State Tax Credits
The United States Government offers a federal tax credit of up to $2,400 for employers who hire individuals from nine targeted groups of job seekers, including individuals with felony records. States can offer an additional tax break to business owners who hire people with criminal records as one way to support the re-entry of those who are legitimately trying to return to the job market in order to support their families and rejoin their communities.
Six states - California, Illinois, Iowa, Louisiana, Maryland, and Texas - provide state income tax credits to employers who hire people with criminal records. In1998, the Hawaii Legislature proposed an employment discrimination measure that would have required the state to “appeal to the community spirit and good citizenship” in order to encourage employers to hire individuals with arrest and court records. Even though this measure was never passed, it was suggested that a tax incentive should be provided for employers who hired recently released felons.
Five states - Florida, Missouri, Indiana, Delaware and Pennsylvania - have statutes that allow for the receipt of tax credits for any business that contributes to crime prevention. Upon further inquiry, it is clear that crime prevention refers primarily to location, not to individuals.
A bill was recently introduced in the Ohio Legislature that would extend a tax credit against the state’s corporate franchise and personal income taxes for wages paid by employers to employees who have been convicted of felonies.
For contact information for each of the following state’s Department of Labor, please see the “Clearinghouse” section of this website.
Summary of States Granting Additional Income Tax Credits
Any employer who hires an “ex-offender” may be eligible for a state tax credit. The credit given is equal to the sum of each of the following:
(1) 50% of qualified wages in the first year of employment.
(2) 40% of qualified wages in the second year of employment.
(3) 30% of qualified wages in the third year of employment.
(4) 20% of qualified wages in the fourth year of employment.
(5) 10% of qualified wages in the fifth year of employment.
Additional Contact: California Employment Development Department
The Ex-felon Jobs Credit allows any employer that hires any number of "qualified ex-offenders" to apply for a credit amount equal to 5% of qualified wages paid or up to $600 per hire. A "qualified ex-offender" must be formerly incarcerated from an Illinois adult correction facilitiy and was hired within the first year of his/her release from prison.
Employers in Iowa are allowed an additional deduction on their Iowa income tax returns for hiring a person who has been convicted of a felony (in Iowa, any other state, or the District of Columbia) or who is serving a parole or probation sentence or in participating in a work release program. This deduction is 65% of the wages paid in the first 12 months of employment; the maximum deduction is $20,000 per employee.
Additional Contact: Iowa Department of Revenue or http://www.state.ia.us/tax/educate/78522.html
A tax credit is available to any taxpayer who provides full-time employment (at least 30 hours per week) to an individual who has been convicted of a first time drug offense and who is less than twenty-five years of age at the time of initial employment.
The credit is $200 per taxable year per eligible employee. Only one credit is allowed per taxable year per employee and may be received for a maximum of two years per employee.
The credit is available upon certification by the employee’s probation officer that the employee has successfully completed a court-ordered drug treatment program and has worked 180 days full time for the employer seeking the credit.
Additional Contact: Louisiana Department of Revenue
For each taxable year, for the wages paid to each qualified ex-felon employee, a credit is allowed in an amount equal to:
(1) 30% of up to the first $ 6,000 of the wages paid to the qualified ex-felon employee during the first year of employment; and
(2) 20% of up to the first $ 6,000 of the wages paid to the qualified ex-felon employee during the second year of employment.
For purposes of this credit, an ex-felon employee is anyone who has been convicted of a state or federal felony; is hired within a year of being convicted or released from prison; and is member of a family with an annual income 70% below the Bureau of Labor Statistics living standard.
Additional Contact: Maryland Department of Employment Services
The amount of the credit for wages paid by a corporation to an employee who was employed by the corporation when the employee was a work program participant is equal to 10% of that portion of the wages paid that, were the employee still a participant, the department would apportion to the state as reimbursement for the cost of the participant's confinement.
Additional Contact: Texas Comptroller of Public Accounts
Last updated: 2007
- CAL. REV. & TAX CODE § 17053.34; LA. REV. STAT. ANN. § 47:287.752; MD. CODE ANN., LABOR AND EMPLOYMENT § 11-702 (2002); TEX. TAX CODE ANN. § 171.654; IOWA CODE § 422.35 (2003).
- See Hearings on H.B. 3528 (H.D. 1), 19th Leg., Reg. Sess. (1998) (testimony on behalf of SHRM)
- See H.R. Stand Comm. Rep. No.244, 20th Leg., Reg. Sess. (1998). The Hawaii House of Representatives committee on Public Safety and Military Affairs believed that a tax incentive would reduce recidivism by helping felons find gainful employment. See id.
- FLA. STAT. ANN. § 212.097; MO. REV. STAT. § 32.110; IND. CODE ANN. § 6-3.1-9-2; DEL. CODE ANN. tit. 30, § 2004; 72 PA. CONS. STAT.§ 8904-A
- Telephone interview with Sandra Bellamy, Tax Specialist, Florida Department of Revenue, who noted that this credit is not associated with the hiring of any targeted population; rather,it refers to locations where there is a high incidence of crime (July 25, 2003).
- 125th Ohio General Assembly, House Bill 206 (www.legislature.state.oh.us). The bill received a first hearing in the House Ways and Means but has not progressed further.