At the end of 2013, the state of California eliminated the popular Enterprise Zone (EZ) program. In place since 1984, the purpose of this program was to provide incentives for companies to enhance operations and create new employment opportunities in economically depressed areas of the state. Although the program has been phased out, the state has provided a new employment incentives program known as the New Employment Credit (NEC). This new credit offers a broader set of benefits to California companies because it is available in more areas, offers a higher credit amount and is less restrictive than those available under the old EZ program. To help companies understand the qualification criteria and program benefits, we have provided a brief program summary below.
In order to qualify for these incentives companies must be located in a Designated Geographic Area (DGA) and hire qualifying employees on or after January 1, 2014. A qualifying employee is defined as an individual that is or has been:
- Unemployed for 6 months or more – not having completed a college degree or other course of study
- Unemployed for 6 months or more having completed a college degree or other program more than 12 months prior to the hire date
- Veteran in good standing separated from the armed forces within the prior 12 months
- Recipient of the federal Earned Income Credit in the previous tax year
- Ex-offender convicted of a felony
- Current CalWORKs or county assistance recipient.
It’s important to note that the term unemployed specifically refers to individuals that have not received wages, are not self-employed and who are not full time students. If a new hire meets one of these criteria, they are automatically disqualified and a company may not claim any benefit.
Designated Geographic Areas
The DGA’s consist of designated census tracts with high unemployment and poverty, former Local Agency Military Base Recovery Area (LAMBRA) and former EZ boundaries with some exclusion. It is important to note that the size of the DGA zones is almost ten times larger than that of the former EZ boundaries. To determine if your business is located in one of these areas, visit the New Employment Credit Mapping Tool provided by the state of California. By entering the location of the business, key information will be provided about eligibility for program participation.
A business can generate a 35% employment credit on qualifying wages over a period of up to 5 years. According to the program, qualified wages are the portion of wages paid that exceed 150% of minimum wage but do not exceed 350% of minimum wage. This means a company can claim a generous tax credit for each qualified hire. As minimum wage increases, so does the eligible amount of wages which means the potential benefit can increase over several years.
The credit can be used against current year state income tax liabilities. In addition, the credit may be carried forward for up to five years to be used against future tax liabilities. However, it may only be used on current year or future tax returns and not as part of an amended return. This is not a refundable tax credit, but can be assigned to an affiliate company under certain circumstances.
There are several administrative steps that must be taken in order to claim the credit. If you believe your company qualifies, it’s important to consult with a professional who can calculate the credit amount, assist with the application and provide guidance on implementation. For additional information on the new incentive program or the application, please contact JLK Rosenberger at 949-860-9902, or click here to contact us.