If you plan to hire new employees in the coming months, the Work Opportunity Tax Credit (WOTC) may be one of the best ways to offset the increased cost of doing business in the short-term. That’s because when you hire employees from key groups such as ex-felons, veterans, and persons with disabilities, the IRS will give you a break for the employee’s first year of employment. It’s a good deal.
The WOTC is something that we here at Tax Credit Group, Inc. specialize in and we understand the ins and outs of the process of applying for and receiving the credit. A little while ago, we wrote a blog post telling you some of the most important keys of the WOTC. It covers the basics.
But like most things the IRS is involved in, there’s a lot more to the WOTC than meets the eye. While veterans, persons with disabilities, and ex-felons are key hires, the WOTC also gives you credit for hiring people who live in an Empowerment Zone, an Enterprise Community or a Renewal Community.
I know you’re thinking, that sounds great, but what are they?
What is an Empowerment Zone, Enterprise Community or a Renewal Community?
According to the U.S. Department of Housing and Urban Development (HUD), “Renewal Communities (RCs) and Empowerment Zones (EZs) are distressed urban and rural communities where qualifying businesses are eligible for billions of dollars in tax incentives.”
These community designations were created in 1993 with the idea of reducing unemployment and generating economic growth in distressed communities. Communities that applied to participate in the program were asked to provide comprehensive plans that included strategic visions for change, community-based partnerships, sustainable community development, and economic opportunities.
The U.S. government used census data to help designate these communities, but it was up to leaders in the communities themselves to apply for these tax incentives.
While there are fewer of these zones and communities today, they still exist. In most federal publications, you will hear the terms Empowerment Zone or Renewal Community and you will rarely hear the term Enterprise Community.
Extension of the WOTC
In December 2019, Congress extended the WOTC to December 31, 2020. As part of that extension, the government extended the tax credit regarding Empowerment Zones, Enterprise Communities, and Renewal Communities retroactively so that it applies to the period from January 1, 2018 to December 31, 2020.
In other words, the tax credit you receive for hiring people from these zones and communities still exists.
How do I find out if someone I employee lives in an Empowerment Zone or Renewal Community?
The IRS publication 8850 outlines all of the Empowerment Zones and Renewal Communities (called Renewal Counties by the IRS), but we’ll look at some of the key ones.
Note that in each of the lists below, Empowerment Zone does not apply to the entire city or county but rather specific zip codes within that city or county.
Urban Empowerment Zones
- Baltimore, Maryland
- Boston, Massachusetts
- Chicago, Illinois
- Cincinnati, Ohio
- Cleveland, Ohio
- Columbia/Sumter, South Carolina
- Columbus, Ohio
- Cumberland County, New Jersey
- Detroit, Michigan
- El Paso, Texas
- Fresno, California
- Gary/Hammond/East Chicago, Indiana
- Huntington, West Virginia
- Ironton, Ohio
- Jacksonville, Florida
- Knoxville, Tennessee
- Los Angeles, California
- Miami/Dade County, Florida
- Minneapolis, Minnesota
- New Haven, Connecticut
- New York City, New York
- Norfolk/Portsmouth, Virginia
- Oklahoma City, Oklahoma
- Philadelphia, Pennsylvania
- Camden, New Jersey
- Pulaski County, Arizona
- San Antonio, Texas
- Santa Ana, CA
- Louis, Missouri
- East St. Louis, Illinois
- Syracuse, New York
- Tucson, Arizona
- Yonkers, New York
Rural Empowerment Zones
- Aroostook County, Maine;
- Desert Communities in Riverside County, California;
- Parts of Griggs County and all of Steele County in North Dakota;
- Kentucky Highlands including parts of Wayne County and all of Clinton and Jackson Counties;
- Mid-Delta Mississippi including parts of Bolivar, Holmes, Humphreys, Leflore, Sunflower, and Washington Counties;
- Middle Rio Grande FUTURO Communities in Texas including parts of Dimmit, Maverick, Uvalde, and Zavala Counties;
- Oglala Sioux Tribe, South Dakota including parts of Jackson and Bennett Counties and all of Shannon County;
- Rio Grande Valley in Texas including part of Cameron, Hidalgo, Starr, and Willacy Counties.
The HUD website used to have a locator, but at last check, it was not working. At this time, it’s better if you contact us here at Tax Credit Group or your local government agency to find out what zip codes fall in an Empowerment Zone or Renewal Community.
Conclusion
Navigating the federal tax code is extremely difficult. It is a massive document and even the most seasoned of CPAs don’t have a grasp on the entire thing. We here at Tax Credit Group make it our business to understand the tax credit side of the tax code and we keep up to date on the latest developments involving tax credits like the WOTC.
The information that we’ve provided above is meant to be informative, but not a specific recommendation directed at your business. It’s tough to know if a tax credit applies specifically to your business without seeing the whole picture first.
If you would like to explore WOTC opportunities further, please contact us.