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Earn a Tax Credit for Hiring Veterans

Date: November 15, 2013

Returning Heroes and Wounded Warriors programs pay you back for putting service men and women back to work.

While the overall unemployment picture for veterans is improving, many ex-military still find it hard to transition into the civilian workforce.

The jobless rate among veterans is about 6.5 percent, a bit lower than the national average of 7.2 percent. But younger veterans – those who are 18 to 24 – still struggle, with unemployment rates at higher than 19 percent.

To help ease the way for returning service men and women, the government has made a number of tax credits available to employers. “With the scaling back of the war effort in Iraq and Afghanistan, there has been a consensus in government that there needs to be some additional incentives to help get those veterans back to work,” says Steve Henley, national tax practice leader for CBIZ MHM in Atlanta.

The tax credits take two main forms:

  • The Returning Heroes Tax Credit provides incentives of up to $5,600 for hiring unemployed veterans.
  • The Wounded Warriors Tax Credit doubles the existing Work Opportunity Tax Credit for long-term unemployed veterans with service-connected disabilities to up to $9,600.

These credits are available to employers who hire veterans in the following categories:

  • Short-Term Unemployed: A new credit of 40 percent of the first $6,000 of wages (up to $2,400) for employers who hire veterans who have been in receipt of unemployment compensation for at least 4 weeks.
  • Long-Term Unemployed: A new credit of 40 percent of the first $14,000 of wages (up to $5,600) for employers who hire veterans who have been in receipt of unemployment compensation for longer than 6 months.
  • Veterans with Services-Connected Disabilities: Maintains the existing Work Opportunity Tax Credit for veterans with service-connected disabilities hired within one year of being discharged from the military. The credit is 40 percent of the first $12,000 of wages (up to $4,800).
  • Long-Term Unemployed Veterans with Services-Connected Disabilities: A new credit of 40percent of the first $24,000 of wages (up to $9,600) for firms that hire veterans with service-connected disabilities who have been in receipt of unemployment compensation for longer than 6 months. The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 for tax-exempt organizations.

For those seeking to take advantage of the tax credit, timing is critical. "One of the most important things employers need to know is that the paperwork to certify the employee has to be completed within 28 days of hire," Henley says. "If they want to avail themselves of this credit, they need to have a really good process set up, connected with their HR process. When the new employees show up on the first day and do all that paperwork, you need to integrate this qualification process into that activity," Henley says.

To collect on this credit, an eligible employer must file Form 8850 with the state workforce agency. Businesses can then claim the credit on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.

Henley notes that in the face of budget cuts and other factors, some states have been slower than others in processing the paperwork. “You just want to complete the forms as accurately as you can, so it doesn’t delay the process any more than it already is,” he says.

READ NEXT: 4 Websites to Find Qualified Veterans to Hire

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