What is the Federal Empowerment Zone Tax Credit?

• The Federal Government provides up to $3,000 in wage tax credits per Zone resident working for your Zone business through 2009.
• A qualified Zone property may be deducted more rapidly.
• Tax-exempt bond financing provides lower interest rates than conventional financing.
• File IRS form #8844, “Empowerment Zone Employment Credit”
• Refer to: Publication 553, “Highlights of 1999 Tax Changes”
• Refer to: Publication 954, “Tax Incentives for Empowerment Zones &
  Other Distressed Communities”
• Consult bond counsel for tax-exempt bond program.
  From: http://www.baltimoreempowermentzone.com/business_taxbenefits_fed.html

Qualifications

• A qualified zone employee is any employee who meets both of the following tests:
  • The employee performs substantially all services for you within an empowerment zone and in your trade or business.
  • While performing those services, the employee has his or her main home within that empowerment zone. Both full-time and part-time employees may qualify.
• Qualified zone wages are any wages you pay or incur for services performed by an employee while the employee is a qualified zone employee. Wages are generally defined as those wages subject to the Federal Unemployment Tax Act (FUTA) without regard to the FUTA dollar limit. Qualified zone wages include certain training and education expenses you pay or incur on behalf of a qualified zone employee.

Restrictions

• Nonqualified employees: The following individuals are not qualified zone employees.
  • An individual you employ for less than 90 days. This 90-day requirement does not apply in either of the following situations:
    • You terminate the employee because of misconduct as determined under the state unemployment compensation law that applies.
    • The employee becomes disabled before the 90th day. However, if the disability ends before the 90th day, you must offer to reemploy the former employee.
  • Certain related taxpayers.
  • Certain dependents.
  • Any 5% owner.
  • An individual you employ at any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, liquor store, or other facility used for gambling.
  • Any individual you employ in a farming trade or business if, at the close of the tax year, the sum of the following amounts is more than $500,000:
    • The larger of the unadjusted bases or fair market value of the farm assets you own.
    • The value of the farm assets you lease.
• Qualified zone wages do not include any amount you take into account in figuring the welfare to-work credit or the work opportunity credit. In addition, reduce the $15,000 maximum qualified zone wages for each qualified zone employee by the amount of wages you use to figure either of those credits for that employee.

How to Apply

Complete IRS Form 8844 and return it with the federal tax return. Although this credit is a component of the general business credit, a special tax liability limit applies to this credit. Therefore, you figure the credit separately and never carry it to Form 3800, General Business Credit. In general, you must reduce the deduction on your income tax return for salaries and wages and certain education and training costs by the amount of your empowerment zone employment credit. Download form from www.irs.gov or order them by calling 1-800-TAX-FORM.

For More Information Contact:

Empower Baltimore Management Corporation
3 S. Frederick Street, Suite 800
Baltimore, MD 21202
(410) 783-4222
E-mail: ezinfo@ebmc.org