On April 19, 2022, Illinois Gov. J.B. Pritzker signed Senate Bill 157, extending the sunset date of the Illinois Economic Development for a Growing Economy Tax Credit Act (EDGE) five years from June 30, 2022 to June 30, 2027. A summary of the program and discussion of the program amendments follows below.
EDGE background and required investments
The Illinois EDGE program is operated by the Illinois Department of Commerce and Economic Opportunity (DCEO) 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 although under certain circumstances the credits can be earned up to 15 years. 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. The credit is not available to taxpayers engaged in retail, retail food, health services or professional services. Qualifying projects must involve one of the following:
- 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.
EDGE credit
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; or 100% of the income withheld from new employees. 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; or 100% of the income withheld from new employees if the business expansion project is located in a designated ‘underserved area.’ Through June 30, 2022, ‘underserved areas’ must meet one or more of the following:
- The area has a poverty rate of at least 20% under the latest federal census;
- 75% or more of the children in the area take part in the federal free lunch program;
- 20% or more of the households in the area receive help under the Supplemental Nutrition Assistance Program (SNAP); or
- The average unemployment rate in the area is more than 120% of the national unemployment average.
After July 1, 2022, the definition of ‘underserved area’ has been amended to mean one or more of the following:
- The area has a poverty rate of at least 20% according to the latest American Community Survey (ACS);
- 35% or more of the families with children in the area are living below 130% of the poverty line according to the ACS;
- 20% or more of the households in the area receive help under the Supplemental Nutrition Assistance Program (SNAP); or
- The average unemployment rate in the area is more than 120% of the national unemployment average.
The 10% credit for eligible trainings costs (applicable as described above) applies to the training costs of newly hired full-time employee positions at the project site. Training requires upgrading the technological skills of the eligible employees and include costs such as curriculum development and training materials, travel expenses for the trainee, instructor costs, rent and leases of training equipment, and other similar costs.
Finally, Senate Bill 157 has added ‘startup taxpayers’ to the specified taxpayers that are allowed an option to elect to utilize the EDGE credits against employer payroll withholding obligations for certain years in lieu of their income tax liability. ‘Startup taxpayers’ include corporations, partnerships, or other entities incorporated or organized no more than five years before the filing of an EDGE application and that have never had any Illinois income tax liability.
Takeaways
The extension of the EDGE credit program will continue to help taxpayers creating jobs in Illinois. However, taxpayers should be cognizant of a few nuances of the program before applying. First, taxpayers must apply to the program and provide significant applicant and project summary information. Second, the terms of the agreement between the DCEO and the taxpayer become public information. Finally, taxpayers should consider all of the potential credit and incentives options before beginning the project.
Taxpayers considering the EDGE 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.
