Monday, 21 July 2014

Savings Reloaded - Introduction to Employment Tax Credits and Enterprise Tax Zone

Various governments in the entire world have been planning and implementing certain steps to boost employment and income generation in this sluggish economic phase. Employment opportunities are pretty scarce since the companies are also looking to cut down on costs as much as possible. It is this situation which has made it necessary for the government to introduce certain benefits for corporations to generate employment, and employ certain specific groups of people for overall development.
Employment Tax Credits
It is a step that will benefit the economy in two ways- firstly, it will reduce the amount of expenditure the government had to bear for the people who depended on social security for survival, secondly the entrepreneurs end up saving funds, which are then invested in the market and enhance the liquidity and strength of the economy.

Employment tax credits are available for people belonging to different groups. Some of them are

  • Veterans
  • Temporary Assistance for Needy Families (TANF) Recipients
  • Ex-convicts
  • Supplemental Security Income Receivers.

Providing employment opportunities to representatives of different groups benefit the employers in different ways. For example if an organization provides employment opportunities to a TANF recipient, then the employer can claim a tax credit which amounts to 40% of first year wages of that employee, albeit the employee works for minimum of 120 hours in that year.

Enterprise Tax Zones were set up in 1984 in order to enhance the investment in entrepreneurial opportunities in so called unfeasible and backward areas and to give a push to employment generation in these areas. Some of the salient features of this policy include

  • Businesses can end up saving more than $36,000 over a period of five years through tax credits earned for each employee hired from such a place. 
  • They can apply fort Sales and Use tax credits on transactions involving purchase of machinery and parts that qualify for such rebate. (These include telephone equipment, alternative communication devices like fax, printers, etc.)
  • Acceleration of Depreciable components from 39 years to 5, 7 and 15 years. 
  • If the business is incurring losses, then a deduction which is equal to 100% of the Net Operating Loss is claimable for deduction and 15 year carry-forward is also awarded.
  • The unused tax not used in earlier years can be deferred to the future tax years.
  • Easier to gather loan for businesses in enterprise zones as they can avail an interest deduction on loans.

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