New Employment Credit Adjustments - Notices of Tax Due
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November 23, 2016
Purpose of Bulletin
To inform public service staff of taxpayer phone calls that may result from Notices of Tax Due (NTD).
The New Employment Credit (NEC) is a credit that began in 2014 for individuals and all entity types for tax years 2014 and after.
As part of the NEC implementation process, Audit identified tax returns that were not entitled to claim the credit for 2015 (and a few 2014) tax returns. We have found taxpayers who do not qualify based on either their tax return, or the tax return of a pass-through entity in which they have an interest.
Audit plans to send letters and make account adjustments to the affected taxpayers who claimed the NEC on their 2015 (and some 2014) tax returns by November 2016. The letters inform them of the following:
- They do not meet the requirements for the NEC.
- Their accounts are being adjusted to remove the credit.
A copy of the letter sent to the taxpayer and a comment regarding the NEC account adjustment will be in the Taxpayer Folder.
The account adjustments will result in NTDs. Because these NTDs will not reference the NEC, taxpayers may call, especially those who did not understand the letter of explanation sent prior to the NTD.
We estimate the total number of impacted taxpayers for 2015 tax year returns to be about 800.
Audit also sent letters of explanation to the identified taxpayers for the 2014 tax year at the end of 2015 and early 2016. These accounts have also been adjusted to disallow the NEC. It is possible that public service staff may receive minimal calls regarding these earlier account adjustments.
A large number of the ineligible taxpayers may have intended to claim a different tax credit than the NEC. The most common error is taxpayers claiming the NEC when they intended to claim an Enterprise Zone Hiring Credit (EZHC).
If they claimed the incorrect credit and want to claim a different one, we can assist them to make the change. The taxpayer must provide us with the requested information (usually a Form FTB 3805Z). They do not need to file an amended tax return, or pay the amount due and file a claim before we are able to make this correction. However, they might still have a balance due if the amount of disallowed NEC is greater than the corrected credit amount.
If the taxpayer calls regarding a letter or NTD for the NEC, follow your local unit procedures.
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