Key insights
- The Federal Empowerment Zone (FEZ) tax credit is a general business tax credit available to employers with employees who both live and work in the zones.
- Empowerment zones are created by the U.S. Department of Housing and Urban Development to encourage economic development and growth in low-income communities.
- The zones are highly specific; typically, they do not fill entire ZIP codes, but rather blocks of streets.
Does your business qualify for the empowerment zone tax credit?
Imagine lowering your business's tax burden while also making a meaningful impact in designated communities. The Federal Empowerment Zone (FEZ) tax credit offers the opportunity for an annual tax credit per qualifying employee.
What is the Federal Empowerment Zone tax credit?
The Federal Empowerment Zone (FEZ) tax credit is a general business tax credit available to employers with employees who both live and work in the zones. This tax credit is limited to for-profit organizations. The credit is equal to 20% of the wages paid up to $15,000 per calendar year, for a maximum annual per employee credit of $3,000.
Employees must live and work at least 90 days in the zone to count toward the credit. A worksite is the qualifying location for the credit, not the company headquarters.
There is no precertification requirement to claim the credit, and the statute is available for three years to amend returns and take advantage of this valuable opportunity.
Zone locations
The U.S. Department of Housing and Urban Development created empowerment zones to encourage economic development and growth in low-income communities.
The word "empowerment" means the process of becoming stronger. The intent is to lift these communities out of poverty by creating jobs and stimulating business enterprise.
Empowerment zones are scattered across the continental United States, including both rural and urban populations. The zones are highly specific; typically, they do not fill entire ZIP codes, but rather blocks of streets.
Some major cities with empowerment zones are:
- Jacksonville, Florida
- Chicago, Illinois
- Los Angeles, California
- New York, New York
- San Antonio, Texas
Tax credit computation
If your business is operating in a FEZ, you may want to work with a professional advisor to:
- Identify eligible employees
- Collect supporting information
- Submit the required tax forms
- Compute the dollar amount of the credit
Could you also qualify for the Work Opportunity Tax Credit?
As part of your broader tax strategy, consider how you might qualify for other wage-related credits, such as the Work Opportunity Tax Credit (WOTC). An employee living in an empowerment zone could also belong to one of the groups eligible for WOTC.
However, the wages paid to an eligible FEZ employee are limited to $15,000, reduced by wages figured for eligible work opportunity tax credit employee. Consult your professional advisor to determine which credits are suited for your overall tax plan.
Let CLA simplify your WOTC process with a WOTC Welcome Kit. Our team assists you in navigating the complex eligibility, certification, and claiming of this important tax credit.
How CLA can help with tax credits
Taking advantage of tax credits can be a full-time job. CLA’s business incentives consulting team can help you leverage federal, state, and local credits and incentives to help potentially lower your tax burden.
Our aim is to support and empower employers to take full advantage of FEZ tax credits, and we can confirm workplace zones to help you get started.
Contact us
Does your business qualify for the empowerment zone tax credit? Complete the form below to connect with CLA.
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