Tax Credits and Incentives Extended in Year-End Spending Bill
On Dec. 20, 2019, President Donald Trump signed the FY2020 Appropriations Bill. This legislation allowed for many provisions that will impact employers into 2020. Numerous credits and deductions were extended in the act.
Federal Empowerment Zones
The new law allows for a renewal of Federal Empowerment Zones, which had been expired since 2017. With the extension of the Federal Empowerment Zone designation also comes the extension of the Empowerment Zone Employment Credit, which is a wage credit of up to $3,000 for employees who both live and work in the empowerment zones. This credit may be taken annually, with no pre-certification requirement for the employees.
Work Opportunity Tax Credit
The federal Work Opportunity Tax Credit (WOTC) was also extended as part of the new law. Formerly set to expire on Dec. 31, 2019, the credit is now extended and applicable to eligible employees hired through Dec. 31, 2020. Another benefit of the extension of the Federal Empowerment Zone designation is that the “designated community resident” category will now encompass those employees who are under 40 at the date of hire and who reside in Federal Empowerment Zones as well as in Rural Renewal Communities. As we enter 2020, we are still monitoring bills with bipartisan support that propose making the credit permanent and extending the categories of eligible veterans who will qualify for the credit. Other eligible groups of employees who will qualify for the credit include:
- Long-term unemployment recipients (27 consecutive weeks or more)
- Short-term Temporary Assistance for Needy Families (TANF)
- Qualified veteran (discharged from active duty within one year of hire date)
- Disabled veteran
- Unemployed disabled veteran
- Unemployed veteran (four weeks)
- Unemployed veteran (six months)
- Qualified ex-felon
- Designated resident of a Rural Renewal County or Empowerment Zone (EZ)
- Vocational rehabilitation referral
- Food stamp recipient (Supplemental Nutrition Assistant Program or SNAP)
- Supplemental Security Income (SSI) recipient
- Long-term family assistance recipient
There are some hiring requirements for eligible employees, which include temporary, seasonal, part-time, and full-time W2 employees who work a minimum of 120 hours in their first 12 months of employment. They must be new employees who have not worked for the employer at any other time, and any type of job is acceptable.
As it relates to this credit, any taxable business will qualify for the federal credit, regardless of size. Tax-exempt organizations qualify for the veteran target groups only, and can get a refund of payments made on Form 941.
Employer Credit for Paid Family and Medical Leave
The legislation further extended the newer tax credit available to employers for paid family and medical leave. The credit, which was set to expire on Dec. 31, 2019, is now extended as it relates to employers who make qualified leave payments through Dec. 31, 2020. Eligible employees must be employed for at least one year prior to receiving benefits. For 2018 and 2019, the eligible employee must not have earned more than $72,000 in the prior year. Activities that qualify for eligible leave include:
- Birth of an employee’s child and to care for the child
- Placement of a child with the employee for adoption or foster care
- To care for the employee’s spouse, child, or parent who has a serious health condition
- A serious health condition that makes the employee unable to perform the functions of his or her position
- Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces
- To care for a service member who is the employee’s spouse, child, parent, or next of kin
New Markets Tax Credit
The spending agreement also included a one-year extension for the New Markets Tax Credit (NMTC) program, with an allocation increase to $5 billion (up from $3.5 billion). It was recently projected by the New Markets Tax Credit Coalition that the allocation increase will assist in supporting 138 manufacturing and industrial, 55 mixed-use, 51 healthcare, and 115 community facility projects. The $5 billion allocation will reach more projects in need of gap financing as there is already a demand of four to five times the average availability of allocation of $3.5 billion released annually. This is the first increase of annual award size since the program was set at $3.5 billion annually in 2007.
The New Markets Tax Credit program provides a subsidy equal to approximately 20–25% of a project’s size or the amount of NMTC allocation awarded to a given project. New Markets Tax Credits provides a 39% tax credit to incentivize investment in low-income communities. Projects must show a benefit to the community by creating jobs, providing services (commercial or community), or providing housing as part of a mixed-use development. Typical projects include (but are not limited to):
- Community facilities
- Projects supporting childcare, youth, and families
- Mixed-use developments
- Grocery stores
- Incubators and shared office space
- Energy and waste management
- Small business and office space
Energy-Efficient Commercial Building Deduction (179D)
The Energy-Efficient Commercial Building Deduction (179D) is a tax incentive that allows owners and designers to claim as a deduction an amount based on the square footage of a new building construction or remodel. The incentive allows for a $1.80 per square foot deduction of energy-efficient space. This deduction can be split into three energy-efficient components: lighting, HVAC and hot water systems, and building envelope; each of which can obtain a $0.60 deduction. In order to qualify for this deduction, a building needs to be modeled by a third-party qualified individual (as defined by IRS Notice 2006-52) and compared against a reference building designed in accordance with ASHRAE Standard 90.1-2007 using IRS-approved software. Building owners can take this deduction on a tax Form 3115 back to when the deduction was created in 2006.
Special Provision for Designers of Governmental Buildings
There is a special provision in the tax code that allows the designers of governmental buildings to claim this deduction. The building will need to qualify in the same manner as described above. However, the deduction must be allocated to the designer by the governmental entity that owns the building. This is done through an allocation letter that has been defined by the IRS. CLA can help with the preparation of the allocation letter and discussions with the governmental entities. Designers of governmental buildings can take this deduction in an open tax year.
CLA employs Professional Engineers with the skills and experience necessary to claim these deductions.
Energy-Efficient Homes Credit (45L)
The Energy-Efficient Homes Credit (45L) is a tax incentive that allows builders to claim a credit of $2,000 per qualified dwelling. A qualified dwelling needs to be modeled by a third-party qualified individual and compared against a reference building designed to meet the International Energy Conservation Code of 2006. A qualified dwelling can be a single family home, a unit in an apartment complex, or a unit in a senior living community. Each separate rental unit can qualify for the $2,000 credit; however, each unit must qualify on its own (i.e., an entire building cannot be certified with one model). CLA employs Professional Engineers and Certified Energy Auditors with the skills and experience necessary to claim these credits. This credit can be claimed on any open tax year.
Contact CLA for help
Taking advantage of tax credits can be a full-time job. For employer tax credits, CLA works with you to identify eligible employees, to collect supporting information, to submit the required tax forms, and to compute the dollar amount of the credits.
We integrate technological solutions into your hiring process to minimize the time spent collecting the data. Our innovative, automated process will help you maximize your efficiencies. Additionally, our tax professionals will identify opportunities to potentially increase savings and minimize overall risk related to claiming the credits on your return.