Obtain Tax Credits For Your Employees Home

In addition to tax credits for your business, other value-added credits may be available to your EMPLOYEES on their personal tax returns.

Although this particular credit does not affect the Company taxes directly, it allows you, from a human resources standpoint, to foster employee morale by educating your employees on their potential credit opportunities resulting from working for your Company. In addition, it can set you apart from your competitors as part of your overall benefit package you can offer to your existing and future employees.

Here’s how it works. Certain employees can claim credits of up to $525 each, which is equal to 5% of the first $10,500 of wages paid to the employee (Note: even if the employee earns less than $10,500, they may still be eligible for a portion of the credit). The credit is claimed on the employee’s individual income tax return (Form 540) and can be used to offset income taxes on Enterprise Zone wages. Any employees that qualify the company for the EZ credits can also qualify for the employee credit as long as they meet the following criteria:

  1. California adjusted gross income (AGI) must be less than $16,334 if single or $32,667 if married;
  2. At least 50% of the employee’s compensated work for the employer must be within the boundaries of an EZ in California; and
  3. Must spend at least 90% of work time for the employer on activities that are directly related to the operation of the trade or business located in the EZ.

Please note that all three of the above criteria must be met in order for the employee to claim this credit.

Note that although the AGI limitations seem relatively low, many employees still may qualify, particularly those that are part-time, have not worked the entire year, or are married and are the primary wage earner.

“Qualified” employees will need to complete and attach Form 3553 to their California personal income tax return. For your convenience, we have attached this form with the instructions.

We recommend that this information be distributed to employees on or before the first week of January, since they often file their returns very early. We would be glad to provide packets to your qualified employees, which contain the form and instructions.

If you would like us to assist you in educating your employees and/or in preparing the actual forms for them, please contact us.