In today’s competitive labor market, your nonprofit organization may seek innovative ways to stretch limited budgets while advancing its mission. One often overlooked opportunity is the federal Work Opportunity Tax Credit (WOTC), a valuable resource that supports workforce diversity and offers significant payroll tax savings.

For nonprofits, this credit is tailored to benefit those who hire qualified veterans — a group whose skills and experiences can perfectly match mission-driven work. The maximum credit depends on the veteran’s first-year wages and other factors. Special rules allow increased limits for veterans with service-related disabilities or long-term unemployment.

Now’s the time to act. Without legislation to extend it, the WOTC will expire at the end of 2025.

Qualify for the credit

The WOTC encourages employers to hire individuals from groups that have historically faced barriers to employment. Although for-profit companies can claim the credit for hiring from a range of targeted groups, tax-exempt organizations can only claim the credit when hiring “qualified veterans.”

In general, a qualified veteran meets one or more of the following criteria as of the hiring date:

• A member of a family that receives SNAP benefits (food stamps) for at least three months within the previous 15 months.
• The veteran has been unemployed for at least four weeks but less than six months in the prior one-year period.
• The veteran has been unemployed for at least six months in the previous one-year period.
• The individual is entitled to service-connected disability compensation and is hired within one year of discharge or release from active duty.
• The individual is entitled to service-connected disability compensation and has been unemployed for at least six months in the previous one-year period.

 

Certify new hires

To claim the WOTC, nonprofit employers must ensure that new hires are certified as qualified veterans by the appropriate state workforce agency. The process is straightforward yet detailed, though it’s specialized for nonprofits.

You can claim the credit by filing Form 5884-C — “Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans” — after you submit the related employment tax return. Form 5884-C allows nonprofits to claim the credit against their Social Security tax liability, which is especially beneficial for organizations operating under tight payroll budgets.

Leveraging local recruiting resources

If you want to hire veterans, the robust network of local job centers and state workforce agencies can be a valuable resource. American Job Centers, for instance, host job fairs, perform skills assessments, and connect employers with qualified veterans.

The Veterans Administration and its affiliated agencies support nonprofits by providing candidate pools and recruitment resources. Tapping into these networks can streamline hiring and ensure organizations meet the WOTC’s certification requirements.

Count the strategic benefits

The WOTC’s financial advantages can certainly be beneficial for nonprofits. It provides your organization with opportunities to reduce its payroll tax burden, and there’s no cap on the number of qualified veterans for whom the credit can be claimed. However, remember that for nonprofits, the credit is limited to the amount of employer Social Security tax owed for the employment period, though unused amounts can be applied to a future period.

Lower tax liability translates into more funds available for program services, community outreach, and other mission-critical initiatives. Moreover, by prioritizing the recruitment of veterans, you can secure a dedicated workforce and demonstrate your nonprofit’s commitment to supporting those who have served the country.

Embrace the strategic advantage.

As many in the nonprofit sector tighten their belts and slash hiring budgets, the WOTC stands out as a strategic advantage. So long as you understand the WOTC’s eligibility criteria, follow the certification process, and utilize local recruitment resources, you can lower your payroll taxes while enriching your teams with highly qualified veterans. This win-win approach promotes veteran employment and frees up resources for your vital work. Consult with trusted tax advisors to ensure compliance with federal requirements and help maximize the credit’s potential.

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