Many states offer tax credits to encourage employers to hire veterans transitioning to civilian life. Unfortunately, this approach has proven largely ineffective, showing only a negligible impact on veteran employment. In many states, these credits are used by very few employers — and in some, they aren’t used at all, leading some states to let the programs lapse.

Evidence on performance

New York State: An evaluation of the Hire a Veteran Credit, enacted in 2013, found that only 42 taxpayers used it between 2016 and 2020. The average credit was just $2,630, suggesting the few veterans hired under this program received relatively low wages.

Washington State: A 2020 assessment of the Hiring Unemployed Veterans tax credit showed only 132 veterans were hired by 45 businesses. The credit failed to meet its goal of reducing veteran unemployment; in fact, the number of unemployed veterans increased by 20% after the credit’s 2015 passage. Washington allowed its targeted tax credit to lapse, as have Delaware, New Mexico and Maryland.

Why tax credits fail

The weak performance of these credits is likely due to several factors:

• Lack of Awareness: Businesses may not know the credits exist.
• Insufficient Amount: The credit amount may not be large enough to influence hiring decisions.
• Restrictive Rules: Eligibility requirements are often too narrow.
• Burdensome Process: The application process for accessing the credit can be complicated.

A better alternative

Our research suggests that grants and other forms of programmatic assistance, including raising employer awareness and directly supporting veteran skills development and credentialing, may be more effective than tax credits.

As an example, last year I learned about NextOp Veterans. NextOp focuses on “translating military training and experiences into valued qualifications in the business community” and connects veterans to career opportunities with employers. In Louisiana, NextOp has collaborated with Greater New Orleans, Inc. for placements with major employers like Ochsner Health System and Michoud Assembly Facility. They are also building partnerships with Louisiana Economic Development (LED) and the Louisiana Department of Veterans Affairs to serve other cities in the state. In 2024, NextOp placed over 130 Louisiana-based veterans with companies, with average pay of $62,000 – significantly outperforming of the typical state hiring tax credit’s impact.

Conclusion

As we work to implement effective and responsible incentive programs, the evidence is clear: Tax incentives are not the most effective tool for boosting veteran employment. States interested in this topic should consider alternatives, including programmatic support that directly connects skilled veterans with willing employers.