Work Opportunity Tax Credit Now Available to Qualified Tax-Exempt Organizations that Hire Veterans

The work opportunity tax credit provides an elective credit to employers that hire individuals from targeted groups that have a high unemployment rate.  This credit has been extended only with respect to qualified veterans who begin work for an employer on or before December 31, 2012.  For the first time, this credit is available to certain tax-exempt organizations.  Effective November 21, 2011, a tax-exempt organization may claim a credit against its FICA tax obligation for hiring a qualified veteran.  To be considered a veteran, an individual must:

• Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or have been discharged or released from active duty for a service-connected disability, and
• Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date.

In addition to the above, the veteran is considered qualified for purposes of the credit if he or she is certified as:

• A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least a three-month period during the 12-month period ending on the hiring date.
• Unemployment for a period or periods totaling at least four weeks (whether or not consecutive) but less than six months in the one-year period ending on the hiring date (short-term unemployed).
• Unemployment for a period or periods totaling at least six months (whether or not consecutive) in the one-year period ending on the hiring date (long-term unemployed).
• Entitled to compensation for a service-connected disability and hired not more than one 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 a period or periods totaling at least six months (whether or not consecutive) in the one-year period ending on the hiring date.

The credit is equal to 26% of qualified wages paid to a qualified veteran during the first year of employment if the veteran performs at least 400 hours of service and 16.25% of qualified wages paid to a qualified veteran during the first year of employment if the veteran works less than 400 hours, but at least 120 hours.  No credit is available for a veteran who works fewer than 120 hours.

Qualified wages are limited to $6,000 for a short-term unemployed veteran or a veteran certified as being a member of a family under SNAP (for a maximum credit of $1,560).  The limit on qualified wages is $14,000 for a long-term unemployed veteran (for a maximum credit of $3,640).  The limit on qualified wages for a disabled veteran who is hired not more than one year after being discharged or released from active duty is $12,000 (for a maximum credit of $3,120).  Qualified wages for a veteran with a service-connected disability is doubled to $24,000 (for a maximum credit of $6,240) if the veteran is certified as having been unemployed for an aggregate of six months or more during the one-year period ending on the hiring date.

Tax-exempt organizations can only take into account the wages paid to a qualified veteran for services that further the exempt purpose or function of the exempt organization.  The total credit allowed for hiring all qualified veterans cannot exceed the total amount of FICA tax imposed on the organization as an employer on wages paid to all employees during the period the qualified veterans were hired.

For further questions, feel free to contact one of the CPAs within our nonprofit specialty team.