By H. Mark Adams and B. Trevor Wilson
Employers now have a powerful new incentive for hiring recently discharged and other unemployed veterans. Under the Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011, enacted by Congress this past November, employers may receive significant income work opportunity tax credits for hiring unemployed veterans, including:
- 40 percent of the employee’s first year’s wages, up to $6,000 (i.e., a tax credit of up to $2,400) for each veteran hired who receives Supplemental Nutrition Assistance Program benefits;
- 40 percent of first-year wages, up to $6,000 (i.e., a tax credit of up to $2,400) for each veteran hired who was unemployed for a period of at least four weeks but less than six months during the year ending on the hire date;
- 40 percent of first-year wages, up to $12,000 (i.e., a tax credit of up to $4,800) for each veteran hired who has a service- connected disability and is hired not more than one year after being discharged or released from active duty;
- 40 percent of first-year wages, up to $14,000 (i.e., a tax credit of up to $5,600) for each veteran who was unemployed for a period of at least six months during the year ending on the hire date; and
- 40 percent of first-year wages, up to $24,000 (i.e., a tax credit of up to $9,600) for each veteran hired who has a service-connected disability and was unemployed for a period of at least six months during the year ending on the hire date.
The credits are available for veterans hired between November 22, 2011, and December 31, 2012. The veteran must be a new hire (meaning you haven’t employed him previously) and not be a relative of the employer. In addition, he must be employed for at least 400 hours for you to earn the full credit. If the veteran works at least 120 hours but less than 400 hours, the percentage of wages qualifying for the credit is reduced to 25 percent.
Apart from the maximum credit per employee, there is no limit on the number of tax credits or the total amount of tax credits an employer may take. However, they are not refundable and therefore are limited to the current year’s income tax liability. Unused credits may be carried back one year or forward 20 years to offset the income tax liability in those years.
To claim the credit, you must obtain certification that a newly hired veteran was receiving unemployment benefits for the requisite period or otherwise meets one of the eligibility criteria. You can obtain certification by having the veteran complete page 1 of IRS Form 8850 on or before the date of the job offer. You must then complete page 2 of IRS Form 8850 and the U.S. Department of Labor’s ETA Form 9061 or 9062 after the veteran is hired. Mail those forms to the state unemployment security office no later than 28 calendar days after the veteran begins work. For more information on how to claim the credits, please contact your tax attorney or CPA.
Extra Incentive for Federal Contractors and Subcontractors
The new tax credits should be especially welcomed by federal contractors and subcontractors, which are subject to the affirmative action requirements of the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) and the implementing regulations administered by the Office of Federal Contract Compliance Programs (OFCCP).
Under VEVRAA and OFCCP regulations, federal contractors and subcontractors are required to engage in affirmative outreach efforts to recruit and hire certain categories of veterans. Veterans outreach has become an issue of increasing importance to the OFCCP in affirmative action compliance reviews. One of the most common violations for which federal contractors and subcontractors are cited by the OFCCP is failure to engage in sufficient outreach efforts to effectively recruit veterans for open positions.
Under new regulations proposed by the OFCCP, in addition to enhanced affirmative outreach efforts, federal contractors and subcontractors will be required to track applicants based on veteran status and set hiring goals for veterans for each group of similar jobs at the employer’s workplace. The regulations are expected to take effect later this year.
Bottom Line
The new tax credits for hiring veterans not only provide added incentives for federal contractors and subcontractors to affirmatively recruit veterans for open positions, but they also provide an opportunity to gain a head start on compliance with the anticipated new veterans’ affirmative action regulations, whatever form they may take.
Mark Adams, an editor of Louisiana Employment Law Letter, is a senior partner in Jones Walker’s labor relations and employment practice. He can be reached in New Orleans at madams@joneswalker.com. B. Trevor Wilson is an associate in the tax and employee benefits practice of Jones Walker’s Baton Rouge office and can be reached at twilson@joneswalker.com.