---
kind: "section"
citation: "26 U.S.C. § 1396"
title: "26"
title_heading: "Internal Revenue Code"
number: "1396"
heading: "Empowerment zone employment credit"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1396"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter U — Designation and Treatment of Empowerment Zones, Enterprise Communities, and Rural Development Investment Areas"
  - "Part III — Additional Incentives for Empowerment Zones"
  - "Subpart A — Empowerment Zone Employment Credit"
---

# §1396. Empowerment zone employment credit

- (a) **Amount of credit—** For purposes of [section 38](/usc/26/38.md), the amount of the [empowerment zone](/usc/26/1393.md?p=b) employment credit determined under this section with respect to any employer for any taxable year is the [applicable percentage](/usc/26/414.md?p=l-2-B) of the [qualified zone](/usc/26/1355.md?p=g-4-B) [wages](/usc/26/1397.md?p=a-1) paid or incurred during the calendar year which ends with or within such taxable year.
- (b) **Applicable percentage—** For purposes of this section, the [applicable percentage](/usc/26/414.md?p=l-2-B) is 20 percent.
- (c) **Qualified zone wages—**
  - (1) **In general—** For purposes of this section, the term “[qualified zone](/usc/26/1355.md?p=g-4-B) [wages](/usc/26/1397.md?p=a-1)” means any [wages](/usc/26/1397.md?p=a-1) paid or incurred by an employer for services performed by an [employee](/usc/26/430.md?p=c-7-D-vi) while such [employee](/usc/26/430.md?p=c-7-D-vi) is a [qualified zone](/usc/26/1355.md?p=g-4-B) [employee](/usc/26/430.md?p=c-7-D-vi).
  - (2) **Only first $15,000 of wages per year taken into account—** With respect to each [qualified zone](/usc/26/1355.md?p=g-4-B) [employee](/usc/26/430.md?p=c-7-D-vi), the amount of [qualified zone](/usc/26/1355.md?p=g-4-B) [wages](/usc/26/1397.md?p=a-1) which may be taken into account for a calendar year shall not exceed $15,000.
  - (3) **Coordination with work opportunity credit—**
    - (A) **In general—** The term “[qualified zone](/usc/26/1355.md?p=g-4-B) [wages](/usc/26/1397.md?p=a-1)” shall not include [wages](/usc/26/1397.md?p=a-1) taken into account in determining the credit under section 51.
    - (B) **Coordination with paragraph (2)—** The $15,000 amount in [paragraph (2)](#c-2) shall be reduced for any calendar year by the amount of [wages](/usc/26/1397.md?p=a-1) paid or incurred during such year which are taken into account in determining the credit under section 51.
- (d) **Qualified zone employee—** For purposes of this section—
  - (1) **In general—** Except as otherwise provided in this subsection, the term “[qualified zone](/usc/26/1355.md?p=g-4-B) [employee](/usc/26/430.md?p=c-7-D-vi)” means, with respect to any period, any [employee](/usc/26/430.md?p=c-7-D-vi) of an employer if—
    - (A) substantially all of the services performed during such period by such [employee](/usc/26/430.md?p=c-7-D-vi) for such employer are performed within an [empowerment zone](/usc/26/1393.md?p=b) in a [trade or business](/usc/26/1402.md?p=c) of the employer, and
    - (B) the principal place of abode of such [employee](/usc/26/430.md?p=c-7-D-vi) while performing such services is within such [empowerment zone](/usc/26/1393.md?p=b).
  - (2) **Certain individuals not eligible—** The term “[qualified zone](/usc/26/1355.md?p=g-4-B) [employee](/usc/26/430.md?p=c-7-D-vi)” shall not include—
    - (A) any individual described in subparagraph [(A)](/usc/26/51.md?p=i-1-A), [(B)](/usc/26/51.md?p=i-1-B), or [(C)](/usc/26/51.md?p=i-1-C) of section 51(i)(1),
    - (B) any 5-percent owner (as defined in [section 416(i)(1)(B)](/usc/26/416.md?p=i-1-B)),
    - (C) any individual employed by the employer for less than 90 days,
    - (D) any individual employed by the employer at any facility described in [section 144(c)(6)(B)](/usc/26/144.md?p=c-6-B), and
    - (E) any individual employed by the employer in a [trade or business](/usc/26/1402.md?p=c) the principal activity of which is farming (within the meaning of subparagraph [(A)](/usc/26/2032A.md?p=e-5-A) or [(B)](/usc/26/2032A.md?p=e-5-B) of section 2032A(e)(5)), but only if, as of the close of the taxable year, the sum of—
      - (i) the aggregate unadjusted bases (or, if greater, the fair market [value](/usc/26/851.md?p=c-4)) of the assets owned by the employer which are used in such a [trade or business](/usc/26/1402.md?p=c), and
      - (ii) the aggregate [value](/usc/26/851.md?p=c-4) of assets leased by the employer which are used in such a [trade or business](/usc/26/1402.md?p=c) (as determined under regulations prescribed by the Secretary),

      exceeds $500,000.

  - (3) **Special rules related to termination of employment—**
    - (A) **In general—** [Paragraph (2)(C)](#d-2-C) shall not apply to—
      - (i) a termination of employment of an individual who before the close of the period referred to in [paragraph (2)(C)](#d-2-C) becomes disabled to perform the services of such employment unless such disability is removed before the close of such period and the [taxpayer](/usc/26/1313.md?p=b) fails to offer reemployment to such individual, or
      - (ii) a termination of employment of an individual if it is determined under the applicable State unemployment [compensation](/usc/26/414.md?p=n-5-C-iii) law that the termination was due to the misconduct of such individual.
    - (B) **Changes in form of business—** For purposes of [paragraph (2)(C)](#d-2-C), the employment relationship between the [taxpayer](/usc/26/1313.md?p=b) and an [employee](/usc/26/430.md?p=c-7-D-vi) shall not be treated as terminated—
      - (i) by a transaction to which [section 381(a)](/usc/26/381.md?p=a) applies if the [employee](/usc/26/430.md?p=c-7-D-vi) continues to be employed by the acquiring corporation, or
      - (ii) by reason of a mere change in the form of conducting the [trade or business](/usc/26/1402.md?p=c) of the [taxpayer](/usc/26/1313.md?p=b) if the [employee](/usc/26/430.md?p=c-7-D-vi) continues to be employed in such [trade or business](/usc/26/1402.md?p=c) and the [taxpayer](/usc/26/1313.md?p=b) retains a substantial [interest](/usc/26/856.md?p=f-1) in such [trade or business](/usc/26/1402.md?p=c).

## Source credit

(Added Pub. L. 103–66, title XIII, § 13301(a), Aug. 10, 1993, 107 Stat. 549; amended Pub. L. 104–188, title I, § 1201(e)(4), Aug. 20, 1996, 110 Stat. 1772; Pub. L. 105–34, title IX, §§ 951(b), 952(b), Aug. 5, 1997, 111 Stat. 885, 887; Pub. L. 106–554, § 1(a)(7) [title I, § 113(a), (b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–601.)

## Notes

### Editorial Notes

### References in Text

The Taxpayer Relief Act of 1997, referred to in subsec. (b)(2), is Pub. L. 105–34, Aug. 5, 1997, 111 Stat. 788. For complete classification of this Act to the Code, see Tables.

### Prior Provisions

A prior section 1396, added Pub. L. 95–600, title VI, § 601(a), Nov. 6, 1978, 92 Stat. 2895; amended Pub. L. 96–595, § 3(a)(6), (9), (10), Dec. 24, 1980, 94 Stat. 3465, related to minimum distributions by an electing general stock ownership corporation, prior to repeal by Pub. L. 99–514, title XIII, § 1303(a), Oct. 22, 1986, 100 Stat. 2658.

### Amendments

2000—Subsec. (b). Pub. L. 106–554, § 1(a)(7) [title I, § 113(a)], amended subsec. (b) generally, substituting provisions establishing an applicable percentage of 20 percent for provisions setting out tables for determining the applicable percentage.

Subsec. (e). Pub. L. 106–554, § 1(a)(7) [title I, § 113(b)], struck out heading and text of subsec. (e). Text read as follows: “This section shall be applied without regard to any empowerment zone designated under section 1391(g).”

1997—Subsec. (b). Pub. L. 105–34 substituted “For purposes of this section—

“(1) In general.—Except as provided in paragraph (2), the term ‘applicable percentage’ means the percentage determined in accordance with the following table:”

for “For purposes of this section, the term ‘applicable percentage’ means the percentage determined in accordance with the following table:” and added par. (2).

Subsec. (e). Pub. L. 105–34, § 952(b), added subsec. (e).

1996—Subsec. (c)(3). Pub. L. 104–188 substituted “work opportunity credit” for “targeted jobs credit” in heading.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2000 Amendment

Pub. L. 106–554, § 1(a)(7) [title I, § 113(d)], Dec. 21, 2000, 114 Stat. 2763, 2763A–601, provided that: “The amendments made by this section [amending this section and section 1400 of this title] shall apply to wages paid or incurred after December 31, 2001.”

### Effective Date of 1997 Amendment

Amendment by section 951(b) of Pub. L. 105–34 effective Aug. 5, 1997, except that designations of new empowerment zones made pursuant to amendments by section 951 of Pub. L. 105–34 to be made during 180-day period beginning Aug. 5, 1997, and no designation pursuant to such amendments to take effect before Jan. 1, 2000, see section 951(c) of Pub. L. 105–34, set out as a note under section 1391 of this title.

### Effective Date of 1996 Amendment

Amendment by Pub. L. 104–188 applicable to individuals who begin work for the employer after Sept. 30, 1996, see section 1201(g) of Pub. L. 104–188, set out as a note under section 38 of this title.