Tax Credits Available in Federal Empowerment Zones

By Dana Fortini, Supervisor at Gray, Gray & Gray, LLP

Federal Empowerment ZonesIf your business is located in an economically distressed location, you may be able to apply for significant tax credits if you have employees who live and work in what is known as a federally-designated “Empowerment Zone.” But you have to hurry!

Empowerment Zones were introduced in 1993 as part of a federal government effort to reduce unemployment and generate economic growth in distressed cities and regions. Businesses in Empowerment Zones were offered federal tax incentives and the awarding of grants to encourage hiring and participation in the plan. Although the original program ended in 2011, it was revived again through the American Taxpayer Relief Act in 2013, but expired again at the end of the year.

However, Empowerment Zone credits are still available for the 2013 tax year. Eligible companies located in Empowerment Zones may be eligible for a credit of 20% of a qualified employee’s wages, up to $15,000 per employee. This can quickly add up to significant federal tax credits which reduce income dollar for dollar for the employer.

To determine if your business is eligible for the Empowerment Zone Credit, first determine if your business is located within an Empowerment Zone. An online address locator has been provided by the U.S. Department of Housing and Urban Development:

http://egis.hud.gov/ezrclocator/

For a quick reference, the locations listed below contain Empowerment Zones:

  • Pulaski County, AR
  • Tucson, AZ
  • Fresno, CA
  • Los Angeles, CA (city and county)
  • Santa Ana, CA
  • New Haven, CT
  • Jacksonville, FL
  • Miami/Dade County, FL
  • Chicago, IL
  • Gary/Hammond/East Chicago, IN
  • Boston, MA
  • Baltimore, MD
  • Detroit, MI
  • Minneapolis, MN
  • St. Louis, MO/
  • East St. Louis, IL
  • Cumberland County, NJ
  • New York, NY
  • Syracuse, NY
  • Yonkers, NY
  • Cincinnati, OH
  • Cleveland, OH
  • Columbus, OH
  • Ironton, OH
  • Oklahoma City, OK
  • Philadelphia, PA
  • Camden, NJ
  • Columbia Sumter, SC
  • Knoxville, TN
  • El Paso, TX
  • San Antonio, TX
  • Norfolk/Portsmouth, VA
  • Huntington, WV

If your business location is within an Empowerment Zone, you should obtain a list of employees, their addresses, and wages from your payroll provider. Input this information into the same address locator listed above. The results will show the address entered as either “IN” or “OUT” of the Empowerment Zone. For employees whose addresses qualify as “IN” the zone, use IRS Form 8844 to report eligible employees and their wages.

Both full-time and part-time employees may qualify, but the employer must employ the individual for at least 90 days, except where terminated because of misconduct. In addition, individuals who own more than 5% of the business or are related to a more than 50% owner do not qualify.

The application process for Empowerment Zone credits can be complicated, and properly preparing Form 8844 is time consuming. But the potential federal tax credits should be incentive enough to spend the time necessary.

If you have any questions about the tax credits available through the federal Empowerment Zone program, need assistance in determining whether or not a business location or an employee is eligible, or need help completing the right tax forms, please contact Gray, Gray & Gray at (781) 407-0300.

Dana Fortini is a Supervisor with Gray, Gray & Gray, LLP Certified Public Accountants in Westwood, MA. (www.gggcpas.com

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