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Work Opportunity Tax Credits: New Credits for Hiring Unemployed Veterans and 'Disconnected Youth'

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By Caleb Groos on June 02, 2009 1:46 PM

Last week the IRS issued guidance regarding the expanded work opportunity tax credits (WOTC). In addition to types of new hires previously qualifying, these credits are now available for employers who hire certain unemployed veterans or "disconnected youth." Businesses with qualifying employees already on their payrolls, and those looking to hire more should know how the credit works.

Work opportunity tax credits reward employers for hiring certain disadvantaged individuals. The American Recovery and Reinvestment Act of 2009 added two groups of new-hires to this list: unemployed veterans and "disconnected youth" hired after 2008 but before 2011.

Groups which were already eligible include:

  • certain disabled veterans;
  • veterans recently qualifying for food stamps;
  • summer youth hires in designated communities;
  • 18-40 year old residents of designated communities;
  • qualifying ex-felons;
  • certain new-hires in the Hurricane Katrina disaster area; and
  • individuals who've recently been eligible or received various benefits (such as SSI, food stamps or Temporary Assistance for Needy Families benefits).

According to recently issued IRS guidance, qualifying unemployed veterans must have:

  • been discharged from the armed services in the past 5 years;
  • received unemployment compensation for at least 4 weeks in the year ending on the date of hire; and
  • been on active duty for at least 180 days or have been discharged or released due to service related disability.

A qualifying "disconnected youth":

  • is between 16 and 25 years old on the hire date;
  • has not regularly attended school for more than 10 hours per school week during the 6 months before hire;
  • for each 3 month period over the 6 months before hire was unemployed or earned less than a minimum wage 30 per week job would pay; and
  • does not have a high school diploma or GED, or got one more than 6 month before hire and has not had a job or been admitted to post-secondary or technical school since.

The amount of work opportunity tax credit available depends on wages paid and the group under which the employee qualifies. For unemployed veterans and disconnected youth, the credit per employee will max out at $2400.

Employers must file Form 8850 with their state's workforce agency to confirm the status of eligible employees. Normally, they must do so within 28 days of the hire date. If unemployed veterans or disconnected youth were hired between January 1, 2009 and June 17, 2009, however, employers have until August 17, 2009 to file Form 8850.

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