California Extends New Employment Credit September 2018 Tax News

The New Employment Credit (NEC) is a California tax credit that encourages hiring and employment in the state. The NEC was recently extended by Senate Bill 855. The NEC is available for taxable years beginning on or after January 1, 2014, and before January 1, 2026. The NEC is available to businesses located in designated areas in the state that hire qualified full-time employees, receive a tentative credit reservation for that employee, and meet other requirements.

Over the last few years, we have identified many taxpayers who have incorrectly claimed the NEC on their tax returns when they may actually be claiming a different credit. We have found taxpayers reporting the NEC on their tax returns when they intended to report the repealed Enterprise Zone or the New Jobs Credits. This had resulted in adjustment to taxpayers' accounts, and in some instances, created additional California tax liabilities. Here are some helpful tips to assist your clients in reporting the correct credit on their tax returns:

  1. Verify the tax preparation software uses the correct credit code:
    • New Employment Credit—Credit Code 234
    • Enterprise Zone Hiring Credit—Credit Code 176
    • New Jobs Credit—Credit Code 220
  2. Credit from Pass-Through Entities: Verify and ensure the amount of credit reported on the California Schedule K-1 is correctly reported on the tax return.

Go to the New Employment Credit webpage for additional information. You can also refer to our previous Tax News article on Which Employment Credit Am I Claiming? for more helpful tips.