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New Employment Credit - Quick Facts

The New Employment Credit (NEC) is a California income tax credit available to employers for taxable years beginning on or after January 1, 2014, and before January 1, 2021. To obtain a credit a qualified taxpayer must hire a qualified full-time employee on or after January 1, 2014, and pay qualified wages attributable to work performed by the qualified full-time employee in a Designated Geographic Area (DGA), and receive a Tentative Credit Reservation (TCR) from the Franchise Tax Board (within 30 days of complying with the EDD new hire reporting requirement) for that qualified full-time employee. In addition, a qualified taxpayer must annually certify each qualified employee. The credit is based on 35% of qualified wages or wages between 150% (or $10 for a Pilot Area, until their expiration on December 31, 2017) and 350% of minimum wage. In order to generate an allowable credit, the qualified taxpayer must have a net increase in its total number of full-time employees working in California, when compared to its base year both based on annual full-time equivalents.

Note: This fact sheet contains only general information and does not contain all the NEC requirements. You can also see R&TC 17053.73 / 23626 for the statute and all requirements.

Employer Requirements

A qualified taxpayer:

  • Is an employer engaged in a trade or business within a designated within a DGA.
  • Is not engaged in any excluded businesses which are temporary help services or retail trades, and those primarily in food services, alcoholic beverage places, theater companies and dinner theater or casinos and casino hotels unless it is considered a small business.
  • Is not engaged in a sexually-oriented business.
  • Hires an individual that is a qualified full-time employee that works at least an average of 35 hours per week and meets all of the following:
    • Is hired on or after January 1, 2014.
    • Performs at least 50% of his/her services for the employer in the DGA.
    • Receives starting wages that exceed 150% of the State minimum wage.
    • Is paid hourly wages for an average of at least 35 hours per week, or is salaried, and paid for full-time employment.
    • Meets one of five conditions upon commencement of employment (see below).

Employee Conditions

At the time of hire an individual meets any of the following conditions:

  • Unemployed for 6 months or more, not having completed a degree or course of study.
    • Unemployed means: not receiving wages, not self-employed, and not a full-time student.
  • Unemployed for 6 months or more, and completed a degree or course of study more than 12 months prior to hire.
    • Unemployed means: not receiving wages, not self-employed, and not a full-time student.
  • Veteran, separated from the armed forces within 12 months.
  • Recipient of the federal Earned Income Credit in the previous taxable year.
  • Ex-offender convicted of a felony.
  • Current recipient of CalWORKS or county general assistance.

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Last Updated: 01/03/2018

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