If you have employees who live and work in the Renewal Community, you get a federal
tax credit of up to $1,500 for each employee every year beginning January 1, 2002 and running
through 2009.
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Is this just for new hires? |
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No, the business can take the credit for existing employees as well. |
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How do I know if an employee lives in, and the business is located in, the
Renewal Community? |
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Check the map and street list. |
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What kind of paperwork is involved here? |
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Not much. All you have to do is to get signed verified statements from employees about
where they live and their commitment to tell you if they move. Catherine
Kronk, Esq., of Paul Frank & Collins, has
produced a sample form that you
can look at and/or use. Then, you use IRS Form 8844 to report the credit as part of your regular tax
filing.
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How do I calculate the credit? |
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You take 15% of wages paid to qualifying employees up to $10,000 in wages per employee
per year - so the credit is capped at $1,500 per year per employee. (You
then need to reduce the business deduction for salaries and wages by the amount
of the credit.)
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Example 1: Bob has 4 employees who live and work in the
RC and pays each of them $12,000. Bob's RC wage credit would be: 4 x $10,000 x .15 = $6,000
Example 2: Jane has 6 employees who live and work in the
RC. She pays three of them $15,000 and three of $8,000.
Jane's RC wage credit would be:
((3 x $10,000) + (3 x $8,000)) x .15 = $8,100
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What about part-time employees? |
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Both part-time and full-time employees are eligible, as long as they've
worked for you for at least 90 days. |
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Is there any limit on how many employees for whom I can take the credit? |
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No. |
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Can I use the credit for family members who work for me? |
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No. |
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What about myself as the business owner? |
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You can't use the credit for anyone who owns 5% or more of the business. |
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What about employees like construction workers, who might work sometimes
in the Renewal Community and sometimes elsewhere? |
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You get the credit for the portion of time they're working in the Renewal
Community. You can use either a pay-period or a calendar-year method to
prorate the credit. For example, if a construction worker is paid weekly,
you can claim the credit for weekly pay periods during which he/she works
substantially all of his/her time in the Renewal Community. There's no
definition in the Renewal Community regulations for "substantially
all," but it's defined as 85 per cent for other tax incentives. |
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What if the credit is more than my tax bill? |
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You can carry the credit forward
to future years. |
There are additional wage credits which you may be able to use, and which
don't depend on where your business is located:
- The
Work Opportunity Tax Credit (WOTC) is available for, among other
workers, newly hired employees age 18-39 (as well as summer youth age 16 and 17)
who live in the Renewal Community. This credit may be as much as
$2,400. It is only available for the first year of employment. You use IRS Form 5884
to report the credit when you prepare your federal tax filing.
- The Welfare-to-Work (W-to-W) Tax Credit applies to newly hired employees
who are long-term family assistance recipients. This credit applies to
the first two years of employment and may be as much as $3500 in the first
year and $5000 in the second. It doesn't depend on where the employee
lives. You use IRS Form
8861 to report the credit when you prepare your federal tax filing.
Both of these credits require that you have prospective employees complete IRS
Form 8850 and
instructions are available
online.
The employer must sign the form also and it must be forwarded to the
Vermont
Department of Labor (VDOL) within 21 days of the date on
which the employee starts work. You can contact Mike Calcagni at VDOL at
802·828·4350 for more information.
These credits can be "stacked" on top of the Renewal Community wage
credit, provided you've paid sufficient wages.
Example: Dave has a
newly hired (and properly certified) employee who's 23 years old and lives in
the Renewal Community, and who earns at least $16,000 this year. Dave has wage credits of:
- 1 x $6,000 x .40 = $2,400 for the Work Opportunity Tax Credit, and
- 1 x ($10,000 - $6,000) x .15 = $600 for the Renewal Community wage credit
for a total $3,000 credit against his federal taxes.
Got more questions?
Contact Bruce
Seifer at 865·7179 or bseifer@ci.burlington.vt.us, or take a look at
IRS
Publication 954, or check HUD's WorkPad and
questionnaire for the Wage Credit and Work
Opportunity Tax Credit, or contact HUD at
OCRTaxCredit@hud.gov, or see some additional
questions and answers, or talk to your tax advisor.
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