Are You in The Empowerment Zone?

November 23, 2011

Much like the California Enterprise Zone program, Federal Empowerment Zones are specific areas of the U.S. that are considered economically disadvantaged. The Internal Revenue Service and the U.S. Department of Housing and Urban Development have worked together to create a system of tax incentives to encourage businesses to help stimulate the economy in these areas and to create new job opportunities for the people living there.  The information below is a brief overview of the main points of Empowerment Zones and the accompanying tax credit.

Portions of the following California Areas are designated as Empowerment Zones:

¤  Fresno, CA

¤  Los Angeles, CA (city and county)

¤  Santa Ana, CA

¤  Desert Communities, CA (part of Riverside County)

Other Empowerment Zone Areas include:

Urban areas

Arkansas: Pulaski County, Arizona: Tucson, Connecticut: New Haven, Florida: Jacksonville and Miami/Dade County, Illinois: Chicago and East St. Louis, Indiana: Gary/Hammond/East Chicago, Massachusetts: Boston, Maryland: Baltimore, Michigan: Detroit, Minnesota: Minneapolis, Missouri: St. Louis, New Jersey: Cumberland County and Camden, New York: New York, Syracuse and Yonkers, Ohio: Cincinnati, Cleveland, Columbus and Ironton, Oklahoma: Oklahoma City, Pennsylvania: Philadelphia, South Carolina: Columbia/Sumter, Tennessee: Knoxville, Texas: El Paso and San Antonio, Virginia: Norfolk/Portsmouth, West Virginia: Huntington, Washington DC

Rural areas

¤  Southwest Georgia United

¤  Southernmost Illinois Delta

¤  Kentucky Highlands

¤  Aroostook County, Maine

¤  Mid-Delta, Mississippi

¤  Griggs-Steele, North Dakota

¤  Oglala Sioux Tribe, South Dakota

¤  Middle Rio Grande FUTURO Communities, Texas

¤  Rio Grande Valley, Texas

 

Empowerment Zone credit. Business taxpayers are allowed a credit against income tax generally equal to 20% of the first $15,000 of wages paid to each employee who is a resident of an empowerment zone and who performs substantially all employment services within the zone in the taxpayer’s trade or business.  This credit is a component of the business credit and a special tax liability limit applies.  The $15,000 amount is reduced by the amount of wages taken into account in determining the work opportunity credit and the welfare-to-work credit.  Also, the deduction that the employer would normally be allowed for wages paid is reduced by the amount of the empowerment zone business credit claimed for the tax year.

Who can claim the credit. Any employer who pays “qualified wages” to a qualified zone employee.

A Qualified Zone Employee is any employee (full-time or part-time) who:

¤  Performs substantially all of the services for that employer within an empowerment zone in the employer’s trade or business and

¤  Has his or her principal residence within that empowerment zone while performing those services

A Qualified Zone Employee is NOT:

¤  Any relative or dependent of the employer (‘employer’ in this case can mean an individual proprietor, any corporate shareholder who owns more than 50% in value of the outstanding stock, anyone owning more than 50% of the capital and profits interest of the company, or any grantor, beneficiary, or fiduciary of the estate or trust).

¤  Any person who owns more than 5% of the corporation’s outstanding or voting stock or more than 5% of the capital or profits interest in the employer.

¤  Any individual employed by the employer for less than 90 days.  The 90-day requirement does not apply in the following situations:

–  The employee is terminated because of misconduct as determined under the applicable state unemployment compensation law.

–  The employee becomes disabled before the 90th day. However, if the disability ends before the 90th day, the employer must offer to reemploy the former employee in order to be able to claim credit for that employee.

 

Form to file. Form 8844, Empowerment Zone and Renewal Community Employment Credit

When to file. Form 8844 must be attached to your annual income tax return.

More information. You can find out if your business or an employee’s residence is located within an empowerment zone or within a renewal community by using the RC/EZ/EC Address Locator at http://egis.hud.gov/ezrclocator/.

If you have any questions or would like to receive more information, please contact us.