Insights

Proposed Bill Offers Tax Credits to Businesses Owned by Women, People of Color

A group of Senate Democrats has introduced legislation to give small businesses owned by women and people of color greater access to capital through tax incentives.  The bill, known as the Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act includes two new tax credits: a First Employee Credit and an Investor Credit.

The First Employee Credit would provide a credit equal to 25 percent of W-2 wages reported that could be claimed annually, up to $10,000 in a single tax year, with a lifetime limit of $40,000. The tax credit would be creditable against a business’s payroll tax liability because many businesses don’t turn a profit in their early years. Some businesses that haven’t reported full-time equivalent W-2 wages in the previous year would be eligible for the credit. The eligible businesses would have to be majority-owned by U.S. individuals who each earn $100,000 or less per year (or $200,000 in the case of joint filers).

The Investor Credit aims to encourage third-party capital investment in small businesses. The credit would be for up to 50 percent of a qualified debt or equity investment could be claimed, up to $10,000 in a single tax year, with a lifetime limit of $50,000. Investors who fund some of the businesses could use the tax credit to boost their rate of return. Eligible businesses would need to have at least one full-time equivalent employee and be majority-owned by U.S. individuals who each earn $100,000 or less per year (or $200,000 in the case of joint filers).

The legislation aims to level the playing field for entrepreneurs, and its proponents say male entrepreneurs, on average, start with nearly twice as much capital as women entrepreneurs. The disparities are bigger when it comes to accessing third-party capital. In 2018, only 2.3 percent of venture capital funding went to companies founded only by women. Even though Hispanic and Black women make up 50 percent of all women-owned firms, they raised only 0.32 percent and 0.0006 percent of venture capital funding in the past decade.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.