Economic Development  -  New Employment Credit Estimator

New Employment Tax Credit Glossary

Adjusted Credit Value: The sum of the Net Hourly Wage x Annual Hours Worked x 35%

Annual Wages Captured for Credit: The state has designated a 5-year recurring flat rate of 35% to be used in the capture of qualified wage credits.

Allowable Credit: The allowable credit is the credit amount multiplied by the applicable percentage (computation ratio). This is the maximum amount of credit an employer will be able to capture in the reportable tax year.

Base Year: The reportable tax year immediately preceding the tax year in which the first new qualified employee was hired. The value will remain constant, and will be locked in for the duration of your business's utilization of this credit.

Computation Ratio: Determines the amount of the New Employment Credit an employer can receive. An Employer can only receive up to 100% of their Potential Credit Amount. The calculation for the Computation Ratio is as follows: (Net Increase in FTE Employees / Total Qualified FTE Employees).

Credit Amount (CA): Aggregate amount of tax credit value the employer is claiming for all eligible employees hired during taxable year (post base year). Employer is responsible for providing FTB with the correct tax credit calculation(s) as part of the employer's annual return for the taxable year - post base year.

Credit Reservation (CR): FTB's on-line employment credit application software whereby employers may submit CR request(s) for eligible employees hired during a taxable year - post base year. FTB will provide employer with confirmation of CR receipt. No calculation of the NEC value is required with this on-line application. Employers may submit as many CR's for eligible employees hired during a taxable year.

Estimated Credit Value: Calculates the Total Allowable Credit an Employer can receive by multiplying the Credit Amount by the Computation Ratio.

Franchise Tax Board (FTB): State of California governmental agency responsible for the administration of the tax programs and incentives.

FT: Full-time employee. A qualified full-time employee must work an average of at least 35 hours a week.

Full-Time Equivalent (FTE): Qualified full-time employees who work at least 2,000 hours during the reportable tax year. FTE can also be the aggregate sum of full-time employees who work less than the minimum 2,000 hours, but when added, meet the 2,000 hour requirement.

Full-Time Equivalent Threshold: The minimum amount of hours required to be considered a full-time employee in a reportable tax year.

Net Hourly Wage Value: Employee wage that is 150% greater than California minimum wage. Thus, Net Hourly Wage = Actual Wage - $13.50

PT: Part-time employee, including seasonal employee.

Qualified Employer: Employer located in an eligible NEC/DGA census tract which has submitted a credit reservation for an eligible employee.

ELIGIBLE EMPLOYEE CATEGORIES: Please confirm that the employee(s) hired for the current taxable year satisfies the following NEC qualification criteria:

• Recently discharged veteran (within 1 year of military separation)
• Unemployed individual (for at least 6 months)
• Recipient of Federal Earned Income Tax Credit (EITC) for previous taxable year
• Ex-offender (felony conviction)
• Recipient of CalWorks or County general assistance (public assistance)

EMPLOYEE SERVICE QUALIFICATIONS:

• Employee must have been hired on or after January 1, 2014.
• Employee must be full-time status, and have worked a minimum average of 35 hours per week.
• Employee performed at least 50% of their services for the employer in the Designated Geographic Area (DGA).

EMPLOYEE WAGE QUALIFICATIONS:

• Employee received hourly wages in excess of 150% of minimum wage, but not exceeding 350% of minimum wage.
• Current minimum wage: Based on the employee's date of hire.
  • Minimum wage for July 1, 2014 – December 31, 2015 = $9 (150% = $13.50, 350% = $31.50)
  • Minimum wage beginning January 1, 2016 = $10 (150% = $15.00, 350% = $35.00)

EMPLOYER QUALIFICATIONS: Employer located in DGA and has submitted a credit reservation for an eligible employee.

NOTE: All NEC reservations must be submitted to FTB within 30 days from filing date with State Employment Development Department (EDD) for "new hire" compliance requirement.