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Don’t Overlook the California Hiring Tax Credit


In an effort to encourage job and economic growth, many states offer a variety of tax incentives for investment in distressed areas.  One of the best examples is California Enterprise Zones which are geographically targeted economic development areas.  Businesses operating within these designated areas may benefit from many tax incentives, including the hiring tax credit. Furthermore, if you are an out-of-state construction company, you may be eligible for hiring credits relating to projects performed inside an enterprise zone.

The first question you may be asking is, “Where are the enterprise zones?”  A listing of enterprise zones, including maps and street ranges, can be found at http://hcd.ca.gov/fa/ez/enterprise/newmap.html.

The second question you may ask is, “Do I have employees that qualify my business for the credit?”  You may qualify for the hiring credit if you hire an employee after an area is officially designated as an Enterprise Zone and before the designation expires.  The state lists several types of qualified employees, including, but not limited to, veterans, disadvantaged workers and residents of targeted employment areas.  50% of their work must be performed inside the boundaries of any enterprise zone.  The same rules apply to out of state contractors.  However, the general rule of thumb is that qualified employees for out-of state contractors should be working inside the enterprise zones for more than six months for the cost of the credit calculation to make sense.

The last question, “How much is the credit?” is based on wages an employee earns each year for a maximum of five years.  For the first year of employment, 50% of the wages qualify.  This percentage decreases 10% per year, resulting in a credit of 10% of wages in the fifth year of employment.  This credit is subject to certain wage and tax limitations.  The maximum credit over five years per qualified employee is $37,440.

Contractors should analyze their job locations carefully to ensure they are not missing this opportunity.