Hello and welcome to the Empowerment Zone Overview.
The best way to understand the EZ tax incentives is to understand the two categories of tax incentives and to what degree and under what circumstances they benefit businesses in the Empowerment Zone.
How Wage Credits Work Wage credits reduce the amount of Federal income tax that a business has to pay. Once a business has determined its income, it subtracts its business and other allowable deductions to arrive at its taxable income. The amount of taxes owed is then calculated against the taxable income. A tax credit is a direct subtraction from the amount of taxes owed. So, if a business calculated that it owed $50,000 in taxes and had $20,000 in tax credits, it would owe only $30,000 in taxes. In some cases, wage credits can be carried forward or backward under the IRS’s general business credit rules. If the business owed $50,000 in taxes and had tax credits equal to $53,000, it would owe $0 taxes this year and could carry the additional $3,000 in tax credits forward to upcoming years or, in some cases, carry it back to prior years to reduce taxes owed in those years.
The Empowerment Zone Employment Credit gives businesses an incentive to retain or hire individuals who both live and work in an Empowerment Zone (EZ). Businesses can claim the credit if they pay or incur “qualified zone wages” to a qualified employee. The credit can be as much as $3,000 per qualified employee per year through December 31, 2011.
The Work Opportunity Tax Credit (WOTC) provides businesses with an incentive to hire individuals from groups that have particularly high unemployment rates or other special employment needs. Businesses do not have to be located in an Empowerment Zone (EZ) to qualify for this credit.
Groups that qualify for this one year tax credit include:
The Welfare to Work (WtW) credit is the second of the two employment credits administered by the Texas Workforce Commission The WTW credit provides businesses with an incentive to hire long-term family assistance recipients. Businesses do not have to be located in an Empowerment Zone to qualify for this credit. They can claim the credit if they pay or incur qualified wages (during the first 2 years of employment) to a long-term family assistance recipient
The interest rate savings with Tax-exempt bond financing may be up to 2 percent, which increases cash flows each year and may result in substantial interest savings over the term of the loan.
As with most public financing tools the facility bond has several important factors that go into successful use. This statement captures the factors in successful bond issuance to a qualified private enterprise.
Basically, a bond is a low cost loan.
The Empowerment Zone governance Board reviews and votes either in support or opposed to the Facility Bond projects based on the project merits and how it addresses the Empowerment Zone strategic plan. The ultimate authority lies with City Council in all bond issuances while the Governance Board acts in an advisory capacity and has the opportunity to address issues.
We now know what the bonds are and who issues them. We will now examine the definition of an empowerment zone businesses. Who can use this bond capacity. Well the IRS is very specific in IRS PUBLICATION 954. An Empowerment Zone business is Here we can see the clear program goal of keeping investment and employment opportunities in the Empowerment Zone.
At this point we have discussed what tax exempt bonds are (a low cost loan), Who issues the bonds (city council with input from staff and governance board), and who can access the bonds an empowerment zone business as defined by IRS publication 954. Now what can the bonds be used for. According to IRS publication 954 in addition to restrictions on ownership they can only be used to: