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Businesses Get A Break In The Name Of Veteran Employment

Nov. 22, 2011
Small Business
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As part of a push to employ veterans, President Obama signed legislation today that will give tax breaks to businesses that hire former service members who are unemployed. The move, which is projected to cost the government about $95 million, will be paid for largely through fees charged by the Department of Veterans Affairs on home loans.

A two-pronged approach: tax breaks and no withholding for businesses

The push to employ veterans is taking a two-pronged approach. First, businesses will receive a tax break when they employ veterans who have been without work for at least 1 month. The size of the tax break is dependent on a number of factors including how long the veteran has been unemployed, and whether the veteran has service-related disabilities. Businesses that hire unemployed veterans will stand to gain tax credits ranging from $5,600 to $9,600.

Second, businesses will benefit from another newly signed measure that will stop federal, state and local governments from withholding 3% of payments to contractors starting in 2013. Until now, the government was poised to begin giving contractors only partial payment until they paid their taxes in full, with the idea being that this would encourage businesses to pay up to Uncle Sam.

With unemployment rates high across the board, and veterans suffering disproportionately, the government now wants to make sure contractors can put their full resources toward hiring new workers.

Retirees and veterans foot the bill

While fees on home loans should cover business tax breaks, doing away with government withholding is set to impact a more vulnerable segment of the population.

The choice to do away with the planned 3% withholding, comes with an $11 billion price tag over the next 10 years. In an effort to offset the cost, the government is shifting some aspects of the 2010 health-care law, making it harder for elderly Americans to qualify for government subsidized programs.

The non-taxable portion of social security benefits will now be used as part of the income calculation that determines eligibility for Medicaid and other government healthcare programs. For some, this will mean a move from Medicaid to different government-subsidized programs, while for others, the changes will make them ineligible for government health programs altogether.

Veterans will also feel the crunch, with new limitations on pensions for veterans who don’t have dependents and those living in nursing homes that are covered by Medicaid.

A wise move?

Whether the new legislation will significantly curb unemployment among veterans remains to be seen, although the measure received significant bipartisan support, passing the House with a 422-0 vote. Still, it seems questionable whether tax breaks for businesses will serve as enough of a hiring incentive to offset the cost to veterans and the elderly of reduced medical benefits and pensions. The financial hardship caused by reduced benefits will likely lead to more people suffering from increased debt in old age.