Empowerment Zone Employment Credit
Internal Revenue Service
Up to $3,000/employee/yr
20% wage credit for EZ employees — lapsed 2026
Federal tax credit of 20% on up to $15,000 of qualified wages paid per year to employees who both live and work in a designated federal Empowerment Zone. Claimed via Form 8844. Authorized through December 31, 2025 under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. As of May 2026, no congressional extension for tax year 2026 has been enacted. The credit is effectively lapsed for wages paid in 2026 unless new legislation extends it.
- Funding type
- Tax Credit
- Level
- Federal
- Amount range
- $3,000
- Realistic amount
- Employers with 10 qualifying EZ employees: up to $30,000/year in federal tax credits (10 × $3,000). Value is proportiona…
- Deadline
- Credit was authorized through December 31, 2025. No 2026 extension enacted as of May 2026. Check IRS.gov for any retroactive extension legislation.
- Status
- winding-down
- States
- AL, AR, CA, DC, GA, IL, KY, LA, ME, MI, MN, MS, ND, NJ, NY, OH, PA, SD, TX, VA, WI
- Payment model
- tax offset
Who qualifies
- Employer must have a principal place of business in a designated Empowerment Zone (or conduct business substantially within the zone)
- Employee must both LIVE in and WORK in the designated Empowerment Zone
- Employee's wages must be 'qualified zone wages' — W-2 compensation for services performed in the EZ
- Employer must be a trade or business (C-corp, S-corp, partnership, sole proprietor — all qualify)
- Wages used for the EZ credit cannot be simultaneously claimed for Work Opportunity Tax Credit (WOTC) or certain other wage credits
- Credit authorized through December 31, 2025 — currently lapsed for 2026 absent new legislation
What it covers
Eligible expenses
- W-2 wages paid to qualifying EZ employees (both live and work in the EZ)
- Cash and non-cash compensation included in gross income
- Wages paid to full-time or part-time employees (no minimum hours requirement)
Ineligible expenses
- Wages paid to employees who do not live in the Empowerment Zone (only working in EZ is not enough)
- Wages above $15,000 per employee per year (no credit on excess)
- Wages already used to claim Work Opportunity Tax Credit (WOTC) for the same employee in the same period
- Wages paid to employee who is more than a 5% owner of the business
- Wages paid during any period the zone designation is no longer in effect
- 2026 wages — credit is currently lapsed absent congressional extension
How to apply
-
1
Verify Empowerment Zone designation
Confirm your business location is in a designated federal EZ using the HUD EZ mapping tool or IRS guidance. Also verify each qualifying employee's home address is within the same EZ.
~2 hrs
-
2
Track qualifying wages throughout the year
Maintain records of wages paid to employees who both live and work in the EZ. Document employee home addresses (W-4s, employee records) and work location. Wages above $15,000 per employee per year don't generate additional credit.
~4 hrs
-
3
Calculate credit on Form 8844
Complete Form 8844 (Empowerment Zone Employment Credit). Calculate 20% × qualifying wages (capped at $15,000 per employee). Credit flows to Form 3800 (General Business Credit) and offsets regular tax liability.
~3 hrs
-
4
File with federal return
Include Form 8844 and Form 3800 with your federal business tax return. No prior IRS approval required — self-calculated credit. Retain documentation of EZ designation and employee addresses for potential audit.
~1 hrs
Cannot stack with WOTC for the same employee-year — choose the higher credit. WOTC ($2,400–$9,600 one-time) often beats the EZ credit ($3,000/yr) for short-tenure hires in target categories.
Deadline & timing
The credit applies to qualifying wages paid to eligible employees during the tax year. Employers claiming the credit for tax year 2025 wages file Form 8844 with their 2025 federal return. For 2026 wages: the credit is lapsed unless Congress passes an extension — monitor IRS.gov and tax news closely. Retroactive extensions are historically common for expiring tax incentives.
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Last reviewed 2026. GrantCompass is an independent funding-discovery tool and is not affiliated with any government agency. Always confirm details on the official program page.