In the latest issue of The Wright Toolbox:
When Opportunity Knocks, Answer The Door – New Opportunity Zones
Well, we have all just gone through our first round of taxes under the new tax laws that were enacted in December 2017, known as the Tax Cuts and Jobs Act (the “Act”). I am sure that we all know someone who was happy, sad and/or mad about the impact of the Act on their personal taxes. But the Act did more than change personal income taxes, it also created “Opportunity Zones.” An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they are a low-income census tract with an individual poverty rate of at least 20 percent and median family income no greater than 80 percent of the area median. Opportunity Zones were created as an economic development tool, designed to spur development and job creation in distressed communities. The plan is to spur economic development by providing tax benefits and incentives to investors.
On April 20, 2019, the Maryland Department of Housing and Community Development held a press conference to identify Maryland’s Opportunity Zones. Secretary Kenneth C. Holt said “The Opportunity Zone program allows Maryland to attract capital to energize the development of communities that have not traditionally seen private sector investment, and they will be a game-changer for Maryland.” Mr. Holt further stated “I’m excited to establish these zones and further leverage private, nonprofit and public sector funds, providing new opportunities for housing, retail and business growth to fuel the state’s economic engine and create jobs.” To see the Maryland Opportunity Zones – click here.
There are three types of incentives available:
- Temporary Deferral: A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.
- Step-Up in Basis: For capital gains reinvested in an Opportunity Fund the basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
- Permanent Exclusion: a permanent exclusion from taxable income of capital gains from sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.
In October 2018, the Treasury Department and the Internal Revenue Service released proposed regulations for Opportunity Zones. To see the 2018 proposed regulations – click here. On April 17, 2019, the Treasury Department issued the latest proposed regulations for Opportunity Zones. To see the 2019 proposed regulations – click here. Perhaps opportunity is knocking on your door in an Opportunity Zone.
The New Maryland Minimum Wage After the “Fight for Fifteen”
For many employers, the most significant development from the 2019 Maryland legislative session is the passage of House Bill 166 raising the minimum wage. The bill sets a schedule for increases to the minimum wage from $10.10 per hour to $15 per hour through incremental annual increases beginning January 1, 2020. For employers with 15 or more employees, the minimum wage schedule is below:
January 1, 2020 – $11/hour
January 1, 2021 – $11.75/hour
January 1, 2022 – $12.50/hour
January 1, 2023 – $13.25/hour
January 1, 2024 – $14/hour
January 1, 2025 – $15/hour
For small businesses, defined as businesses with 14 or fewer employees, the schedule for the minimum wage increase is slightly extended, with a modified minimum wage schedule as follows:
January 1, 2020 – $11/hour
January 1, 2021 – $11.60/hour
January 1, 2022 – $12.20/hour
January 1, 2023 – $12.80/hour
January 1, 2024 – $13.40/hour
January 1, 2025 – $14/hour
January 1, 2026 – $14.60/hour
July 1, 2026 – $15/hour
All employers must be prepared to implement these wage increases effective January 1, 2020. Experience tells us that an increase to minimum wage has other effects as well, such as requested pay increases for supervisory employees and modifications to employee benefits to offset other operating costs. If you have questions about implementing the new minimum wage for your employees or changes to other employee benefits, please contact our Employment & Labor Law practice group.
To browse past issues, visit The Wright Toolbox page.