Compliance Blog

Written by Quincy Enoch, Associate Director of Legislative Affairs & Military Liason

As you may know, last week, President Obama signed into law The Vow to Hire Heroes Act of 2011 (Heroes Act), which generally provides tax incentives for businesses to hire veterans. 

While federal credit unions are exempt from income taxation, the Heroes Act contains provisions that would enable a FCU to claim tax credits on certain payroll taxes.  Generally, the tax credit is a work opportunity credit.   FCUs, and other qualified tax exempt organizations, may claim:

• 26% (or 16.25% if the employee worked more than 120 hours and less than 400 hours) of the qualified first-year wages with a cap of:
  • $6,000 for veterans unemployed for more than 4 weeks but less than 6 months – Maximum credit of $1,560
  • $14,000 for veterans unemployed for more than 6 months – Maximum credit of $3,640
  • $24,000 for veterans with a service connect disability and unemployed for more than 6 months – Maximum credit of $6,240

The IRS tax form for claiming the credit is IRS Form 5884, but the current form will need to be updated to conform to the Heroes Act. 

To receive the credit, the employer must request and be issued a certification for each employee by a State employment security agency or execute and submit to the IRS a pre-screening notice.  The employer must receive the certification by the day the individual begins work or complete IRS Form 8850, the Pre-Screening Notice and Certification Request for the Work Opportunity Credit.  The IRS Form 8850 can be filled out and submitted up to 28 calendar days after the hire date.

A veteran will be treated as certified if: (1) such veteran is certified by a State employment security agency as being in receipt of unemployment compensation under State or Federal law for not less than 6 months during the 1-year period ending on the hiring date; or (2) the veteran is certified by such agency as being in receipt of unemployment compensation under State or Federal law for not less than 4 weeks (but less than 6 months) during the 1-year period ending on the hiring date.  The time period will determine the tax credit.  The legislation gives Treasury/IRS the authority to provide alternative methods for certification of a veteran. 

In calculating the tax credit, a tax exempt organization may only take into account wages paid to a qualified veteran for services in the furtherance of the activities related to the purpose or function constituting the basis of the organization's exemption.  In addition, the newly hired employee must work for at least 120 hours for any eligibility and 400 hours for full eligibility.  The potential employee must be a first time hire and cannot have been employed by the employer at any time in the past.  

If you have any questions, please feel free to contact Quincy Enoch at qenoch@nafcu.org