§1396 Empowerment Zone Employment Credit

Summary

Employers can claim a tax credit equal to 20% of certain wages paid to workers who work and live in an empowerment zone during the year that ends with or falls inside the employer’s tax year. Only wages that count as “qualified zone wages” are used, and for each worker no more than $15,000 of wages can be counted per calendar year. Wages already used to get the work opportunity credit (under section 51) cannot be counted here, and any such wages reduce the $15,000 limit. A “qualified zone employee” is someone whose work for the employer is mostly done inside the empowerment zone and whose main home while working is inside the zone. The rule does not apply to certain people listed in section 51(i)(1)(A)–(C), anyone who owns 5% of the employer, workers employed for under 90 days, workers at certain federal facilities (section 144(c)(6)(B)), or employees in farming businesses where the employer’s used and leased farm assets together exceed $500,000. The 90‑day rule does not block credit if the worker became disabled before 90 days (unless rehired and disability ended) or if state unemployment rules find the firing was for misconduct. A job is not treated as ended for these rules when the business is acquired under section 381(a) or when the business form changes but the worker keeps the same job and the taxpayer keeps a substantial interest.