The “3% Withholding Repeal and Jobs Creation Act”, signed into law Nov. 21, 2011, expands and extends the work opportunity tax credit (WOTC) for employing certain military veterans.
Please note, this is a technical blog post, but I believe it will help. I am a big supporter of our troops and anything that helps them deserves attention.
The WOTC allows employers who hire members of certain targeted groups, including qualified veterans, to get a credit against income tax of a percentage of first-year wages up to $6,000 per employee ($12,000 for certain qualified veterans; and $3,000 for qualified summer youth employees). Generally, the percentage of qualifying wages is 40% of first-year wages, for a maximum WOTC of $2,400 (40% × $6,000), or $4,800 for certain qualifying veterans (40% × $12,000). The 40% is reduced to 25% for employees who have completed at least 120, but less than 400, hours of service for the employer during the first year.
The new law extends the existing WOTC for hiring qualified veterans, broadens the classes of qualified veterans, increases the WOTC for hiring some of them, “fast-tracks” the qualification process for qualified veterans, and provides tax-exempt employers with a credit against payroll tax for hiring qualified veterans.
Under the new law, employers will be able to claim the WOTC for qualified veterans who begin work for the employer before Jan 1, 2013. In other words, the WOTC gives a one-year extension to employers that hire qualified veterans.
Effective for individuals who begin work for the employer after Nov. 21, 2011, a qualified veteran is a veteran who is certified by the designated local agency as falling within one of the following four categories:
(1) The individual is a member of a family receiving assistance under a food stamp program under the Food Stamp Act of '77 for at least three months, all or part of which is during the 12-month period ending on the hiring date.
(2) The individual is entitled to compensation for a service-connected disability, and either:
(a) has a hiring date that isn't more than one year after having been discharged or released from active duty in the U.S. Armed Forces, or
(b) has aggregate periods of unemployment during the 1-year period ending on the hiring date that equal or exceed six months.
(3) The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed four weeks (but less than six months).
(4) The individual has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed six months.
The maximum amount of qualifying first-year wages for which the WOTC may be claimed is:
(A) $12,000 for an individual who is a qualified veteran, is entitled to compensation for a service-connected disability, and has a hiring date that isn't more than one year after having been discharged or released from active duty in the U.S. Armed Forces.
(B) $24,000 for an individual who is a qualified veteran, is entitled to compensation for a service-connected disability, and has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed six months.
(C) $14,000 for an individual who is a qualified veteran and has aggregate periods of unemployment during the 1-year period ending on the hiring date which equal or exceed six months.
(D) $6,000 for veterans who qualify under the family assistance rule above and for veterans who qualify under the new category (i.e., veterans who are unemployed for four weeks or more, but less than six months).
The enhanced maximum amounts of qualifying wages also seem to apply if the qualified veteran completes at least 120, but less than 400, hours of service for the employer during the one-year period beginning with his or her hire date. For these reduced hours, the reduced credit percentage (25%) applies.
The IRS, at its discretion, may provide alternative methods for certification of a veteran who is a qualified veteran.
Tax-exempt employers get a payroll-tax credit for hiring qualified veterans. A tax-exempt employer may, subject to the limits described below, claim a WOTC for hiring qualified veterans. The credit is allowed against the Social Security Tax that exempt employers pay on the wages of all of their employees.
The credit applies to both the old categories of qualified veterans and the new categories created by the new law.
The following modifications apply to tax-exempt employers’ WOTC calculation.
- The credit percentage of qualifying first-year wages is 26% (instead of 40%).
- The credit percentage is 16.25% (instead of 25%) for a qualified veteran who has completed at least 120, but less than 400, hours of service for the employer.
- The tax-exempt employer may only take into account wages paid to a qualified veteran for services in furtherance of the activities related to the purposes or function constituting the basis of the organization's tax-exempt status.
WOW that is enough information.
If you are hiring, please contact your state employment agency, get a list of qualified veterans waiting for a job and take a look at them. They served our country to protect our freedom. The least we can do is give them a shot. You get a WOTC to boot. My son is currently serving - served two tours in IRAQ. His grandfathers served in WW II and my niece’s son is serving in Afghanistan. Thank God for our troops.
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