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A Look Back in California May Lower Current and Future Tax Rates with CA EZ

If you operate business in California, you should act now to take advantage of retroactive CA EZ credits because pending changes may restrict your ability to do so.

There are currently 42 enterprise zones in California (CA EZ). If you operate in one or more of these zones, you may have the ability to retroactively capture additional credits even if you have previously been granted credits. The hiring credit value can be as much as $37,000 per qualified employee taken over 5 years.

Key facts:

  • You must operate in the enterprise zone, but employees need not reside in the zone to be eligible.
  • The credit is a diminishing percentage of qualified wages over 5 years of employment.
  • Qualified wages are those paid in the prior 60 months.
  • Utilization of the credit is based on property and payroll zone apportionment.

Why Do a CA EZ Retroactive Assessment?

With 42 zones and significant complexity in the rules, qualification criteria, information requirements and filing rules it is not uncommon to miss some opportunities. Often at the time the credit is calculated, the state has not provided all of the information necessary to determine if an employee is eligible for vouchering.

Additionally, with the recent passage of Propositions 30 and 39, most taxpayers in California will see an increase in tax liability. Thus, it is more important than ever to maximize all the credits available now to lower your effective tax rate.

When you perform a retroactive assessment, you have the opportunity to pick up credits that you or another vendor may have missed. You can take a comprehensive look at your entire employee base to help maximize employee qualification and augment the previous credit as well as help maximize the credit going forward. And, finally, you may be able to capture credits from prior years that can be utilized now or carried forward.

Why Do a CA EZ Retroactive Assessment Now?

Currently, there are no restrictions on retroactive vouchering. However, this is likely to change. In addition to the potential increase in tax liability from recent passage of Propositions 30 and 39, The California Department of Housing and Community Development has drafted regulations restricting retroactive vouchering based on the employee’s date of hire. While still under administrative review, the new regulations, if issued, will likely restrict the time period significantly. Timeframes between 28 days and 36 months have been proposed.

A retroactive look back is a great tool for anyone under audit. Retroactive vouchering provides an offset to credits disallowed under audit. In some instances, clients actually recognize an overall increase in credit. The limitations that may be placed on retroactive look back will most likely impair the chances for offsetting credits that have been disallowed under audit.

Learn more about how ADP can assist with CA EZ retroactive assessments


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