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1996-11-06
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┌─────────────────────────────────────────┐
│ EMPOWERMENT ZONE EMPLOYMENT CREDIT │
└─────────────────────────────────────────┘
While the federal targeted jobs credit expired on December
31, 1994, and may or may not be renewed by Congress this
time, the 1993 tax bill added a new employment-based income
tax credit which is even better, for certain qualified
employers.
The "empowerment zone" credit is equal to 20% of the first
$15,000 of "qualified wages" paid to a "qualified zone
employee" each year, who works for an "enterprise zone
business." (Internal Revenue Code Section 1396). Unlike
the targeted jobs credit, this credit is not limited to the
wages paid in the first year of employment of the worker.
However, the employee must work for the employer at least
90 days for his or her wages to qualify.
A "qualified zone employee" is one who performs substantially
all of his or her services within a designated "empowerment
zone." The Secretary of Housing and Urban Development and
Secretary of Agriculture have designated a number of such
empowerment zones in urban and rural areas. Urban zones
include parts of Atlanta, Baltimore, Chicago, Detroit, New
York, and Philadelphia-Camden. Rural zones have been
designated in Kentucky, Mississippi, and in the Rio Grande
Valley region of Texas.
An "enterprise zone business" that can earn such credits is
one which:
. derives at least 80% of its gross income from the
active conduct of a qualified business within an
empowerment zone;
. has substantially all its tangible property within
the zone; and
. whose employees perform substantially all of their
services within the zone.
Note that the credit reduces not only the regular income tax,
but can also reduce the alternative minimum tax, unlike most
other business credits. However, the 20% of wages that
qualifies for the credit cannot also be claimed as an expense.