As business owners prepare to submit their 2019 tax forms, it’s important to explore every option that could potentially put money back into their wallets, and into the economy. Many people aren’t aware that included in the budget extenders of December 2019, is an extension of the federal Empowerment Zone tax incentives, allowing certain areas of New York state to offer tax benefits for specified citizens and employers within the zone.
These government-designated zones are considered economically stressed regions and are provided aid to stimulate the local economy by creating jobs and incentivizing businesses. In New York state, these zones can be found in New York City, Syracuse, and Yonkers.
Empowerment Zones have been around since the early 2000s and had, in fact, expired as of Dec. 31, 2017, but were retroactively restored and extended through 2020. These zones offer tax benefits for business that operate in certain distressed areas for making investments and for employing individuals who also live in these zones. Not to be confused with an Opportunity Zone which was created with the passage of the federal Tax Cuts and Jobs Act (TCJA) of 2017, claiming benefits for the Empowerment Zone program can be done in addition to any other incentives for which a taxpayer may be eligible, including Opportunity Zones, or Section 1202 stock.
While New York City, Syracuse, and Yonkers are the only New York state cities that have designated Empowerment Zones and qualify for these incentives, there are a significant number of Empowerment Zones throughout the nation.
Many benefits are offered through this incentive; however arguably, the most substantial benefit is the employment credit. The Empowerment Zone employment credit is equal to 20 percent of wages paid to eligible employees per year, up to $15,000 in wages, or $3,000 of credit, annually, per eligible employee. To be eligible, the business must simply be located within an Empowerment Zone and the employee must also live within Empowerment Zone limits. So long as these two requirements are met, the credit can be claimed on Form 8844, with no pre-registration or certification necessary.
Because the eligibility of the New York State zones is based on the demographics of each zone in the 1990 Census, qualifications for the credit may come as a surprise. For example, in the Syracuse zone, a University Hill area employer of a medical technician who lives downtown, or perhaps a Destiny USA mall retailer whose employee lives in Franklin Square, would most likely be eligible for the credit.
If a business is found eligible, it should be kept top-of-mind as information is collected for 2019 tax returns. In addition, amending the 2018 tax return to claim this credit can also be done and could lead to significant tax savings. Eligibility information can be found on an employee’s W-2 and a link to a map of the zones can be found on the New York State Development Website to determine the address of both the employer and the employee are within zone limits.
Additional incentives covered in this program include:
• Increased ability to expense assets under Section 179
• The ability to offer tax exempt bonds for purchases/improvements to an empowerment zone business
• The potential to defer capital gain recognition on sales of some assets in the empowerment zone business if the proceeds are reinvested in the business
As business owners collect their information and prepare to submit for their 2019 tax returns, it’s important to note what is commonly overlooked, such as these federal Empowerment Zones. Working closely with a financial advisor and becoming educated on federal, state and local legislation and extenders could change the amount seen on tax returns drastically.
Chris Anderson is a partner and tax team leader in the Bonadio Group’s Syracuse office. He has more than 36 years of experience providing a wide range of special tax services including consolidated tax return planning, mergers and acquisitions, and estate planning. Contact him at email@example.com. Matthew Dabrowski started at the Bonadio Group in 2016 as a tax intern and is now the in-charge accountant for the Syracuse tax team. Contact him at firstname.lastname@example.org.