Don't Mess With Taxes

The construction sector is one of the areas in which veteran-owned companies play a major role.

Veterans Day is tomorrow, Nov. 11.

This solemn day is one of the few federal holidays that isn't shifted to Monday. It is always commemorated on Nov. 11 because the 11th hour of the 11th day of the 11th month in 1918 was the specific moment marking the armistice between World War I's Allied forces and Germany, ending the fighting on the Western Front.

The Veterans Day date has held firm, but its focus was expanded in 1954. That year, at the urging of veterans service organizations, Armistice Day became Veterans Day and Nov. 11th has become a day to honor American veterans of all wars.

Veteran-owned businesses: These men and women who fought in the all too many wars over the years have contributed even more after finishing their military service.

Veterans owned about 5.4 percent or 304,823 of the nation’s 5,681,118 employer businesses in 2021, with at least one paid employee that year, according to the U.S. Census Bureau’s 2022 Annual Business Survey.

Veteran-owned businesses generated $922 billion in revenue, about 5.3 percent of the total $17.4 trillion of all classifiable employer businesses in 2021.

   
Most veteran-owned businesses in 2021 were in urban areas, which probably explains why the Professional, Scientific, and Technical Services sector, as defined by the North American Industry Classification System (NAICS) codes, had the largest share of veteran-owned employer businesses.

The next largest group of veteran-owned companies was in construction, followed by health care and social assistance, and retail.

Tax benefit of employing veterans: While millions of Americans strive to be bosses, lots of us are happy as employees. But finding good workers is always a challenge, and one that’s been increasingly difficult in recent years.

The Work Opportunity Tax Credit (WOTC) was created to help both companies and those seeking jobs.

The WOTC is a federal tax credit worth up to $9,600 per qualified hired employee. It can be claimed by employers who provide jobs for individuals who have consistently faced employment barriers.

The credit lists specific targeted groups into which potential hires fall and which could enable the business to claim the WOTC.

And as you’ve guessed by now, veterans are one of the groups.

For WOTC claiming purposes, a qualified veteran is one who is any of the following:

• A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date
• Unemployed for periods of time totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date
• Unemployed for periods of time totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date
• Entitled to compensation for a service-connected disability and hired not more than 1 year after being discharged or released from active duty in the U.S. Armed Forces or
• Entitled to compensation for a service-connected disability and unemployed for periods of time totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date

Employers must apply for and receive a certification verifying the new hire is a member of a targeted group before they can claim the tax credit. After the required certification is secured, taxable employers claim the WOTC as a general business credit against their income taxes, and tax-exempt employers claim the WOTC against their payroll taxes.

WOTC steps: Claiming the WOTC is not easy. But as a business owner, you’re used to overcoming obstacles, so a tax hassle shouldn’t be too much of a problem.

First, you must pre-screen and obtain certification from the appropriate Designated Local Agency, referred to as a State Workforce Agency or SWA, that an employee you wish to hire is a member of a WOTC targeted group.

The pre-screening notice — Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) — must be completed on or before the day that a job offer is made. Four key dates — when job applicant was given job information, was offered the job, was hired, and started work — must be filled out on page 2 of Form 8850 before it can be submitted to a SWA.

As for getting actual WOTC benefits, that’s done by claiming the credit as a general business credit on Form 3800 against the business’ income tax by filing the following:

• Form 5884, Work Opportunity Credit,
• Form 3800, General Business Credit, and
• The employer’s business’ related income tax return, for example, Forms 1040 or 1040-SR, 1041, 1120, etc.).

More on the WOTC pre-certification process and claiming the credit can be found at IRS.gov’s WOTC FAQ page. The U.S. Department of Labor also has a WOTC fact sheet and a quick reference guide for employers.

And, of course, your business tax adviser/preparer can help here.

As noted earlier, the WOTC does require more work, but you knew being a boss wasn’t going to be easy when you decided to start your company. At least the WOTC could help you find new, capable employees and provide a bit of a tax break, too.

Finally, since today is the regular By the Numbers day and tomorrow is Veterans Day, the holiday’s connection in this post to a business tax break earns Nov. 11 this week’s numerical honor.

You also might find these items of interest:

• Tax tips for members of the U.S. military
• Remembering Native Americans’ military sacrifices this Memorial Day
• Veterans Day: Remembering veterans and helping smooth their return to civilian life

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