Employer Incentives: Empowerment Zone Employment Credit

The Empowerment Zone Employment Credit is an incentive to businesses that are located in an empowerment zone (EZ) to hire and retain employees who also live in the EZ. Businesses are eligible for a wage credit of up to $3,000 per eligible employee.

Empowerment Zones are distressed urban and rural areas nationwide that are in need of revitalization. The Empowerment Zone Initiative brings communities together through public and private partnerships to create the investment necessary for economic development. The Federal government assists these targeted communities by providing tax incentives, grants, loans and technical assistance.

Both full time and part time employees may qualify, as long as they work at least 90 days during the year in which the credit is claimed. The credit amount is 20% of the first $15,000 of wages paid to the employee.

The credit is renewable each year, and there is no limit to the number of employees a business can claim, as long as each employee lives in the EZ. Both newly hired and current employees are eligible.

Qualifying wages do not include any wages used in applying for either the Work Opportunity Tax Credit or the Welfare-to-Work Tax Credit. Also, the $15,000 maximum qualified wages for the Empowerment Zone Employment Credit will be reduced by any wages used to figure other tax credits for an employee.

Locating an Empowerment Zone: The U.S. Department of Housing and Urban Development (HUD) can help you determine if an address is within an Empowerment Zone using the HUD EZ Address Locator.

Claiming the credit: The Empowerment Zone Employment Credit is claimed on a company's federal tax return using IRS Form 8844 (PDF), Empowerment Zone Employment Credit.

Businesses can find more information about the Empowerment Zone Employment Credit in IRS Publication 954 (PDF), Tax Incentives For Empowerment Zones and Other Distressed Communities.