Tax Incentives for Hiring Transitioning Service Members
As a business owner, you're always on the lookout for ways to optimize your operations, reduce costs, and improve your bottom line. One often-overlooked strategy is hiring transitioning military service members. Not only do these individuals bring a wealth of skills and experience to the table, but hiring them can also offer significant financial benefits, thanks to various tax incentives. This article aims to shed light on these incentives and how they can positively impact your business.
Returning Heroes Tax Credit
The Returning Heroes Tax Credit is a hiring tax credit that encourages businesses to hire unemployed veterans. This credit offers two tiers of incentives:
Short-Term Unemployment: A new credit of 40% of the first $6,000 of wages, up to $2,400, for employers who hire veterans who have been unemployed for at least 4 weeks.
Long-Term Unemployment: A new credit of 40% of the first $14,000 of wages, up to $5,600, for employers who hire veterans who have been unemployed for longer than 6 months.
Additional Information
The Returning Heroes Tax Credit is designed to incentivize firms to hire unemployed veterans. It offers a new credit of 40% of the first $6,000 of wages, up to $2,400, for employers who hire veterans who have been unemployed for at least 4 weeks. For those who have been unemployed for longer than 6 months, the credit increases to 40% of the first $14,000 of wages, up to $5,600.
Work Opportunity Tax Credit (WOTC)
One of the primary financial incentives for hiring veterans is the Work Opportunity Tax Credit (WOTC). This federal tax credit is available to businesses that hire individuals from specific target groups, including veterans. The WOTC can significantly reduce your federal income tax liability, making it a win-win for both the employer and the employee.
For employers it reduces federal income tax liability by $2,400 to $9,600 per qualifying veteran hired. See below for the breakdown by category of veteran.
Unemployed Veterans
• Up to $2,400 tax credit by hiring veterans who have received at least 4 weeks of unemployment benefits during the year prior to the hire date. The veteran must have served at least 180 days of active duty.
• Up to $5,600 tax credit by hiring veterans who have received at least 6 months of unemployment benefits during the year prior to the hire date. The veteran must have served at least 180 days of active duty.
Disabled Veterans
• Up to $4,800 tax credit by hiring veterans with a service connected disability of at least 10 percent and hired within one year of being discharged.
• Up to $9,600 tax credit by hiring veterans with a service connected disability of at least 10 percent and who have received at least six months of unemployment benefits during the year prior to the hire date.
Veterans Receiving SNAP benefits
• Up to $2,400 tax credit by hiring veterans who are members of a family that has received Supplemental Nutrition for Assistance Program (SNAP) benefits for at least 3 consecutive months within the last 15 months. The veteran must have served at least 180 days of active duty
Additional Information
What is a “Qualified Veteran”
A “qualified veteran” is a veteran who is any of the following:
A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date
Unemployed for periods of time totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date
Unemployed for periods of time totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date
Entitled to compensation for 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 or
Entitled to compensation for a service-connected disability and unemployed for periods of time totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date
Steps to Receive the Tax Credit
Employers must apply for and receive a certification verifying that the new hire is a member of a targeted group before they can claim the tax credit. To verify whether a job applicant is a first-time, qualifying member of a targeted group, employers must submit IRS Form 8850, together with ETA Form 9061 or ETA Form 9062, to the state workforce agency in which your business is located within 28 calendar days after the new hire's start date. (Typically, Form 9062 is provided by a partnering agency. If an employer is not working with a partnering agency, they can fill out Form 9061 with the applicant). You can find these forms on our WOTC website. You’ll need to refer to your state workforce agency’s website for instructions on submitting the forms.
If the new hire meets the eligibility requirements for a WOTC targeted group, you will receive a certification (ETA Form 9063) from your state workforce agency. Taxable employers can claim the WOTC as a general business credit against their income taxes. Tax-exempt employers who hire qualified veterans can claim the WOTC against their payroll taxes. Generally, the credit is 40% of qualified wages for individuals who work 400+ hours in their first year of employment. For more information about claiming the credit, see the instructions on the IRS.gov website.
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