Despite widespread fears of recession in recent months, hiring remains strong in the United States. Employers added 528,000 jobs in July 2022, and many organizations seeking new workers are having trouble filling positions. If your nonprofit has open slots, you might want to look to military veterans. This demographic can have a harder time finding civilian jobs, and tax breaks may be available for employers who hire them.
The federal Work Opportunity Tax Credit (WOTC) is available to nonprofits on a more limited basis than to for-profit companies. Specifically, for-profit employers are eligible if they hire individuals belonging to one or more of 10 “target groups” — such as the formerly incarcerated — and individuals receiving certain federal assistance. Tax-exempt organizations can claim the WOTC only for hiring “qualified veterans.”
You can look for potential employees who qualify by working with your state’s workforce agencies and the Veterans Administration. Some applicants will be pre-certified, which can be helpful for employers. But pre-certification isn’t required to claim the WOTC.
If you decide to hire someone who isn’t pre-certified, you must obtain certification that they’re qualified veterans from the state workforce agency on or before their first day of work. You can also complete a pre-screening notice (IRS Form 8850) on or before the day you offer a job to a qualified veteran. Then submit the notice to the state workforce agency to request certification within 28 days of the worker’s first day on the job.
The amount of the WOTC generally equals 40% of up to $6,000 of wages paid to staffers in their first year of employment (as long as they work at least 400 hours), for a maximum credit of $2,400 per employee. But for some veterans, the maximum credits are $4,800, $5,600 or $9,600. For example, you can take as much as $24,000 in wages into account when determining the credit for veterans who have service-connected disabilities and have been unemployed for more than six months, for a credit of as much as $9,600.
Nonprofit employers of all sizes are eligible for the credit, and there’s no limit on the number of qualified veterans for whom you can claim it. The WOTC is limited only by the amount of your organization’s Social Security tax owed on the wages paid to all employees for the tax period in which you claim the credit.
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Note that newly hired veterans must work at least 120 hours before you can request the WOTC. Once you have a certification, you can claim the credit against your Social Security tax liability by filing Form 5884-C. Be sure to file the form after you’ve filed the related employment tax return for the relevant tax period.
For help with tax forms and questions about the WOTC, contact us. We can help ensure your nonprofit receives all payroll tax credits for which it qualifies.