Maryland Disability Employment Tax Credit

Description:

Businesses that hire people with disabilities may be entitled to a tax credit for wages paid to the employees and for child care or transportation expenses paid on behalf of the employees. A person with a disability includes a veteran released from the armed forces for a service-related disability. The credit may be claimed for individuals hired before July 1, 2008.

The credit may be taken against corporate income tax, personal income tax, state and local taxes withheld (for certain tax-exempt organizations only), insurance premiums tax or public service company franchise tax. The same credit may not, however, be applied to more than one tax type.

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

To qualify for the credit:

The company must hire an individual with a disability and obtain a determination from the Division of Rehabilitation Services (DORS) of the Maryland State Department of Education, or the Maryland Department of Labor, Licensing and Regulation (DLLR) for a disabled veteran, that the individual is a qualified employee with a disability.

How the credit is calculated:

The credit is allowed for the first two years of employment of the disabled individual for both the wages paid and the child care or transportation expenses paid on behalf of the employee as follows:

First Year

• Wages: 30 percent of the first $6,000 paid in the first year for a maximum allowable credit of $1,800 (20 percent for employees hired before July 1, 2000).
• Child care or transportation expenses: Up to $600 of expenses paid in the first year

Second Year

• Wages: 20 percent of the first $6,000 of wages paid in the second year for a maximum allowable credit of $1,200.
• Child care or transportation expenses: Up to $500 of expenses paid in the second year.

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

The credit may not be claimed if the Employment Opportunity Tax Credit was claimed for the same employee.

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 MW506). 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 the income tax return (Form 500).

Personal income tax:

Form 500CR must be completed and submitted with the income tax return (Form 502 or 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 their 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, the Maryland Annual Employer Withholding Reconciliation Report.

Insurance premiums tax:

Documentation of the credit shall be maintained by the taxpayer in their files and be made available to the Insurance Commissioner, on request, in accordance with COMAR 31.06.04.03. The documentation should include documents from the agency granting the credit and a list of the names and telephone numbers for the taxpayer's staff who are directly involved in granting the credits. All information shall be retained for a minimum of three years from the date of the filing of the final tax return on which the credit is taken.

Public service company franchise tax:

Form AT3-74 must be submitted with the franchise tax return (SDAT forms 11 or 11T).

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

or:

Maryland State Department of Education
Division of Rehabilitation Services
2301 Argonne Drive
Baltimore, MD 21218
Phone: 1-888-554-0334
E-mail: dors@dors.state.md.us