Please take note that these questions and answers are only a guideline and any actions taken by an employer must be reviewed and discussed with a legal advisor before taking any tax credits.
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Renewal Community Employment Credit
Are there any employer incentives for hiring employees who work in a RC?
Yes. The tax code allows employers a credit against Federal taxes for hiring and retaining employees who live and work in a RC. RC Wage Credit is available in RCs since January 1, 2002, and will continue for all RCs through
December 31, 2009.
Can a business use this credit for current employees?
Yes. The RC Wage Credits are incentives to hire and retain individuals who live in an RC, so it is available each year throughout the RC Wage Credit periods. (January 1, 2001 - December 31, 2009)
How does a business document that an employee is an RC resident?
The employer should obtain a statement from the employee, under penalty of perjury, that gives the address of the employee's principal residence and provides assurance that the employee will notify the employer of a change in the
employee's principal residence. The local RC CoRA can confirm that the address is in the RC or a business can obtain the information over the Internet using the
RC
address locator. The statements are not filed with the business's tax return, but should be retained like any other documents that support a tax return.
What if the employee works part-time?
The credit is available for both part-time and full-time employees as long as they have been employed by the employer for at least 90 days. The amount of the credit is tied to the amount of wages paid rather than to the number
of hours worked.
What is the definition of qualified wages?
Qualified wages are generally wages subject to the Federal Unemployment Tax Act (FUTA). The credit is calculated against a maximum of $10,000 for the RC Wage Credit. A business may pay the employee more than $10,000 for RCs, but the
maximum for purposes of calculating the credit is $10,000 for an RC. The instructions for IRS Form 8844 provide additional information on qualified wages.
What is the credit amount?
The credit amount for the RC Wage Credit is 15 percent of wages up to the $10,000 wage amount.
Is there a limit on the number of employees for which a business can take the credit?
An employer can take the credit for as many employees as qualify.
What if the employee works in a RC for only part of the year?
An employer can use either the pay-period or calendar-year method for determining the period of time the employee performs services in a RC. No other time periods can be used to prorate the credit. For example, if an employee works in
several factory locations and is paid weekly, an employer can claim the wage credit for the weekly pay periods during which the employee works substantially all of his or her time in the factory located in a RC. Substantially all is defined as 85
percent for the purposes of some of the tax incentives discussed in this guide, but the regulations on the RC Wage Credits do not define substantially all. The employer must use the same method for all employees, but may change the method applied to
all employees from one taxable year to another.
What if the business is located in a RC, but the employees spend part of their time working outside the boundaries
of the RC?
The credit is available only if substantially all of the services performed during the period (see answer to question above on pay-period and calendar year calculations) are in a RC. Substantially all is defined as 85% for purposes of
some of the tax incentives discussed in this guide, but the regulations on the RC Wage Credits do not define substantially all. If an employee does not perform substantially all services inside a RC within the calculation period selected, the credit
cannot be prorated and no portion of the wages for that period would qualify for the credit.
What if the Federal tax liability of the business is less than the total credit amount?
The RC Wage Credits generally are subject to the same rules as other business tax credits. As with other business tax credits, unused credit amounts can be carried forward for up to 20 years and carried back a year. However, the credit cannot be
carried back prior to the RC designation.
Are there special procedures for taking the RC Wage Credit?
The credit is accounted for on IRS Form 8844 and would be part of a business's tax filing.
Can nonprofit organizations benefit from the RC Wage Credits?
Tax-exempt organizations, other than certain cooperatives, are ineligible for the credits.
Can a pass-through entity, such as a partnership or S-corporation, use the credit?
The RC Wage Credits are general business tax credits for Federal tax purposes and may be passed through under the rules similar to other business tax credits.
Does the RC Wage Credit reduce Alternative
Minimum Tax (AMT) liability?
AMT may be reduced by 25 percent of the RC Wage Credit amount.
Can the RC Wage Credit for an employee be taken concurrently with Work Opportunity
Tax Credits (WOTC) or Welfare to Work (WtW) credits?
Yes, but wages are not taken into account for the RC Wage Credit if they are being used in determining WOTC or WtW. In addition, the $10,000 cap on wages taken into account for the RC Wage Credit, respectively, would be reduced by any wages taken
into account in computing WOTC or WtW.
Which categories of employees would not qualify for the RC Wage Credits?
The RC Wage Credits cannot be taken for any individual employed at any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or store whose principal business is the
sale of alcoholic beverages for consumption off premises. The RC Wage Credits are not available for family members of the employer, including sons, daughters, parents, stepchildren, stepmothers, stepfathers, in-laws, and other persons treated as
dependents under the tax code. Similar exclusions apply to 5 percent owners related to the employer and family members of majority shareholders or partners of the employer.
Can entities that lease their employees use the credit?
Employers should check with their tax advisors. The RC Wage Credits are based on FUTA wages, so the ability to take the credit will depend on who the employer is for purposes of the FUTA wages.
Is there a definition of employee?
The credit is tied to wages as defined for purposes of FUTA. Any individual treated as an employee under FUTA would generally be treated as an employee for purposes of the EZ Wage Credit.
Can the RC Wage Credit be taken for farmworkers?
If the employer's principal activity is farming, the credit is available for employees only if the sum of value of the assets owned or leased by the employer for use in the farming business does not exceed $500,000. The definition of farming and the
method for calculating the value of the assets are found in the tax laws, and the employer should consult its legal advisor on this matter before taking the credit.
How does the credit affect the deduction for salaries and wages?
A business must reduce the deduction for salaries and wages by the amount of the credit taken.
Where can a business obtain more information on this incentive?
A business should consult with its tax advisor. IRS Publication 954 and IRS Form 8844 describe this incentive. For copies call 1-800-829-3676 or visit www.irs.ustreas.gov.