Many jurisdictions allow companies to claim tax credits and incentives for hiring employees to work in certain economic development areas. Federal, state and local employment incentive programs exist to assist these targeted communities by providing tax credits, grants, loans and technical assistance to qualifying businesses. 

To start navigating the landscape of employment incentives, it’s important to understand the requirements. The following are the most common employment incentives, what qualifications are needed and what tax-savings benefit is offered. 

The federal government offers tax incentives for businesses that hire employees who live and work in a federal “empowerment zone.” Empowerment zones are described as distressed urban and rural areas nationwide that are in need of revitalization. There are currently 30 empowerment zones across the U.S. 

This employment tax incentive is equal to $3,000 per year for each qualified employee (20% of each employee’s first $15,ooo in wages each calendar year). 

Federal Work Opportunity Tax Credit (WOTC)

The WOTC is a federal income tax credit for companies that hire employees who are members of certain targeted groups, including: 

• Veterans
• Welfare recipients
• Disabled persons
• Employees who reside in a federal empowerment zone at the time of hire 

A company that is located in or near an empowerment zone has a higher qualification percentage than other businesses. The WOTC employment incentive is generally equal to $2,400 per year for each qualified employee (40% of each employee’s first $6,000 in wages). However, the amount of qualified wages depends on the category. The tax credit may be as much as $9,600 for certain veterans. 

Federal Indian Employment Credit

The federal Indian employment credit was established to incentivize companies with locations on Indian reservations to hire Native Americans as well as those who live or work on an Indian reservation. An eligible employee: 

• Is an enrolled member of a federally recognized Indian tribe (or spouse of a member)
• Substantially performs all services within an Indian reservation
• Has their principal residence located in or near an Indian reservation 

The maximum tax credit for the federal Indian employment credit is $4,000 per qualified employee (20% of the first $20,000 paid to a qualified employee). 

Various State Zone Tax Credits

Several states offer employment incentives for investing in or hiring employees to work in specially designed and named economic development areas. Every state has unique zone rules, complicating the process for businesses to understand what’s offered and how to qualify. 

Some state zone tax credits require companies to increase headcount, while other credits require a financial investment in addition to workforce growth. In some states, the level of tax credit benefit depends on which county the business operates in. 

Types of incentives available include sales tax credits and exemptions, income tax credits and deductions and property tax abatements, as well as non-tax benefits like cash grants, special financing arrangements, state contact preference points and expedited permitting. 

Employment Incentives To Hire, Train And Retain Employees

Because employment incentives (and their qualifications) vary from state to state and county to county, navigating employment-based tax credits and incentives is complex and confusing. Too many businesses shy away from the process of filing for employment incentives because they simply don’t understand what’s offered or how to qualify. 

Teaming up with a tax expert helps bring simplicity to the process of identify and filing for every available employment incentive. With the right guidance, you are given all the tools and support you need to eliminate hassles, overcome obstacles and ease your journey along the road towards tax savings. 

Ready to learn more about the employment incentives available in your location? Call 866-444-4880 or click here to speak directly with a tax expert at Corporate Tax Incentives.