Work Opportunity Credits for Veterans

From the IRS

The IRS issued a notice on February 9 that gives employers guidance on two new tax credits for qualified veterans and provides extra time to comply with some of the credits’ requirements (Notice 2012-13).

The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit (now called the returning heroes and wounded warriors work opportunity tax credits) for businesses that hire certain military veterans. Employers are eligible for a credit of up to $9,600 for each qualified veteran that they hire after the law’s enactment (November 21, 2011) and before January 1, 2013. Tax-exempt organizations can qualify for a credit against their share of the Federal Insurance Contributions Act (FICA) tax they pay on wages to qualified veterans, provided the veterans are performing services related to the organizations’ tax-exempt function.

Required Certification

To qualify for the credit, employers must establish that the veteran they hired is a member of a targeted group that qualifies for the credit, by obtaining a Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit, from a designated local agency (a state employment security agency). The certification can either be received from the agency before the veteran starts work, or the employer can complete a prescreening notice (also on Form 8850), under penalties of perjury (here called a perjury statement), and, not later than 28 days after the veteran begins work, submit the notice to the agency to request certification.

Extended Certification Period

Because the credit became effective the day after enactment (November 22, 2011), the IRS has decided that the 28-day period to obtain certification should be extended. (Although the 28-day certification period is in the statute, Sec. 51(d)(13)(D)(ii) gives the IRS authority to provide alternative methods for certification.) Notice 2012-13 permits employers who hired qualified veterans between November 22, 2011, and May 22, 2012, to be considered to have satisfied the certification requirement if they submit a prescreening notice to the designated local agency by June 19, 2012.

Methods for Submitting Form 8850

The notice also contains guidance for submitting Form 8850 to the designated local agency electronically, which requires an electronic signature since the form must be signed with a perjury statement. The employer may complete the form as required under the rules in Announcement 2002-44 (which is the original guidance for submitting Form 8850 electronically with the perjury statement). The notice also provides alternative methods of submitting Form 8850 to the designated local agency, involving various combinations of electronic and ink signatures by the veteran and employer.

Credit Against FICA Tax for Tax-Exempt Organizations

The final part of the guidance applies for tax-exempt organizations claiming the credit against their share of FICA tax. Those organizations must file Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, to claim the credit. The IRS explains that, because filing Form 5884-C is not coordinated with liability on Form 941 for FICA tax, the organization should not reduce its required employment tax deposit in anticipation of the credit. If the organization does reduce its deposit, it may receive a system-generated notice for the balance due, including penalties and interest, which the IRS claims will be abated automatically when the credit is applied.