Hiring Tax Credit | Hayashi & Wayland CPAs | Salinas Carmel King City CA

Salinas Valley Enterprise Zone

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Hiring Credits

The Hiring Tax Credit allows employers to significantly offset the cost of hiring and training new employees. The Hiring Credit could be worth up to $37,440 per employee over a five year period.

In order to claim the Hiring Tax Credit, the business must be located within the Enterprise Zone. The employee in question must be a new hire with a start date of no earlier than January 30, 2009, must spend a minimum of 90% of their time on activities directly related to the conduct of the business within the Enterprise Zone, and must perform at least 50% of their work within the Enterprise Zone. The employee must also meet the definition of a “Qualified Employee” as defined below:

Qualified Employee:

The State of California has designated 18 classes of persons who meet the definition of a “Qualified Employee.” For each of these categories, specific forms of documentation need to be submitted in order to demonstrate that the employee meets the criteria specified.

A list of the 18 categories is provided below. If you believe your employee may qualify under one or more of these categories, please select the appropriate link to view a detailed description of that category as well as a list of the required documentation. Please note that the term “immediately preceding” means within the previous 90 days.

CalWORKS eligible
Workforce Investment Act (WIA) Eligible
Economically Disadvantaged Individual
Dislocated Worker
Immediately preceding the qualified employee’s commencement of employment with the taxpayer, was a dislocated worker who meets any of the following:
- Laid Off Due to Plant Closure
- Laid Off and Unlikely to Return to Industry
- Long-Term Unemployed
- Previously Self-Employed
- DOD Civilian Employee at Closing Military Installation
- Pre-1990 Active Member of Armed Forces or National Guard
- Seasonal or Migrant Worker
- Laid Off due to Clean Air Act Compliance
Disabled Individual / Veteran
Person Eligible for Public Assistance
Native American
Resident of a Targeted Employment Area
Member of a WOTC “Targeted Group”

The Hiring Credit is equivalent to:

50% of the employee’s salary during the first year of employment
40% of the employee’s salary during the second year of employment
30% of the employee’s salary during the third year of employment
20% of the employee’s salary during the fourth year of employment
10% of the employee’s salary during the fifth year of employment

These amounts are capped at 150% of the minimum wage. As the current minimum wage is $8/hour, the Hiring Credit may be claimed on a maximum amount of $12/hour. Employees making more than 150% of the hourly rate can still qualify for the tax credit but only for the portion of their salary which does not exceed 150% of the minimum wage. For example, an employee making $15/hour and working for 1,000 hours would entitle the employer to a tax credit for $6,000 ($6/hour cap x 1,000 hours).

There are no limits on the number of employees an employer may claim the credit for. Although the credits may not be used to reduce the employer’s tax burden below zero, unused credits may be carried forward to future years until exhausted.

For taxable years beginning in 2008 or 2009, the credits may not be used to offset more than 50% of the net tax if a corporation’s taxable income or individual’s net business income is $500,000 or more. However, unused credits may still be accrued and carried over to future years as usual.

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