Federal Tax Credits/Benefits for Hiring Veterans

How can your organization claim a tax credit for hiring veterans?

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment. Employers may meet their business needs and claim a tax credit if they hire an individual who is in a WOTC targeted group.

Employers must apply for and receive a certification verifying the new hire is a member of a targeted group before they can claim the tax credit. After the required certification is secured, taxable employers claim the WOTC as a general business credit against their income taxes, and tax-exempt employers claim the WOTC against their payroll taxes.

WOTC is authorized until December 31, 2025 (Section 113 of Division EE of P.L. 116-260 -- Consolidated Appropriations Act, 2021).

What is a WOTC 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
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

Returning Heroes Tax Credit

Short-term Unemployed: A new credit of 40% of the first $6,000 wages (up to $2,400) for employers who hire veterans who have been unemployed by at least 4 weeks.
Long-term Unemployed: 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 longer than 6 months.

Wounded Warrior Tax Credit

The Wounded Warrior Tax Credit doubles the existing tax credit for long-term unemployed veterans with service-connected disabilities.

Maintain the existing Work Opportunity Tax Credit for veterans with service-connected disabilities (currently the maximum is $4,800).
A new credit of 40% of the first $24,000 of wages (up to $9,600) for firms that hire veterans with service-connected disabilities who have been unemployed longer than 6 months.

Active-Duty Employees of Uniformed Services Credit

The Credit for Employer Differential Wage is 20% of up to $20,000 of differential wage payments (e.g. $4,000 tax credit per qualified active duty employee) paid to each qualified employee during the tax year. The credit for Employer Differential Wage Payments is part of the general business credit.

The term "service in the uniformed services" means the performance of duty on a voluntary or involuntary basis in a uniformed service under competent authority and includes:

active duty
active duty for training
initial active duty for training
inactive duty training
full-time National Guard duty

To be considered a differential wage payment, the payment MUST meet both of the following requirements.

The payment is made to a qualified employee for any period during which the employee is performing service in the uniformed services of the United States while on active duty for a period of more than 30 days.
The payment represents all or a portion of the wages the employee would have received from the employer if the employee were performing services for the employer.

Uniformed Services

Uniformed services means:

the Armed Forces
the Army National Guard and the Air National Guard when engaged in active duty for training, inactive duty training, or fulltime National Guard duty
the commissioned corps of the Public Health Service
any other category of persons designated by the President in time of war or national emergency

Qualified Employee

A qualified employee is a person who has been an employee for the 91-day period immediately preceding the period for which any differential wage payment is made.

Qualified Employer

An eligible small business employer may take a credit against its income tax liability in an amount equal to 20% of the sum of the eligible differential wage payments made to qualified employees during the taxable year.

An employer is an eligible small business employer if:

it employed an average of fewer than 50 employees on business days during the taxable year
provides differential wage payments under a written plan to every qualified employee

How to file for these credits?

Learn how to file a certification request by visiting the U.S. Department of Labor WOTC website: https://www.dol.gov/agencies/eta/wotc.

Returning Heroes and Wounded Warrior Tax Credits

IRS Form 8850
ETA 9061 or 9062
IRS Form 5884 (or 5884-C for tax-exempt)

Active-Duty Employees of Uniformed Services Credit

IRS Form 8932

PLEASE NOTE: Orion ICS, LLC, its affiliates and its employees are not in the business of providing tax or legal advice to any taxpayer. This content is for general information purposes only, and is not intended or written to be used without the advice of the taxpayer's independent tax advisor. Thank you for reading about tax credits for hiring veterans.

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