Farmers who plan to add additional help this year may want to consider hiring veterans. There is a substantial increase in the job pool as these individuals come back into the civilian workforce. As a further incentive, you may be eligible for a generous tax credit for hiring unemployed veterans. The credit can apply to seasonal employees if they work at least 120 hours.
Recent legislation has expanded the Work Opportunity Tax Credit (WOTC) to include qualified veterans who begin work after November 21, 2011, and before January 1, 2013. To qualify for the WOTC, the veteran must have been unemployed for at least four weeks in the year prior to being hired. A qualified veteran is a veteran who falls into one of the following categories.
The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment, hours the veteran works, and the amount of first-year wages paid.
Wages paid to certain employees do not qualify for the credit even if the employee is a qualified veteran. Ineligible individuals include the following.
Farmers must obtain certification for potential employees from the state workforce agency in order to qualify for the WOTC. The following steps are required for WOTC certification.
Calculating the Credit
In order to claim the WOTC, the farmer must keep track of how many hours the qualified veteran worked, the veteran’s hire date, wages paid during the year, and in which category the veteran was certified before completing Form 5884, Work Opportunity Credit.
Qualified wages for purposes of the credit generally include all compensation considered as wages for federal unemployment tax (FUTA) purposes. If the work performed by an employee during more than half of any pay period qualifies under FUTA as agricultural labor, that employee’s wages subject to social security and Medicare taxes are qualified wages. In other words, the wages still qualify even if the farmer is exempt from FUTA because he does not pay more than $20,000 in wages per quarter or employ more than 10 workers during any 20-week period.
Generally, the credit is 40% of the applicable first-year wages for the qualified veteran. However, if the veteran has worked at least 120 hours but less than 400 hours for the employer, the credit is limited to 25% of the applicable first-year wages.
The amount of qualified first-year wages that can be taken into account for a qualified veteran is limited to the following.
• $6,000 for a qualified veteran certified as being either:
After calculating the amount of the credit, the deduction for wages paid must be reduced by the amount of the credit.
Example 1. Ted Tiller hires Marc to work full time during the April/May planting season. Marc works for a total of 240 hours and earns $3,600. If Marc had been unemployed for at least 4 weeks, he would qualify for the 25% credit on the $3,600 of wages, or $900.
Example 2. Use the same facts as above, except Marc becomes a full-time employee and works for more than 400 hours during 2012. Marc had also been unemployed for more than six months. If he earned $20,000, he would qualify for a 40% credit on $14,000, or $5,600.
A worker that has been pre-certified must give the employer Form 9062.
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