ISSUE

Tax-exempt organizations have an oft-overlooked tax credit opportunity available for hiring qualified veterans.

 

SITUATION

Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.  Their Controller attended one of our webcasts and called to ask about the possibilities for “tax rebates” with the WOTC.  WOTC is not a radio station (for those east of the Mississippi River) but the federal Work Opportunity Tax Credit.

We tell them that this is not a “rebate” per se, but a tax credit.  Tax-exempt organizations can take advantage of the WOTC by hiring qualified veterans.  The qualifications for a “qualified veteran” are somewhat narrow, but it can be a blessing to your organization to hire veterans.

To qualify for the credit, an employer must first request certification by filing IRS Form 8850, “Pre-screening Notice and Certification Request for the Work Opportunity Credit,” with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.

The credit is claimed after the filing of quarterly Forms 941 (or similar periodic employment tax forms) and can be claimed by filing Form 5884-C.

 

RULES

From IRS webpage “Work Opportunity Tax Credit”

https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit

Tax-exempt Employers

Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after December 31, 2014, and before January 1, 2020.

After the required certification (Form 8850) is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans (PDF).

File Form 5884-C after filing the related employment tax return for the period that the credit is claimed. The IRS recommends that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

A qualified veteran is a veteran certified as any of the following:

  • A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least 3 months during the first year of employment.
  • Unemployed for a period totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period prior to the date of hire.
  • Unemployed for a period or periods totaling at least 6 months (whether or not consecutive) in the one-year period ending on the date of hire.
  • Entitled to compensation for a service-connected disability and hired not more than one year after being discharged or released from active duty in the U.S. Armed Forces.
  • Entitled to compensation for a service-connected disability and unemployed for a period totaling at least six months (whether or not consecutive) in the one-year period that ended on the date of hire.

Claiming the Credit

Qualified tax-exempt organizations will claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, as a credit against the employer’s share of Social Security tax. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

From the Form 5884-C instructions:

To be considered a veteran, the individual must:

  • Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or have been discharged or released from active duty for a service-connected disability, and
  • Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date.

 

BOTTOM LINE

  • The WOTC can provide a financial benefit (in the form of a tax credit) beyond the inherent benefits your institution might receive by hiring “qualified veterans.”
  • To qualify for the credit, an employer must first request certification by filing IRS Form 8850.
  • Qualified tax-exempt organizations will claim the credit on Form 5884-C.
  • The tax credit is claimed as a credit against the employer’s share of Social Security tax.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.