Repeal 3% Withholding Requirement and Credit for Hiring Veterans

Published:

by Marie Jett, CPA | Manager, Tax Services Group

Back on November 21, President Obama signed into law P.L. 112-56, “3% Withholding Repeal and Job Creation Act”. Back in 2005, Congress passed a law that would require federal, state, and local governments to withhold 3% from payments made to entities providing services or goods to those governments. Since then Congress has pushed back the start date of the withholding requirement with the updated date for payments made after 2011. This latest law has totally repealed the withholding requirement.

The second part of this new law creates an enhanced work opportunity tax credit (WOTC) for hiring qualified veterans. Employers (for-profit) have long been able to receive a credit for hiring employees who are members of certain targeted groups – ex-felons, food stamp recipients, SSI recipients, long-term family assistance recipients and certain veterans are just a few of the targeted groups. Currently, the WOTC is set to expire on 12/31/11. This latest law extends some of the WOTC, but only for hiring qualified veterans. This latest law will also apply to tax-exempt employers.

This credit will apply to qualified veterans who begin work before 1/1/2013, but after 11/21/11 (date signed into law). A qualified veteran is a veteran who is certified by a designated local agency that falls into 1 of 4 categories. If a veteran,

1) is a member of a family receiving assistance under a food stamp program for at least 3 months, all or part of which is during the 12-month period ending on the hiring date;

2) is entitled to compensation for a service-connected disability and has a hiring date that isn’t more than a year after being discharged or released from active duty or has unemployment time that is 6 months or longer during the 1-year period ending on the hiring date;

3) has unemployment time of more than 4 weeks, but less than 6 months during the 1-year period ending on the hiring date; or

4) has unemployment time of 6 months or more during the 1-year period ending on the hiring date.

The maximum credit an employer can receive ranges between $2,400 and $9,600. The credit is calculated based on hours worked, the wages paid to the qualifying veteran, and the category the veteran falls into (described above).

For a tax-exempt employer, the credit will apply against the social security tax the employer would pay on wages. The maximum credit amount is reduced down to a maximum of $1,560 – $6,240. The calculation is also based on the hours worked and designated category.

If you have any questions regarding the repeal or calculating the credit please contact the Greenwalt CPAs, Inc. Tax Services Group at 317-241-2999.