Do Companies Get Tax Breaks for Hiring Veterans?

Federal tax incentives are available for companies hiring veterans. These programs encourage businesses to hire individuals who have served in the United States armed forces. The incentives support veteran employment, recognizing their skills and easing their transition into the civilian workforce. They also help reduce employment barriers and foster economic self-sufficiency for veterans.

The Work Opportunity Tax Credit (WOTC)

The primary federal tax incentive for employers hiring veterans is the Work Opportunity Tax Credit (WOTC). This federal tax credit is jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL). The WOTC reduces a qualifying employer’s federal income tax liability by incentivizing the hiring of individuals from specific target groups, including veterans. This credit is available for wages paid to individuals who begin work before December 31, 2025.

The maximum credit amount varies depending on the veteran category and qualified wages paid in the first year of employment. For most veteran categories, the credit can be up to $2,400, calculated as 40% of up to $6,000 in first-year wages. For disabled veterans recently discharged, the credit can reach up to $4,800, based on 40% of up to $12,000 in first-year wages. Unemployed veterans out of work for at least six months can generate a credit of up to $5,600, which is 40% of up to $14,000 in first-year wages. The highest credit, up to $9,600, is available for long-term unemployed veterans with service-connected disabilities, calculated as 40% of up to $24,000 in first-year wages.

Eligibility for the Veteran Hiring Tax Credit

Eligibility for the Work Opportunity Tax Credit (WOTC) when hiring veterans depends on specific criteria related to the veteran’s status and employment situation. A veteran needs to have served on active duty for more than 180 days or been discharged due to a service-connected disability. They must not have had a period of active duty of more than 90 days that ended within 60 days before their hiring date.

Several categories of veterans qualify for the WOTC. These include veterans whose family receives Supplemental Nutrition Assistance Program (SNAP) benefits for at least three months within the 15-month period ending on the hiring date. Other categories cover veterans unemployed for at least four weeks but less than six months in the one-year period prior to hiring, or those unemployed for at least six months in the one-year period ending on the hiring date.

Veterans with service-connected disabilities can also make an employer eligible for the credit. This applies if they were hired not more than one year after being discharged or released from active duty. It also includes those entitled to compensation for a service-connected disability who were unemployed for at least six months in the one-year period ending on the hiring date. For employers to claim the credit, the employee must work at least 120 hours in the first year for a partial credit, or 400 hours for the full credit.

Claiming the Veteran Hiring Tax Credit

After identifying an eligible veteran, the employer must initiate the certification process to claim the Work Opportunity Tax Credit. This process begins with pre-screening the job applicant and completing IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit”. This form must be completed by both the employer and the job applicant on or before the day a job offer is extended.

The completed IRS Form 8850, along with either ETA Form 9061, “Individual Characteristics Form,” or ETA Form 9062, “Conditional Certification Form,” must be submitted to the State Workforce Agency (SWA) in the state where the business is located. This submission must occur within 28 calendar days after the new employee’s start date. Missing this deadline will result in forfeiture of the credit for that hire.

Once the SWA reviews the submission and certifies the new hire is a member of a targeted group, the employer can claim the credit on their federal income tax return. Taxable employers claim the WOTC as a general business credit by filing IRS Form 5884, “Work Opportunity Credit,” and then transferring the credit to Form 3800, “General Business Credit”. Tax-exempt organizations, if eligible, can claim the credit against their share of Social Security tax by filing Form 5884-C. Maintaining meticulous records related to the WOTC claim is important for compliance.