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General business tax credits

First established by Congress to further social or economic objectives such as promoting increased investment in disadvantaged communities, the general business tax credit is actually a series of nonrefundable tax credits individuals and business entities may be entitled to claim. As indicated below, the calculation of each credit requires a different form to file with your income tax return (Form 1040 or 1120); if you claim more than one type of credit, you may also need to file Form 3800.

For more information on these credits, see General Business Tax Credit (TX10-25-1500).

Name Description Form
Disabled access credit A tax credit for an eligible small business that pays or incurs expenses to provide access to persons with disabilities. The expenses must be to enable the eligible small business to comply with the Americans with Disabilities Act of 1990. 8826
Empowerment zone employment credit A tax credit for businesses that hire individuals who both live and work in a federally designated "empowerment zone," such as certain areas of New York City, Chicago, Los Angeles, Philadelphia, and Washington, D.C. (among others). 8844
Renewal community employment credit Provides businesses with an incentive to hire individuals who both live and work in a designated renewal community. The credit can be claimed if "qualified wages" are paid or incurred to a "qualified employee." The credit is for wages paid or incurred after 2001. The credit is 15% of the qualified wages paid or incurred during a calendar year. The amount of qualified wages a taxpayer can use to figure the credit cannot be more than $10,000 for each employee for each calendar year. As a result, the credit can be as much as $1,500 (15% of $10,000) per qualified employee each year. 8844
New markets credit A tax credit for a qualified equity investment in a qualified community development entity made after December 31, 2000. The credit is claimed over a period of up to 7 years. To find the amount of credit each year, multiply the amount paid to the qualified community development entity for the investment by a percentage. The percentage is:
  • 5% for the year the investment is made and each of the next 2 years, and
  • 6% for each of the next 4 years
Thus, the credit totals 39% of your investment over a 7-year period. The credit is available through 2009.
8874
Indian employment credit Provides businesses with an incentive to hire certain individuals who live on or near an Indian reservation. The business does not have to be in an empowerment zone, enterprise community, or renewal community to qualify for this credit. A business can claim the credit if it paid or incurred "qualified wages" to a "qualified employee." Expires December 31, 2009. 8845
Work opportunity credit Provides businesses with an incentive to hire individuals from groups that have a particularly high unemployment rate or other special employment needs. The business does not have to be in an empowerment zone, enterprise community, or renewal community to qualify for this credit. The business can claim the credit if it paid or incurred "qualified first-year wages" to a "targeted group employee." Expires August 31, 2011. 5884
Low-income housing credit This credit can be claimed only for residential rental buildings in low-income housing projects that meet one of the minimum set-aside tests. The low-income housing credit is determined as a percentage of the qualified basis of each new low-income building placed in service after 1986. This credit is taken over a 10-year period. In general, the 10-year credit period starts at the beginning of the tax year in which the building is placed in service. 8586, with a copy of 8609
Small employer pension plan start-up credit A credit for costs paid or incurred in tax years beginning after December 31, 2001, for retirement plans established after that date. A business may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified defined benefit plan, defined contribution plan (including a 401(k) plan), SIMPLE plan, or SEP plan. The credit equals 50% of the cost (up to a maximum of $1,000 per year) to set up and administer the plan and educate employees about the plan, for each of the first 3 years of the plan. 8881
Credit for employer - provided child care A credit for an amount (not to exceed $150,000) equal to the sum of 25% of the qualified child-care expenditures and 10% of the qualified child-care resource and referral expenditures of a taxpayer for the taxable year. 8882
Investment credit This credit is a combination of other credits, including:
  • Rehabilitation credit for expenses incurred in rehabilitating certain older buildings. Generally, the percentage of costs a taxpayer can take as a credit is 10% for buildings placed in service before 1936 and 20% for certified historic structures.
  • Energy credit--a 10% (30% in 2006 through 2016) credit that applies to certain costs for solar or geothermal energy property placed in service during the tax year. The credit also applies to qualified fuel cell power plants and qualified small wind energy property.
  • Qualifying advanced coal project credit--available to taxpayers who have received clarification of their project as a qualifying project.
3468
Credit for employer - paid Social Security tax on employee tips A credit for Social Security and Medicare taxes paid by a food or beverage establishment where tipping is customary for providing food or beverages. 8846
Research expense credit Designed to encourage research investment, this is an incremental credit equal to the sum of:
  • 20% of the excess of qualified research expenditures for the taxable year over a base amount, and
  • 20% of any basic research payments
6765
Community development corporation (CDC) credit This credit applies to certain contributions made to a selected community development corporation on or before June 30, 1999. 8847
Renewable electricity production credit A credit available to sellers of electricity from renewable resources and poultry waste. It is based on electricity that was sold to unrelated persons and was produced from qualified energy resources at a qualified facility during the 10-year period after the facility is placed in service. 8835
Alcohol fuels credit A credit based on selling or using certain types of alcohol as a fuel for transportation. 6478
Biodiesel fuels credit A credit based on selling or using as a fuel a mixture of animal fats or vegetable oils with diesel. The credit applies to fuels produced, used, and sold after December 31, 2004, and expires after December 31, 2009. Generally 8864
Small agri-biodiesel fuel producer credit (an addition to the biodiesel fuels credit) A credit of 10 cents per gallon for up to 15 million gallons of biodiesel fuel produced by small producers (defined as having the capacity to produce 60 million gallons or less per year). The credit sunsets after December 31, 2009. Generally 8864
Low sulphur diesel fuels credit A credit of 5 cents for every gallon of low sulphur diesel fuel produced by a qualified small business, for expenses paid after 2002. 8896
Orphan drug credit This credit applies to qualified expenses incurred in testing certain drugs for rare diseases and conditions, known as "orphan drugs." 8820
Alternative fuel (clean-fuel) vehicle credit A combination of four credits: the hybrid vehicle credit, the advanced lean-burn technology vehicle credit, the alternative fuel (clean-fuel) vehicle credit, and the credit for vehicles powered by fuel cells. Different computation methods and effective dates apply. Special apportioning rules also apply. 8910
Clean-fuel vehicle refueling property credit A 30 percent credit, up to a maximum of $50,000 ($200,000 for qualified hydrogen refueling property), for installing clean-fuel vehicle refueling property for use in a trade or business (or up to a maximum of $2,000 if installed at the principal residence of the taxpayer). Effective for property placed in service after December 31, 2005, and before January 1, 2011 (January 1, 2015, in the case of qualified hydrogen refueling property). Different limits applied prior to 2009. 8911
Energy - efficient new home construction credit A credit of up to $2,000 for homebuilders and manufacturers of new single-family homes that reduce energy usage for heating and cooling by a certain percentage. Subject to several requirements and certification. Applies to homes substantially completed after December 31, 2005, and purchased after December 31, 2005, and before January 1, 2010. 8908
Energy - efficient home appliance production credit A credit ranging from $50 to $175 for each appliance to manufacturers of energy-efficient dishwashers, clothes washers, and refrigerators. Taxpayers can claim up to $75 million for all taxable years. Other limits apply. Applies to appliances produced after December 31, 2005, and before January 1, 2011. 8909
Indian coal credit A credit for coal produced from reserves owned by federally-recognized Indian tribes. The credit is $1.50 per ton for coal sold in 2006 through 2009, and $2.00 per ton sold in 2010 through 2012. These amounts are indexed for inflation. 8835
Distilled spirits wholesalers credit A credit for the average carrying costs of the excise tax on distilled spirits. Available to importers, wholesalers, and distillers. Effective for tax years beginning after September 30, 2005. 8906
Agricultural chemicals securities credit An "eligible agricultural business" can take a 30 percent credit for "qualified chemical security expenditures" for the tax year. The credit is limited to $100,000 per facility, reduced by the aggregate amount of the credits allowed for the facility in the preceding 5 tax years. The credit is also limited to $2 million per taxpayer per year. The credit is available for amounts paid or incurred after May 22, 2008, and before January 1, 2013. 8931
Differential wage payment credit Eligible small business employers can take a credit equal to 20% of all eligible differential wage payments made in a taxable year (up to $20,000 per employee) to qualified employees serving in the United States uniformed services. The credit is available for payments made after June 17, 2008, and before January 1, 2010. TBA