Business Owners Should Understand the Importance of: The Empowerment Zone, Renewal Community and Enterprise Community Enhancement Act of 2009

In essence this is a bill that would amend the Internal Revenue Code of 1986, to extend and expand the benefits for businesses operating in Empowerment Zones, Enterprise or Renewal Communities.

This particular bill has been proposed in each of the last two sessions of Congress, but never got voted upon. Sessions of Congress last two years, and at the end of each session all proposed bills and resolutions that did not pass are cleared from the books. Members often reintroduce bills that did not come up for debate under a new number in the next session. In the 110th Congress, this bill was known as HR 2578 and in the 109th Congress, HR 5660. Now, in the 111th Congress, HR 1677 has been referred to the House Committee for Ways and Means and that is where it currently awaits further action.

This bill will allow for the extension of tax credits for those who create jobs and that’s a good thing for our prospective and existing clients and franchisees. In the broader sense, anyone in business should keep a close watch on what goes on at the Capitol. How better to protect and preserve one’s ability to stay in business? That's one of the reasons why I love the IFA so much. The mission of IFA’s Government Relations Department is exactly that; to preserve and enhance the legislative and regulatory climate for the growth of franchising. They do so by providing services and representation to IFA members nationwide, by monitoring legislative and regulatory activity, conducting lobbying and grassroots campaigns, participating in national and local coalitions, creating forums and educational tools for experts in the franchising community, and promoting positive relations between franchisors, franchisees, and elected and appointed government officials and employees. Most business owners don't have the resources required to manage these vital activities without belonging to an organization like IFA.

As for RetroTax, passage of HR 1677 will be good news for existing and future RetroTax clients and franchisees. In essence it would extend the scope and benefit of these Federal wage-based tax credit programs through December 31, 2015.

Also, bills such as this one, are signs that tax credits will continue to evolve in the years to come. Just as the Hearltand Disaster Relief Credit was legislated in 2008, extending benefits to the mid-western states for flood relief and the GO Zone credits (Gulf Opportunity) were legislated following Katrina, look for future legislation to include Work Opportunity Tax Credits for jobs created during during recession, helping to reduce and reverse dependency on unemployment insurance. Green credits too, continue to evolve as conservation and global warming continue to weave their way into the fabric of our lives.

Be sure to return to my blog often, to monitor the public’s opinion of HR 1677, in the tool bar to your right. More importantly, contact your Members of Congress and tell them that you are counting on their support of HR 1677.

So, What are Federal Empowerment Zone Credits Anyway?

When I decided to create my blog, I wanted it to be an informational, if not educational outlet for industry peers, as well as business owners and executives across the nation and around the world. One of the primary functions of the RetroTax concept is to communicate and educate. We make our living teaching employers how they may benefit from those that they employ.

This is important, because it’s usually nothing more than lack of knowledge, that prevents many business owners from redeeming what could rightfully be theirs, namely, BIG $$$. There are several elements of the Federal Wage Tax Credit Programs, but today, let’s focus on Federal Empowerment Zones.

The Federal Empowerment Zone (FEZ) Wage Tax Credit Program is an incentive program created to revitalize the economies of select communities across the country. These zones are often located in some of America's biggest cities: Chicago, NY, LA, San Antonio, are among some of the many. Specifically, the FEZ program provides employers, with a federal income tax credit of up to $3,000 per qualifying employee per year. Employers’ facilities or work sites must be located in the zone and employees must also live in the zone.

The FEZ credit is 20 percent of the first $15,000 ($3,000 max.) of an employee’s annual wages. Employers can take this credit for each qualifying employee through 2009 and apply it directly to their corporate tax liability. (Legislation is currently pending with strong bi-partisan support, to extend this program until 2016) In the case of “S” corporations, LLCs, Partnerships or sole proprietorships, these credits pass through and may be applied to individual shareholders’ or owners’ personal tax liability. In addition, credits are retroactive for 3 years, so that credits of up to $9,000 per qualified employee may be realized in the first year that an employer has us administer the program.

For purposes of this illustration, let me provide you with some insight as to the powerful impact that these credits can have on an average small business owner, when his business is located within the boundaries of one of these zones. For the purpose of this example, let’s take a multi-unit restaurant operator, owning 3 Quiznos, Blimpie’s or Subway type restaurants. Again, for the purposes of this model, I will suggest that each location employs 15-20 part/full-time employees at any given time, and that there would be an annual employee turnover rate of (+/-) 300 percent. Simple arithmetic tells us that this business owner generates (+/-) 180 W2s per year. If only 10% of his annual hires also live in the Empowerment Zone and are therefore, geographically tax credit eligible, the numbers would be compelling. The likelihood is that an even greater percentage of his hires would be eligible for these credits. Let’s take a look at what that means to the business owner:

Federal Empowerment Zone Credits
2008 Tax Year – 180 total hires (X 10%) = 18 qualified employees X $3,000 = $54,000

This program is retroactive allowing the business owner to potentially also claim credits for the previous 3 years.

2007 Tax Year - 180 employees (X 10%) = 18 qualified employees X $3,000 = $54,000
2006 Tax Year - 180 employees (X 10%) = 18 qualified employees X $3,000 = $54,000
2005 Tax Year - 180 employees (X 10%) = 18 qualified employees X $3,000 = $54,000

Identifying and administering these credits could potentially make or break it for many small and medium sized businesses owners, especially in these challenging economic times.

In this illustration, the small business owner could have potentially realized up to $216,000 in personal tax credits during the first year of this program’s administration. How many sandwiches would he have had to sell, to achieve that kind of windfall? What’s best is he could even carry these credits forward for as long as twenty years, if he couldn’t take full advantage of them in the current tax year.

To learn more about these Federal Empowerment Zone Credits now and where they are located, visit our website at http://www.retrotax.com/. Stay tuned for future posts to this blog, for more about Renewal Communities, Rural Renewal Counties and the Work Opportunity Tax Credits.