Tax Credits for Companies that Hire Veterans

Hiring Veterans – a resource for Human Resources Professionals, Hiring Managers, and companies that want to hire and retain talented veterans.  

Part 2:  Tax Credits for Companies that Hire Veterans

This is the second in a string of posts to help demystify the complex world of veteran employment from the perspective of the employer.  In the previous post we detailed the definition of a “Protected Veteran”, which is important for companies that are required to implement an Affirmative Action Plan (AAP) in order to comply with Office of Contract Compliance Program (OFCCP) regulations.  In this post, we look at incentives that governments as the state and federal level offer to companies for hiring veterans.

The simplest way for the government to incentivize companies to hire veterans is by providing tax credits to employers.  There are a wide variety of tax credits available for companies who employ veterans, and in some cases they can amount to tens of thousands of dollars off of a firm’s tax bill. The list that follows is not all inclusive, but it is a rollup of all of the incentives that I could find.  Some are currently unfunded (meaning that they have been funded in years prior but have not yet been funded for 2014), but just because they are unfunded today doesn’t mean that they will be unfunded tomorrow.  Most of the programs below are funded, and it is up to the employer to meet the administrative requirements to apply for the credits.

So what are the credits and what veterans are qualified for each credit?  Here is a brief description of each incentive along with links to the associated website(s):

In 2011, the Work Opportunity Tax Credit (WOTC) was changed by the VOW to Hire Heroes Act to include qualified veterans as a targeted group.  The credits apply to both for profit and non profit organizations, and amount to thousands of dollars per hire – which means that there is no limit to the number of qualified veterans a company can hire and claim for tax credits.  Although the VOW act was extended from the end of 2012 to the end of 2013, it has not been renewed since and the tax credits are not currently available but may be again in the future.  There are two groups of veterans eligible for credits:

Federal Incentives

  • The Returning Heroes Tax Credit of up to $5,600.  This applies to veterans who have been unemployed or who have received Supplemental Nutrition Assistance Program assistance (SNAP, aka Food Stamps) during the past year:
    • Short-term Unemployed: A credit of 40% of the first $6,000 of wages (up to $2,400) for employers who hire veterans who have been in receipt of unemployment insurance or compensation for at least 4 weeks.
    • Long-term Unemployed: A credit of 40% of the first $14,000 of wages (up to $5,600) for employers who hire veterans who have been in receipt of unemployment insurance or compensation for longer than 6 months.
  • The Wounded Warriors Tax Credit of up to $9,600.  This applies to unemployed veterans who have a disability related to service in the armed forces:
    • A credit 40% of the first $12,000 of wages (up to $4,800).

The Heroes Earnings Assistance and Relief Tax Act of 2008 (which had been extended until the end of 2013 and has not yet been renewed), provides incentives for small business.

The Community Renewal Tax Relief Act of 2000

Although these federal tax credits are currently expired, they may be renewed with future legislation.

In order to apply for the credits, the employer must follow the directions listed on the Internal Revenue Service (IRS)  website.

State Incentives

In addition to the Federal Government, eleven states also offer incentives for hiring veterans.  As of July 2014 all of the following state veteran hiring incentives are still available:

Alabama  $1000 for small businesses that hire recently deployed and now discharged unemployed Veterans.

http://revenue.alabama.gov/incometax/2012_forms/12schocinstr.pdf

Alaska  The credit available is $3,000 for the permanent hire of a disabled veteran and $2,000 for the permanent hire of a veteran not disabled. A credit of $1,000 is available for the employment of any veteran in a seasonal position.

http://www.tax.alaska.gov/programs/documentviewer/viewer.aspx?5142f

California  The credit is based on 35% of a new employee’s qualified wages or wages between 150% (or $10 for a Pilot Area) and 350% of minimum wage.  The business must qualify for the New Employment Credit (NEC).

https://www.ftb.ca.gov/online/New_Employment_Credit_Reservation/index.shtml

Delaware  Companies that hire veterans or National Guard members who have served in recent overseas conflicts are eligible for a tax credit is equal to 10% of wages, up to a maximum of $1,500.

http://revenue.delaware.gov/services/Business_Tax/veterans.shtml

Illinois  Illinois employers can earn an income tax credit of up to $5,000 annually for hiring veterans of Operation Enduring Freedom, or Operation Iraqi Freedom.

http://www2.illinois.gov/veterans/benefits/Pages/employment.aspx

Massachusetts  “For-profit” employers in Massachusetts that plan to hire certain low-income or disabled veterans may be eligible for a $4800 tax credit.

http://www.mass.gov/veterans/employment-and-training/tax-credit.html

New Mexico  The Veteran Employment Tax Credit will provide up to $1,000 to businesses each time they hire a veteran who has recently been discharged from the military.

http://www.dws.state.nm.us/Veterans/VetInformation/VeteranEmploymentTaxCredit

New York  Businesses may earn up to $5,000 for hiring a qualified Veteran, and up to $15,000 for hiring one who is disabled between January 1, 2014 and before January 1, 2016.

http://www.veterans.ny.gov/content/hire-vet-credit

Utah  Utah Veteran Employment Tax Credit provides a tax credit for the first year beginning at $200 per month, not to exceed $2,400 per year and increases the second year to $400 per month, not to exceed $4,800 per year for each veteran hired.

http://incometax.utah.gov/credits/veteran-employment

Vermont  The State of Vermont now provides a tax credit of $2,000 to employers who hire a veteran with recent military service.

http://veterans.vermont.gov/transitions/taxcredit

West Virginia  The West Virginia Military Incentive Act of 1991 (MIP) offers employers up to $5,000 in tax credits (based on a percentage of the first $5,000 in wages paid after one continuous year of employment) on their West Virginia corporate or personal tax liability for hiring any service-connected disabled veteran, economically-disadvantaged Vietnam-era or Korean conflict veterans, or unemployed active members of the National Guard or Reserves.

http://www.wvcommerce.org/business/workforcewv/veterans/mip/default.aspx

Tax credits and incentives change frequently, and are usually directly tied to the state and federal governments’ legislative cycle.  Check your state’s veterans agency and workforce development office for new or updated incentives.

 

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Hiring Veterans: Just what is a “Veteran”, anyway?

Hiring Veterans – a resource for Human Resources Professionals, Hiring Managers, and companies that want to hire and retain talented veterans.  

Part 1:  Just what is a “Veteran”, anyway?

This is the first in a string of posts to help demystify the complex world of veteran employment from the perspective of the employer.  There are literally thousands of articles, blog posts, and books about how to help veterans find a job, which is great.  There is a surprising lack of content out there, however, on how a company can best find, recruit, hire, train, and retain veterans.  That is what this and the following posts are all about –  helping hiring managers, Human Resources professionals, executives, supervisors, and the countless other people in a company understand how to bring veterans into their organizations and, more importantly, how to keep them. Veterans bring an exceptional set of technical skills to the workplace, and they have experience working with others, leading teams, accomplishing complex and time competitive tasks, operating under stress, exhibit inherent flexibility, and myriad other abilities and talents that any company would greatly benefit from.

Unfortunately, successfully hiring veterans is not that easy.  Depending on where your company is located, you may have difficulty finding a pool of veteran candidates with the skills that you need.  Are there any military bases close by?  Is there an active community of veterans that you can reach out to?  Do you know what skill sets veterans have?  These questions and more can prove to be very challenging for a hiring manager.

There are some very compelling reasons to hire veterans.  In addition to the skills and dedication that those who have worn the cloth of the nation bring, there are financial and tax incentives at the federal and state levels that can add up to tens of thousands of dollars in grants, tax credits, or other benefits for employers.  We’ll address those in a future post.

For companies holding government contracts there are explicit affirmative action requirements concerning veterans, including a ruling that was released in 2013 that broadened the definition of veteran status in terms of employment.  Known as the Affirmative Action and Nondiscrimination Obligations of Contractors and Subcontractors Regarding Special Disabled Veterans, Veterans of the Vietnam Era, Disabled Veterans, Recently Separated Veterans, Active Duty Wartime or Campaign Badge Veterans, and Armed Forces Service Medal Veterans rule, it is an update on previously existing regulations comes from the Department of Labor’s Office of Contract Compliance Programs (OFCCP).  The rule establishes a veteran hiring benchmark of 8% (with the intention of having a contractor’s roster of employees mirror the population of veterans in the nation’s workforce) and levies an extensive list of data collection and reporting requirements on firms with government contracts of more than $100,000 and/or more than 50 employees.

The best place to start is to begin by defining what a veteran is in terms of employment, and how it impacts a company’s Affirmative Action Plan. Simply serving in the military is enough to earn the title of “veteran”, but the title alone does not provide any advantages in terms of meeting a company’s affirmative action requirements.  To be able to meet the benchmark objectives set by OFCCP for compliance a veteran must fall into the “Protected Veteran” category as defined within the ruling. While the rule is a thrilling read (which you can download from the Federal Register here), to help get straight to the point here is a quick breakdown of the requirements to be considered a protected veteran along with examples of documentation which proves eligibility:

1.  Disabled Veteran status.  A disabled veteran is one who is entitled to compensation from the Department of Veterans Affairs.  A Special Disabled Veteran is one with a VA-assigned disability rating of 30% or greater (or 10% – 20% in case the veteran is determined to have a serious employment handicap) or was discharged or released from active duty because of a service-connected disability.

Documentation:  The Department of Veterans Affairs provides a Summary of Benefits letter to the veteran which denotes his or her disability rating.

2.  Veterans who served on active duty during a war or in a campaign or expedition.  In terms of this regulation, the last war was World War II, although active duty service for more than 180 days between August 5 1964 and May 7 1975 counts to establish protected veterans status as a “Vietnam Era Veteran” whether or not the veteran actually served in Vietnam.  All of the operations since 1945 are considered to be campaigns or expeditions, and to be considered a protected veteran a serviceman or servicewoman must have participated and received a campaign medal or badge as a result.  This can be confusing, but in a nutshell if a veteran served overseas in places like Iraq, Afghanistan, Kosovo, Kuwait, Vietnam or Korea then that veteran is a protected veteran.

Documentation:  The Department of Defense provides the veteran with a Certificate of Release or Discharge from Active Duty (DD-214), which contains the dates of service and lists all decorations and awards earned in section 13.  If a veteran has a campaign or expeditionary medal, then they are considered protected.  Service medals, except the Armed Forces Service Medal (below), do not count.

3.  Veterans who served on active duty and were awarded the Armed Forces Service Medal.  The Armed Forces Service medal is awarded for military operations that are not considered to be campaigns or expeditions, which essentially means non-combat or non-hostile operations.

Documentation:  As listed above, if section 13 of the DD-214 lists the Armed Forces Service Medal then the veteran is considered protected.  This is the only service medal medal that meets the requirement (the National Defense Service Medal and Global War on Terror Service Medal do not count).

4.  Recently discharged veterans.  Veterans who have been discharged for three years or less, regardless of whether they meet the requirements of 1, 2, or 3 above.

Documentation:  The DD-214 lists the date of release from active duty/discharge.

Those requirements are all pretty straightforward.  But what about people who served in the National Guard or Reserves?  That is where things get complicated. While those who serve in the Guard and reserve are veterans of the service, they may not fall in the protected veteran category.  Here is a breakdown of eligibility for Guard and reserve:

1.  Traditional service.  Guard/reserve personnel who serve out their obligations by only performing their weekend drills and annual training requirements are not protected veterans.  Even though they serve on active duty during their initial training periods, this service alone is not enough.

2.  Activated or mobilized for Federal service.  Guard/reserve personnel who are ordered to active duty are considered to be protected veterans if they deploy in support of a war, campaign, expedition or an operation that qualifies for the Armed Forces Service Medal.  If they are placed in federal service and do not deploy as listed above then they are not protected veterans.

Documentation:  Section 13 of the DD-214, which lists the medals that the veteran was awarded, just as with regular active duty veterans.

3.  Disabled veteran status.  As with active duty, Guard/reserve personnel who are entitled to disability compensation from the Department of Veterans Affairs are considered to be protected veterans.

Documentation:  The same as for active duty – the Department of Veterans Affairs provides a Summary of Benefits letter to the veteran which denotes his or her disability rating.

Hopefully this helps human resources professionals and hiring managers understand how veterans are defined under the new OFCCP ruling.  If you have any comments, please do let me know!  Next we’ll dive into incentives for hiring veterans…