With more awareness and participation, the Empowerment Zone Tax Credit could not only lead to more diversity in the workforce but will also help certain areas get out of poverty and stimulate profitability for businesses in these areas.
As businesses continue to dig themselves out of the financial impact of the ongoing pandemic and look for ways to recover, taking advantage of tax incentives is a great way to get back on track.
One incentive, in particular, is through Empowerment Zones (EZs), which are designated urban and rural areas of economic distress and unemployment that offer attractive tax incentives for businesses that are located within the zones. Empowerment Zones are assigned as either rural or urban, with rural programs administered by the U.S. Department of Agriculture (USDA) and urban programs by the U.S. Department of Housing and Urban Development (HUD). EZ’s were created by the Empowerment Zones and Enterprise Communities Act of 1993.
Aside from the potential monetary benefits, hiring from within EZ’s can potentially stimulate economic growth in areas where it is desperately needed. To better understand the tax credits that qualify and how businesses can participate, here is a breakdown:
Who is Eligible?
Any business located in an Empowerment Zone and that also hires employees that live within the Empowerment Zone is eligible for the Empowerment Zone Tax Credit and can claim 20 percent of what is paid to those employees– this is capped at $3,000 per year, per employee. There is no limit on the number of qualified zone employees and they may be employed on a full-time or part-time basis.
In addition, businesses who hire residents from within the empowerment zone between the ages of 18-39 are also eligible to receive The Work Opportunity Tax Credit (WOTC)– a business can claim a tax credit of up to 40 percent of what is paid to those employees, capping at $2,400 per eligible employee.
Manufacturing, distribution, storage and transportation industries are most commonly found in Empowerment Zones.
How Does the Empowerment Zone Tax Credit Work?
As an example, a distribution warehouse located within the Empowerment Zone employs one hundred workers, 10 percent of which also live within the Empowerment Zone. Increasing the percentage of workers that live within the zone increases the tax credit. In this example, the distribution warehouse would receive as much as $45,000 in Empowerment Zone Tax Credit for employing ten percent of workers in the zone and if the distribution warehouse were to increase workers who live in the zone to 30 percent, they would receive as much as $90,000 in tax credits.
On top of this, when the Work Opportunity Tax Credit for employers in the zone who are between the ages of 18-39 is added in, the savings can be very substantial.
What is an example of a Company that is Utilizing these Tax Credits?
DNO Produce Inc. is a fresh-cut processing and produce distribution company located in Columbus, Ohio. Their fresh-cut processing and produce distribution facility receives roughly $35,000 in tax credits from the WOTC and Empowerment Zone programs. Nearly 20 percent of their associates–a fifth of their workforce–live in an empowerment zone. The tax credits reduce labor costs and help them to stay competitive in a tight labor market.
Where are the Empowerment Zones?
To see which areas of the country qualify as Empowerment Zones, you can use this WOTC address locator on Google Maps.
The potential impact of Empowerment Zones is quite substantial. With more awareness and participation, the Empowerment Zone Tax Credit could not only lead to more diversity in the workforce but will also help certain areas get out of poverty and stimulate profitability for businesses in these areas.