Valuable Employees and Lucrative Tax Incentives
FACT: In 2007, more than 400,000 National Guard personnel came back home from overseas deployment. (Veterans Today) While business owners should make every effort to assist returning veterans by giving them jobs, there are a number of federal and state tax incentives that should provide an added reason to give them top priority in the job market.
The government offers a $2,400 tax credit for each qualifying employee that is hired from the nine targeted groups: welfare recipients, veterans, ex-offenders, designated community residents, vocational rehabilitation referrals, summer youth, food stamp recipients, Supplemental Security Income benefit recipients and Qualified Long-term Family Assistance recipients. Specifically, for the veterans credit the employee must meet the following requirements:
- A veteran who is a member of a family that has received Food Stamps for at least 3 consecutive months in the 15 months prior to the date of hire; or
- A person with disability who is participating in a vocational rehabilitation program through US Veteran's Administration.
There is also a WOTC credit of up to $4800 for veterans entitled to compensation for a service-connected disability who:
- were hired within 1 year of having been discharged, or released from activity duty, OR
- who has been unemployed for any 6 of the last 12 months
Currently, 26 states offer partial, or total exclusions, from state-level taxes for combat and/or other military compensation paid to troops/reserves. The five states offering outright tax exemption for military pay include: Illinois, Michigan, Montana, Arizona and Tennessee. Although Texas does not currently offer an outright exemption, employers qualified for $188 million in tax credits in fiscal 2007 for hiring people who typically have a harder time finding work, according to the Texas Workforce Commission or (TWC).
Employers hiring multiple WOTC qualified employees can make a significant dent in their federal income taxes. In addition to the federal WOTC program, 39 states, including California, have state-sponsored Enterprise Zone Programs. Some of these state programs allow employers to claim credits for a portion of employee wages paid to veterans.
For example, California has a very large veteran population, and their state Enterprise Zone Program entitles employers that hire Vietnam-era veterans, or men and women who have been in the Armed Services/Reserves in the last 48 months, to claim up to 50% of the first $22,600 of W-2 wages as a tax credit during the first 12-month employment period. Provided the employee continues employment, a 40%, 30%, 20% and 10% credit is allowed for years two through five, resulting in a cumulative credit of over $35,000 over the five-year employment period.
Lost Credits
The Texas Workforce Commission officials say only 2.3 percent of the state’s 500,000 employers took advantage of the potential tax credit, although those Texas based businesses that did had a savings of $188 million.
While the programs vary from state to state, most of these credit programs also allow employer-level credits for employees (including veterans) who live in specified census tracts with higher than average poverty rates, were unemployed at some point prior to being hired, or if they were receiving some form of government assistance (e.g., food stamps, welfare, etc.) at the time of hire.
While the federal WOTC program will entitle businesses located in any region to benefit from hiring certain veterans, those states with Enterprise Programs that provide credits for hiring veterans also generally require the business that hires the veteran (or other "qualified" employee) to be located in specified incentive Zones.
Other incentives which may benefit veterans include:
- Federal Welfare-to-Work (WtW) Hiring Credit-Up to $8,500 over a two-year employment period if the employee was receiving welfare benefits prior to finding employment.
- Mentor-Protégé Program-Allows certain government contractors reimbursements for training/incidental costs associated with training physically challenged veterans.
Systems can be set up to allow the employer to pre-screen the employees before they are hired in order to streamline the documentation process and maximize the hiring credits. However, many of these systems are problematic and error ridden.
Ultimately, by claiming these tax incentives and helping veterans find jobs, the business owners are rewarded for their hiring practices and are often much more competitive in the marketplace. The long-term impact of the business owners' actions also generally improves the lives of the employees, as well as the communities in which the business operates.
Did you know the California Enterprise Zone Program generates over $300 million in tax credits for California tax payers and the New York Enterprise Zone program generates in excess of 400 million annually?
A total of $2 billion in tax credits are lost every year!
What’s your piece of the pie? 
(Sources: Veterans Today, Austin Business Journal, AICPA)
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