California New Employment Credit

The New Employment Credit (NEC) replaced the Enterprise Zone hiring tax credit effective for tax year 2014 – 2020. Qualified employers that hire qualified full-time employees and pay or incur qualified wages for work performed in a designated geographic area (DGA) can claim the credit on a timely-filed original return. The new maximum credit per employee is $56,000 over five years.

If an employer relocates to a qualified area, the employer must express an employment offer for the new location in writing to all employees from the old location for similar pay if employment in qualified areas increases in the same rolling twelve months as employment decreases in non-qualified areas to be eligible for the hiring tax credit. Small businesses, which the program defines as having less than $2M in gross receipts in the prior year, are excluded from this and several other requirements. An employer must make a tentative credit reservation in a manner to be prescribed by FTB for each qualified employee within thirty days of registering with EDD. Taxpayers must also provide annual data regarding these employees to FTB by the corporate tax filing deadline for their respective tax years.

Employer data will be publically presented on a website.
There is a recapture provision, with exceptions, for employees terminated in the first 36 months of employment. The hiring credit has a five year carry forward provision, and is generated for five years from the date an employee is hired. Employees must still work at least half of a given taxable year within qualified areas and their starting wage must now be at least 150% of minimum wage. A qualified employee must be hired 2014 onward and work in a Former Enterprise Zone, or a qualified employee must be hired after the employee’s job-site becomes a Designated Census tract.

Qualified employees

  • Unemployed six months preceding date of hire (higher education students must have graduated 12 months prior)
  • Veteran unemployed since separation from service (1 year cap)
  • Earned Income Tax Credit recipient in prior year
  • Ex-offender previously convicted of a felony
  • CalWORKS or Welfare recipients

Industries not eligible unless meeting the small business $2M exclusion outlined above:

  • Temporary staffing agencies
  • Retail establishments
  • Food service establishments
  • Casinos (including casino hotels)
  • Bars, lounges or other drinking establishments
  • Live nude entertainment (no small business exclusion)

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Hiring Tax Credit Calculation

(Amount & Formulae)

Hiring Credit

Applicable percentage multiplied by tentative credit amount

Applicable Percentage

Net increase in current year full-time equivalent employees over base year full-time equivalent employees divided by current year qualified employees

Base Year

The year before the first qualified employee is hired

Qualified Wage

Amount in excess of 150% of minimum wage up to 350% of minimum wage,
unless located in special Designated Pilot Areas in which case the floor is $10 per hour

Tentative Credit

35% multiplied by qualified wage

Full-time Equivalent Employees

California full-time employees prorated based on hours or weeks worked by full-time employees (35+ hours per week)

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