Long-Term Employment of Ex-Felons Tax Credit

Description:

Businesses that operate in Maryland and hire one or more ex-felons during the period from January 1, 2007, through December 31, 2011, who are employed by the business for at least one year, may be entitled to a credit.

The credit may be taken against corporate, personal income tax, or state and local taxes withheld (certain tax exempt organizations only). The credit may not be applied to more than one tax type.

Sole proprietorships, corporations, pass-through entities (partnerships, subchapter S corporations, limited liability companies, business trusts) and tax-exempt, nonprofit organizations may claim the tax credit.

To qualify for the credit:

The company must hire at least one ex-felon between January 1, 2007, and December 31, 2011, and employ that person for a minimum of one year.

The company must also obtain certification from the Maryland Department of Labor, Licensing and Regulation that the individual is a qualified ex-felon.

How the credit is calculated:

For the first year, the credit is 30 percent of the first $6,000 paid to a qualified individual with a maximum credit of $1,800. In the second year, the credit is 20 percent of the first $6,000 paid with a maximum credit of $1,200.

If the credit is more than the state tax liability, the unused credit may be carried forward for the next five tax years.

A tax-exempt organization may estimate the amount of the tax credit for qualifying employees for the taxable year. The total amount of the estimated credit should be divided evenly over the number of periods for filing withholding returns (Form MW 506). For example, if quarterly returns are required, then the total estimated credit should be divided by four. Each payment to the Comptroller would be reduced by the pro rata amount of the credit.

Alternatively, the tax-exempt organization could apply the credit against the tax on unrelated business taxable income.

Documentation required:

Corporate income tax:

Form 500CR must be completed and submitted with income tax return (Form 500)

Personal income tax:

Form 500CR must be completed and submitted with income tax return (Form 502 or Form 505). If the business is a pass-through entity, Form 500CR must be prepared for the pass-through entity and submitted with the entity's income tax return (Form 510). A modified federal Schedule K-1 provided by the pass-through entity to its members must separately state their shares of the credit. Individuals or entities must attach this statement to the Form 500CR submitted with the personal (Form 502 or 505), corporate (Form 500) or pass-through entity (Form 510) income tax returns.

State and local income taxes withheld:

Form 500CR must be submitted with Form MW 508, Maryland Annual Employer Withholding Reconciliation Report.

The credit cannot be claimed if either the Employment Opportunity Tax Credit or the Maryland Disability Employment Tax Credit is claimed for the same employee.

For more information, contact:

David Ghee
Maryland Department of Labor, Licensing and Regulation
Division of Employment and Training
1100 N. Eutaw Street
Baltimore, MD 21201
Phone: 410-767-2080
E-mail: ghee@careernet.state.md.us