Why Hiring Tax Credits Matter: Every New Employee Can Generate Thousands of Dollars in Federal and State Hiring Tax Credits. Is Your Company Capturing All of These Credits? (Taxes)
Weiss, Daniel A., Strategic Finance
When crafts retailer Jo-Ann Stores notified Visalia, Calif., that the city was on their short list of locations for a major distribution center, the Tulare County Business Incentive Zone (BIZ) started its work to persuade the company to choose Visalia. They offered a comprehensive financial assistance package that included state income tax credits of $31,500 per employee hired over a five-year period. Jo-Ann Stores accepted. In return for the package, the company agreed to provide more than 120 jobs to low- and moderate-income individuals and within three years increase the number of jobs to 350. The result: Jo-Ann Stores now employs 125 people in a 630,000-square-foot distribution center in Visalia. For the city's efforts to attract the company, Visalia Mayor Don Landers accepted the "Success Story of the Year" award from the California Association of Enterprise Zones. Could your company be the next success story?
With the economic downturn since September 11 and the fall of some of the country's largest emp loyers, hiring tax-credit programs have taken on importance as a means to help curb the unemployment rate and provide fiscal relief to businesses.
Yet despite the value of hiring tax-credit programs, most companies don't pursue them. In many cases, an in-house corporate tax team, major auditor, or corporate real estate broker is either not aware of or underestimates the benefits of hiring tax credits. While companies pay close attention to other kinds of financing opportunities, they miss out on thousands--or millions--of dollars in lost savings each year when they don't pursue hiring tax credits. And when businesses know about the programs, unfortunately, they often falsely conclude they wouldn't qualify or the process for complying would be too difficult. Not so.
Here's a look at the types of hiring tax credits that are available and how you can participate in them with ease.
Hiring tax credits come in two forms: those that focus on persuading companies to open facilities in certain "incentive zones" and those that encourage a company to hire targeted groups of individuals or create jobs. First let's consider the incentive-zone programs.
More than 1,000 areas across the country have been in some way classified as enterprise zones by the federal or state governments to provide incentives for companies willing to invest in those designated zones. Federal incentive zones are called Empowerment Zones, while state ones are Enterprise Zones. Most states have one or both types. Each zone usually offers employers thousands of dollars in tax credits per eligible new hire. To qualify for the credit, new hires must generally work or live in the zone or both. The zones often offer businesses a range of other benefits also, all geared at sustainable community development, including tax-exempt facility bonds, Work Opportunity Tax Credits (WOTC), reductions of the capital gains tax liability, increased expensing deductions on depreciable property, and deduction of qualified brownfield cleanup costs.
One recent example of an incentive zone at the federal level comes as a result of September 11. To address the economic redevelopment challenges facing New York City, in March 2002 President Bush signed into law the Liberty Zone Employment Credit for Lower Manhattan. The intent: encourage businesses to remain, expand, and relocate to lower Manhattan by offsetting labor costs. The new provision will provide for a special yearly credit of $2,400 per employee through 2004 for businesses with fewer than 200 employees.
In addition, the Department of Housing and Urban Development (HUD) recently announced that 40 communities around the country will be designated Renewal Communities (RCs). RCs are urban and rural communities targeted for renewal and nominated by state and local governments. They are similar to the Empowerment and Enterprise Zones, and businesses in these areas can take advantage of wage credits worth up to $1,500 for every new or existing employee who lives and works in an RC. …