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Changes to California Enterprise Zone Incentives


Recent legislation has dramatically changed the California hiring credits.  The “old” hiring credits, for employing workers in designated Enterprise Zones, can be claimed for employees hired by the end of 2013.  New rules, as part of California Governor Brown’s three-part economic development plan, will apply for employees hired January 1, 2014.

Under the old rules, the Enterprise Zone hiring credit was calculated as a portion of wages paid to employees hired in designated Enterprise Zones over the first 5 years of employment.  This credit could be in excess of $37,000 per employee.  Employees hired on or before December 31, 2013 will be eligible to calculate the credit under the old rules for the full 5 year period.

The governor’s new economic development program will re-zone Enterprise Zones as Former Enterprise Zones.  Updates to which areas will qualify as Former Enterprise Zones will be made based on unemployment and poverty levels.

For the hiring credit in Former Enterprise Zones, the new rules will create a different, more restrictive computation base.  The credit again will be based on wages, but will be limited by 2 factors.  The first limit is that only the portion of wages in excess of 150% of the minimum wage will count toward the credit computation.  There is also a potential percentage reduction based on company-wide net jobs gained year-over-year.  It will be much more difficult to qualify for the hiring credit under the new rules.

The second and third parts of the new economic plan include a reduction in sales tax for certain equipment purchases, and negotiated tax credit contracts with the state.