The Work Opportunity Tax Credit (WOTC) allows employers who hire certain targeted group members, including qualified veterans, an income tax credit equaling a percentage of qualifying first-year wages. The qualified veteran must begin work for the employer before 2013.
Generally, Section 501(c) organizations that are exempt from income tax under IRC Sec. 501(a) are not eligible for the WOTC. However, Section 501(c) organizations exempt from tax under IRC Sec. 501(a) that hire qualified veterans who begin work after November 21, 2011, for whom a WOTC would be allowable except that the employer is a tax-exempt organization, are allowed to take a payroll tax credit. The aggregate credit amount allowed for any applicable period cannot exceed the employer's share of Social Security taxes (i.e., 6.2 percent) on wages earned by all employees during the period. The credit amount is 26 percent (instead of 40 percent) of the qualified wages paid to an eligible veteran during the applicable period. However, the credit amount is reduced to 16.25 percent for any veteran who works at least 120 hours, but less than 400 hours. No credit is available if the veteran works fewer than 120 hours. The work performed by the veteran must further the organization's tax-exempt purpose. The applicable period is the one-year period beginning on the day the veteran begins work for the organization.
Qualified tax-exempt organizations that hire qualified veterans and are eligible for the OASDI portion (Social Security portion) of the FICA tax must file Form 5884-C to claim the credit.
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