Renewal Community Initiative

"Preparing for Tomorrow - Today"

Which categories of employees would not qualify for the RC Wage Credit?

The RC Wage Credit cannot be taken for any individual employed at any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or store whose principal business is the sale of alcoholic beverages for consumption off premises.  The RC Wage Credit is not available for family members of the employer, including sons, daughters, parents, stepchildren, stepmothers, stepfathers, in-laws, and other persons treated as dependents under the tax code.  Similar exclusions apply to five percent (5%) owners related to the employer and family members of majority shareholders or partners of the employer.

Can a business use this credit for current employees?

Yes. The RC Wage Credit is an incentive to hire and retain individuals who live in an RC, so it is available each year throughout the Wage Credit period.

How does a business document that an employee is an RC resident?

The employer should obtain an Employee Certification of Renewal Community Residency statement from the employee, under penalty of perjury, that gives the address of the employee’s principal residence and provides assurance that the employee will notify the employer of a change in the employee’s principal residence. The statements are not filed with the business’s tax return, but should be retained like any other documents supporting a tax return.  In addition, you can verify that the employee is located in the same Renewal Community as your business, via the Internet at http://hud.esri.com/locateservices/ezec/ezec_open.htm.

What if the employee works part-time?

The credit is available for both part-time and full-time employees as long as they have been employed by the employer for at least 90 days. The amount of the credit is tied to the amount of wages paid rather than to the number of hours worked.

What is the definition of qualified wages?

Qualified wages are any wages you pay or incur for services performed by an employee while the employee is a qualified employee.

• Wages are generally defined as those wages subject to the Federal Unemployment Tax Act (FUTA) without regard to the FUTA dollar limit.

• Also treated as qualified wages are certain training and education expenses you pay or incur on behalf of a qualified employee.

What is the credit amount?

The credit amount for the RC Wage Credit is 15 percent of wages up to the $10,000 wage amount.

Is there a limit on the number of employees for which a business can take the credit?

An employer can take the credit for as many employees as qualify.

What if the employee works in an RC for only part of the year?

An employer can use either the pay-period or calendar-year method for determining the period of time the employee performs services in an RC. No other time periods can be used to prorate the credit.  For example, if an employee works in several factory locations and is paid weekly, an employer can claim the wage credit for the weekly pay periods during which the employee works substantially all of his or her time in the factory located in an RC.  “Substantially all” is defined as 85 percent for the purposes of some of the tax incentives discussed in this guide, but the regulations on the RC Wage Credit does not define substantially all. The employer must use the same method for all employees, but may change the method applied to all employees from one taxable year to another.

What if the business is located in an RC, but the employees spend part of their time working outside the boundaries of the RC?

The credit is available only if substantially all of the services performed during the period (see answer to question above on pay-period and calendar year calculations) are in an RC. “Substantially all” is defined as 85 percent for purposes of some of the tax incentives discussed in this guide, but the regulations on the RC Wage Credit does not define substantially all.  If an employee does not perform substantially all services inside an RC within the calculation period selected, the credit cannot be prorated and no portion of the wages for that period would qualify for the credit.

What if the Federal tax liability of the business is less than the total credit amount?

The RC Wage Credit generally is subject to the same rules as other business tax credits.  As with other business tax credits, unused credit amounts can be carried forward for up to 20 years and carried back a year.  However, the credit cannot be carried back prior to the RC designation.

Are there special procedures for taking the RC Wage Credit?

The credit is accounted for on IRS Form 8844 and would be part of a business’s tax filing.

Can nonprofit organizations benefit from the RC Wage Credit?

Tax-exempt organizations, other than certain cooperatives, are ineligible for the credit.

Can a pass-through entity, such as a partnership or S-corporation, use the credit?

The RC Wage Credits are general business tax credits for Federal tax purposes and may be passed through under the rules similar to other business tax credits.

Does the RC Wage Credit reduce Alternative Minimum Tax (AMT) liability?

AMT may be reduced by 25 percent of the RC Wage Credit amount.

Can the RC Wage Credit for an employee be taken concurrently with Work Opportunity Tax Credits (WOTC) or Welfare to Work (WtW) Credits?

Qualified wages do not include any amount you take into account in figuring the Welfare-to-Work (WTW) tax credit or the Work Opportunity tax credit (WOTC).  In addition, reduce the $10,000 maximum qualified wages for each qualified employee by the amount of wages you use to figure either of those credits for that employee.

How does the credit affect the deduction for salaries and wages?

In general, you must reduce the deductions on your income tax return for salaries and wages and certain education and training costs by the amount of your renewal community employment credit.

Can entities that lease their employees use the credit?

Employers should check with their tax advisors. The RC Wage Credit is based on FUTA wages, so the ability to take the credit will depend on who the employer is for purposes of the FUTA wages.

Where can a business obtain more information on this incentive?

For specific information, contact your tax advisor or accountant and/or see IRS Tax Form 8844.  For general information, contact ___________________________________________