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Ready, aim, hire: Secure tax credits for vets

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in Small Business Tax,Small Business Tax Deduction Strategies

Do you need to employ more workers for an expanding business? The tax law provides a generous “Work Opportunity Tax Credit” (WOTC) for hiring certain disadvantaged workers. But you might do even better than the regular credit.

Strategy: Hire a qualified veteran. You may be eligible for a special credit that’s four times the size of the usual WOTC!      

The tax credit for hiring qualified veterans expired after 2012, but was extended through Dec. 31, 2013, by the American Taxpayer Relief Act (ATRA).

Here’s the whole story: Under prior law, a business could claim the WOTC if it hired a qualified individual from one of eight “target groups” such as food stamp recipients and individuals on public assistance. The regular WOTC is extended through 2013.

The amount of the WOTC is based on a percentage of qualified wages paid to the new hire during the first year of employment. Generally, qualified wages are capped at $6,000 for this purpose. Thus, the WOTC is equal to 25% of qualified first-year wages for those employed at least 120 hours and 40% for those employed 400 hours or more, for a maximum credit of $2,400 per qualified worker (40% of $6,000) in most target groups.

Note that there’s no upper limit on the number of credits. For example, if you hire 10 employees who meet the criteria in 2013, you qualify for a total credit of $24,000. Claim the WOTC  as part of the general business credit.

In the meantime, the “VOW (Veterans Opportunity to Work) to Hire Heroes Act of 2011” sweetened the pot for hiring qualified veterans. Under these special rules, the credit can be as high as $9,600 for hiring a qualified veteran with a service-related disability ($6,240 for those hired by tax-exempt organizations). The exact amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hire, the number of hours the veteran works and the vet’s first-year wages.

Any employer claiming the WOTC must obtain certification that a new hire is a member of the targeted group. The process for certifying veterans for the credit is the same for all employers. Normally, an eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with the appropriate state agency within 28 days after the eligible worker begins work.

Online resource: For more details on the WOTC, visit the IRS website.

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