tax-exempt organizations. Under the VOW To Hire Heroes Act of 2011, the WOTC was expanded to include credits for certain tax-exempt organizations that can be claimed as a credit against the employer’s share of social security tax.
The tax credit for qualified nonprofit employers is up to $6,420 per veteran, but will depend on a number of factors, including the length of the veteran’s unemployment before hire, the number of hours the veteran works, and the veteran’s first-year wages. In addition, the amount of the credit may not exceed the organization’s employer social security tax for the period for which the credit is claimed.
Prescreening and Certification
All employers must obtain certification that an individual is a member of the targeted group, before they may claim the credit. The process for certifying the veterans for this credit is the same for all employers.
To receive certification, employers must file the necessary Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days of hire in order to receive the credit.
Claiming the Credit
Qualified tax-exempt organizations, organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2013.
After the required certification is secured, tax-exempt employers can claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit, as the forms are processed separately.
Click here for Form 8850 and instructions
Click here for Form 5884-C
Click here for Frequently Asked Questions regarding the VOW to Hire Heroes Act
Deborah Kosnett, CPA, is a Principal in Tate & Tryon’s Exempt Organization Tax department and can be reached at email@example.com.