Businesses that hire an individual who is receiving Aid to Families with Dependent Children (AFDC) or Family Investment Program (FIP) entitlements may be entitled to a tax credit for wages paid to the employee and for child care and transportation expenses paid on behalf of the employee. The credit may be claimed for individuals hired before July 1, 2006.

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 non-profit 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 at least one employee that received AFDC or FIP payments for any three months during the 18-month period before employment by the company. The employee cannot be closely related to the owners of the business.

Certification must be obtained from the Department of Labor, Licensing and Regusation that the individual is a qualified employee.

How The Credit Is Calculated:

The credit is allowed for the first two years of employment of the individual for both the wages paid and the childcare 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 (a maximum allowable credit of $1,800)
• 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 (a maximum allowable credit of $1,200)
• Child care or transportation expenses: Up to $500 of expenses paid in the second year

If the employee has been a recipient of AFDC or Temporary Cash Assistance for any 18 months during the last 48 months and is employed by the business for a full year, the credit increases to 40 percent of the furst $10,000 of wages paid to the employee. The credit for childcare or transportation expenses may also be taken for the first and second years as shown above.

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

For more information, contact:

David Ghee, Maryland Department of Labor, Licensing and Regulation

Division of Employment and Training.

(410)767-2080

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