Payroll Tax Credit for Hiring Veterans

1/19/2012

By Mark Corey, CPA, JD

Over the years Congress has allowed employers payroll tax credits for hiring certain targeted groups, including veterans. In November 2011 Congress passed the “3% Withholding Repeal and Job Creation Act” (the Act). The Act extended the payroll tax credit for employers hiring qualified veterans before January 1, 2013. This credit is a credit against social security tax that employers would normally pay on their form 941, Employers Quarterly Federal Tax Return. As of the date of this article the IRS has not issued guidance on how to claim the credit. The only discussion on the subject has been an IRS payroll industry call in which an IRS official said to prepare your form 941 as normal for now, and instructions to claim the credit would be forthcoming.

The credit is a percentage of qualified first-year wages of the qualified veteran based on the period of their unemployment (if any) before being hired, and if they have a service connected disability.

A qualified veteran means any individual who either served on active duty (or other than active duty for training) in the U.S. Armed Forces for a period of more than 180 days, or was discharged or released from active duty in the U.S. Armed Forces for a service-connected disability. Also, to qualify as a veteran, the individual did not have any day of extended active duty in the U.S. Armed Forces during the 60-day period ending on the hiring date.

For purposes of the credit, the veteran must have been unemployed for at least six months during the one-year period ending on the hiring date, or unemployed at least four weeks (but less than six months) during the one-year period ending on the hiring date. The veteran can qualify under these rules if the designated local agency certifies that the veteran was in receipt of unemployment compensation under state or federal law for the required period of time.

This article is intended to provide a broad overview of the payroll tax credit for hiring qualified veterans, but the rules for federal payroll tax credits are complex and confusing. It is recommended that you consult your tax advisor to see if you qualify for this or any other tax credits.