Withholding Tax Credit

This type of tax credit is not a tax credit program in and of itself, but is usually a part of another tax credit as an added "benefit" to an employer or company for doing business in a certain area or hiring employees who reside in certain areas where economic stimulation would be crucial to the development of the surrounding community.

This usually occurs when employer who earns a non-refundable tax credit, is unable to realize the full potential of that credit due to inadequate income tax liability. The state can then give the employer the option to realize the credit by using it against the withholding tax that the employer withholds from the employee's paycheck. So, instead of submitting those dollars to the tax authority, the employer retains them. There is no adverse effect on the employee.

This type of program is unusual, and exists on the state level and can be extremely useful to a business in providing an additional source of cash flow.