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IRS Explains How to Claim Expanded Work Opportunity Tax Credit For Qualified Veterans

Tax

By Gary Sliman

The VOW to Hire Heroes Act of 2011 (VOW), enacted November 21, 2011, added two new categories of veterans to the qualified veteran target group.

The Work Opportunity Tax Credit (WOTC) is a credit available to businesses that hire employees who are members of specific target groups. One of the target groups is qualified veterans. A qualified veteran is a veteran who is a member of a family that is receiving assistance under a food stamp program for at least three months during the 12-month period before the hiring date, or entitled to compensation for a service-connected disability, and hired within one year of being discharged, or unemployed for six months during the one-year period ending on the hiring date.

VOW expanded the WOTC to include: 1) A veteran certified as having aggregate periods of unemployment of at least four weeks (does not have to be consecutive weeks) but less than six months in the year prior to being hired; and 2) A veteran certified as having aggregate periods of unemployment of six months or more (does not have to be consecutive weeks) in the year prior to being hired.

Under the expanded categories, there is no requirement that the veteran be receiving disability compensation. The distinction between the two additional categories is the wage limitation to compute the credit ($6,000 per employee in the four-week-to-six- month group and $12,000 per employee for the over-six-month group). The maximum credit at the wage limitation amounts is $2,400 and $4,800, respectively (40% of qualified wages).

A disabled veteran who is unemployed for more than six months could generate a credit as high as $9,600 (maximum wages of $24,000). The WOTC is computed on Form 5884, which becomes part of the General Business Credit (Form 3800), and filed with the business tax return.

The VOW also expands the WOTC to include tax-exempt employers. Tax-exempt organizations that employ veterans of a targeted group can claim the credit against their FICA obligation on wages paid to a veteran in a target group. Unlike for-profit organizations, tax-exempt organizations must make a separate filing on Form 5884-C. This form should not be attached to any other return filing. The form will be processed and a refund will be issued to the tax-exempt organization. The maximum refund per employee for tax-exempt employers is $6,240. Organizations are cautioned not to reduce their FICA obligation on the quarterly payroll return in anticipation of the refund.

It should be noted that the VOW extended the WOTC credit only for wages paid to qualified veterans through 2012. Wages paid to other target groups do not qualify unless the credit is extended to include these groups by future legislation.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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