Maximizing the 2025 Empowerment Zone Employment Credit: What Business Owners Need to Know

The empowerment zone employment credit (EZEC) is a beneficial but often easy-to-miss incentive program. It offers significant savings potential, but many businesses may not understand whether or how they can qualify for it or how much they can expect in return. The credit also faces a fast-approaching deadline, so the time to learn more is now.

Like all tax credits, the EZEC may present either a risk or an opportunity. On the one hand, it can free up substantial capital for your company, but on the other, failing to comply with its requirements could result in hefty fines.

Here is an overview of everything employers need to know about this program to maximize their returns this tax year.

What is the Empowerment Zone Employment Credit?

As the experts at Polston Tax Resolution & Accounting explain, the EZEC rewards organizations for operating in empowerment zones (EZs). These are areas the government feels need economic development, often meaning they have high unemployment and poverty rates.

Employers can receive up to $3,000 annually for each qualifying employee who lives and works within an EZ. The impetus is to encourage companies to invest in cities and counties with otherwise struggling economies. By spurring employment and business activity in these regions, the government hopes to foster broader economic growth where people need it the most.

The EZEC can considerably reduce your tax liability by itself, but its value goes beyond the credits you receive for eligible employees. Qualifying for this credit also opens the door to other incentive programs and rewards.

For example, some organizations can increase Section 179 deductions by $35,000 for operating out of a property within an EZ. Some can also access low-cost loans they may otherwise be ineligible for. Government incentives aside, taking advantage of this opportunity can help you expand your business’s footprint and develop a positive reputation for helping local economies.

Understanding EZEC Amounts

How much you receive in EZECs may vary between employees. The program offers 20% of the first $15,000 an eligible employee earns within the year. Consequently, while you can get up to $3,000 per person per annum, you may not get that much for each worker on your payroll.

Most, if not all, of your workforce likely makes enough in a year to reach the full $3,000 mark, as just 7.4% of U.S. households make less than $15,000 annually. However, both part-time and full-time workers can qualify for these credits. Consequently, you may have part-time employees who do not work at your business for long enough in the year to earn $15,000, meaning the amount you can claim for them will be lower.

For example, an eligible part-timer earning $10,000 will qualify for a $2,000 credit. The cap is also worth noting, as any salary payments beyond the $15,000 mark do not increase the amount you can get in return. However, there is no limit on the number of employees you can claim under this program, so employing more people earning $15,000 or more means you can expect larger credits.

As with many other worker incentive programs, the EZEC applies only to traditional employees. That means any people you hire as contractors will not count toward your credits, even if they meet other eligibility requirements.

EZEC Eligibility Requirements

The EZEC has three main eligibility criteria you must consider as an employer. These can be difficult to navigate, so it is often best to work with an experienced partner like Polston Tax. However, you should still learn the basics before pursuing these incentives.

Business Presence in an Empowerment Zone

The first criterion is that your company must operate in an officially recognized EZ. A remote worker who lives in one of these zones will not count unless you have a business presence in that area. Thankfully, the Department of Labor provides an EZ Address Locator you can use to determine if your building resides in one of these regions.

Looking up a specific address is important because EZs do not always follow the geographic boundaries you may be most familiar with. The focus on areas needing economic development means EZs are often neighborhoods rather than entire cities or counties, as local economies can vary widely within these broader limits. For instance, New York City is home to some EZs, but not every area in the city is one.

This presence requires a physical location. Not having a business address in the EZ in question means you cannot qualify for the credit, even if you serve customers in that area.

Employee Residence in an Empowerment Zone

Similarly, qualifying employees must reside within an official EZ. Just as a remote worker from an EZ will not count unless your company also operates there, a physical office in an EZ will not count if your workforce is entirely remote or commutes from somewhere else.

This is where determining eligibility can get complicated. Some organizations may operate exclusively within an EZ but not qualify for any credits because all of their employees live in other neighborhoods that are not EZs. Alternatively, an EZ may represent a small fraction of your overall presence, but you could still earn thousands in credits if several workers live there.

The amount of work employees perform within the EZ also matters. A staff member who lives in an EZ and performs some duties there but mostly works in an office outside the zone will not qualify. Workers must perform most of their roles inside the EZ to count toward the credit.

Employee Tenure

Finally, the EZEC considers how long each worker has been on your payroll. In general, you can only claim an employee for this credit if they have been with your company for at least 90 days during the filing year. So, a sudden burst of hiring at the end of the year will not help you get a bigger tax break.

Some exceptions apply. You may be able to claim a credit for a worker who was let go because of misconduct. What qualifies as misconduct may vary, as unemployment programs vary by state, and the IRS refers to state-level guidelines for this qualification.

Similarly, employees who become disabled within that initial 90-day period may also be eligible. However, you must hire these workers back if the disability ends within those 90 days in order to count them toward the credit. You should also note that family members on your payroll are not eligible under this program, regardless of whether they meet the 90-day tenure requirement.

Common Challenges in Claiming the EZEC

As the eligibility qualifications reveal, the EZEC can be complicated. Navigating this program entails several challenges that a knowledgeable partner like Polston Tax can help you overcome.

Meeting the Deadline

The most prominent challenge in claiming the EZEC is that you have a limited window. This credit program will only last until the end of 2025, unless the federal government extends it between now and then leaving you with minimal time to determine how it fits within your strategy.

Given the 90-day window, you must hire new workers in an EZ before October 2025 if you hope to expand your eligibility for the credit before it expires. Compiling all the necessary paperwork within that time frame can also prove challenging. You may face additional deadlines if you want to use your operations within an EZ to qualify for other incentives.

Tax and accounting workflows are infamously time-consuming. Consequently, you may lack the staffing levels or freedom within your schedule to manage EZEC-related strategy internally. However, relying on outside experts like Polston Tax removes this barrier, as they can help you get started and understand your options as quickly as possible.

Accounting for Tax Complexities

Claiming the EZEC and related credits introduces tax complexities you may struggle to navigate. Calculating which employees qualify for the program and determining their eligible wages can be challenging. Balancing these claims with other incentives such as low-cost loans or state-level tax breaks may be more complex, as each claim may limit the others.

Using the correct forms and filling them out appropriately as simple as that may seem can also be complex. This paperwork gets increasingly complicated the larger your organization is and the more EZs you operate in. At the same time, you must be thorough, as any errors could have consequences. Penalties for excessive credit claims equal 20% of the amount, which can quickly get expensive.

Given these complications, the most cost-effective route is often to hire an external tax and accounting service. These professionals are less likely to make mistakes or overlook valuable opportunities given their experience in the field. As a result, you can expect no penalties and get the maximum amount possible.

Keeping Thorough Documentation

Claiming the EZEC and related tax breaks requires thorough documentation. Necessary paperwork may include pay stubs, employee records, evidence of your business operations within an area and time sheets. This may pose a barrier, considering 48% of employees today report difficulty finding documents quickly, and 26% say lost records are a prominent challenge in their organization.

It may be unclear what you need to retain as an employer. Alternatively, you may know what you need but struggle to enforce the reliable documentation and organizational policies necessary for tax filing. While these issues may seem minor at first, they can lead to significant costs, such as not having what you need to claim your maximum credit.

A partner like Polston Tax can help through its bookkeeping services. Polston Tax understands everything you need to claim your full EZEC benefit and can ensure you have all the necessary documentation on hand and in good order when the time to file arrives. Offloading this work will also leave your in-house staff with additional freedom in their schedules to focus on other tasks.

Balancing EZEC With Broader Strategic Goals

As with other tax strategy processes, aligning EZEC with larger organizational goals is not always straightforward. You could use the program to expand into a new area, but you must also consider the other costs and complications of such an expansion. Alternatively, you may want to shift toward hybrid or remote work, but this could introduce eligibility concerns.

Your employment credit planning should also coordinate with other opportunities. One common strategy is to combine it with the Work Opportunity Tax Credit (WOTC), which offers up to $9,600 per eligible employee for hiring people in certain demographics. Capitalizing on both could yield significant tax savings, but it also requires additional planning to work within your broader strategy.

A reliable tax and accounting service will tailor its approach to your strategic goals. Working with a partner in this field can help you understand your opportunities and learn how to integrate them into your broader organizational planning for maximum long-term benefits.

Navigating Changes

Keeping up with organizational and regulatory changes can also complicate EZEC filing. The government may extend the program before the year is up, which means they could update its requirements, as the credit has changed in the past.

Alternatively, your business may shift throughout the year. Otherwise eligible employees may resign before finishing the required 90-day tenure. Branches in an EZ may shut down, or larger economic and organizational changes may lead the company to adopt a hybrid workforce or reduce operations in the zone. All such adjustments could impact what you can expect out of the credit program.

While a tax and accounting provider cannot predict all eventualities, they can understand how sudden shifts affect your tax strategy. Consequently, they can help you adapt your EZEC strategy as necessary to maximize your returns regardless of how other factors fluctuate.

Partner With an Experienced Tax Expert to Capitalize on the EZEC

The EZEC is too big an opportunity to miss. However, making the most of it is not a straightforward process. Reach out to Polston Tax to see how the firm’s experts can help you fit the EZEC within your long-term business strategy and get the largest benefit possible.