Executive Summary:
Recent changes in the Illinois EDGE tax credit present opportunities
The Illinois Economic Development for a Growing Economy (EDGE) tax credit offers annual income tax credits to businesses that create jobs and make capital investment in the state. Several years of legislative improvements have helped to both reduce administrative process to obtain the EDGE tax credit and increase overall competitiveness. Taxpayers located within Illinois or considering expanding to Illinois should revisit the EDGE tax credit for potentially significant incentive opportunities. The following article briefly summarizes the incentive and explains how recent changes may offer new benefits to investing taxpayers.
Illinois EDGE tax credit remains competitive in 2024
EDGE tax credit lowers administrative and substantive hurdles
Required investment and credit amount
The Illinois EDGE program is operated by the Illinois Department of Commerce and Economic Opportunity and designed to offer a special tax incentive to encourage businesses to locate or expand operations in Illinois. The program can provide tax credits to qualifying businesses equal to a portion of the amount of state income taxes withheld from the salaries of employees in the newly created jobs. The non-refundable credits can be earned for up to 10 years and used to offset income tax liabilities. In addition, certain specified taxpayers may elect to offset their employer payroll withholding obligations as opposed to their income tax liability. To qualify, applicants must be in one of the following industries: manufacturing, processing, assembling, warehousing, distribution, research and development, tourism service business, office industries or agricultural processing. Importantly, the credit is not available to taxpayers engaged in retail, retail food, health services or professional services.
Qualifying EDGE projects are bifurcated between businesses with 100 or fewer employees and businesses with over 100 employees as follows:
- For businesses with 100 or fewer world-wide employees, creation of a minimum number of jobs equal to 5% of the world-wide employment, or
- For businesses with more than 100 world-wide employees, creation of a minimum number of jobs based on the lesser of 10% of world-wide employment, or 50 new full time jobs; and have a project investment of at least $2.5 million.
Generally, the EDGE credit is a non-refundable income tax credit equal to the lesser of 50% of the income tax withholdings of new jobs created in the state plus 10% of eligible training costs. The credit increases to the lesser of 75% of the income tax withholdings of new jobs created in the state plus 10% of eligible trainings costs if the business expansion project is located in a designated ‘underserved area.’
Recent updates
In 2022, the legislation extended the EDGE tax credit program by an addition five years through June 30, 2027, expanded the definition of ‘underserved area’ by adding an additional qualifying metric, and added new incentives for certain ‘startup’ taxpayers to utilize EDGE credits against employer payroll withholding.
In 2023, numerous administrative and substantive amendments were made intended to reduce the overall administrative burden on taxpayers considering the credit. These updates included reducing and simplifying requirements for identifying and analyzing competing incentives in other states, increasing the credit amount cap for retained employees in underserved areas, and clarifying the five-year termination clause.
Together, the recent legislative amendments as well as process improvements have meaningfully altered how investing taxpayers should weigh EDGE tax credit benefits. The increased retention credit alone could result in significant additional benefit for some taxpayers with large qualifying workforces.
Takeaways
In 2022, 20 EDGE tax credit applications were approved, over two-dozen agreements signed, and total credits issued exceed $200 million. While the credit has become increasingly easier to apply for and obtain, there are many considerations involved for large hiring and capital investment projects. Like many state incentives, there are aspects of the projects that become public information. Additionally, even with efficiency increases, there remains a robust application process and a number of nuanced rules and deadlines to consider. Finally, many states are offering more competitive programs in recent years and taxpayers should thoroughly evaluate all available incentives in context with their business goals. Taxpayers considering the EDGE tax credit program, or considering investing or hiring in Illinois generally, should speak to their Illinois tax advisers with questions about eligibility, available credit programs and application strategy.
