Incentives 101: Two Major Types of Government Incentives

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As part of our effort to level the playing field and democratize access to these incentives, we want to help educate business owners on how they work. Incentives typically take the form of tax credits, tax deductions, grants, or low-interest loans. Individual incentive programs are one of two major types: legislated or discretionary.

  1. Legislated: Companies qualify for legislated incentives—such as the Research & Development Tax Credit (R&D) or the Employee Retention Tax Credit (ERTC)—as long as they check the boxes.

  2. Discretionary: Discretionary programs, however, typically involve committee or an elected official’s approval, after a company’s application to the relevant government body. These incentives are never guaranteed, even if you check all the boxes. Examples are the many grant programs, or the California Competes Tax Credit in the Golden State.

Much of the $100B allocated every year by the local, state, and federal government in the United States in incentives for small businesses goes unclaimed—or to large corporations that can afford teams of tax attorneys and consultants. This figure does not even include any of the one-time Covid-related programs like Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL)! We estimate that 97% of these program dollars go to big businesses with more than 500 employees.

Book a call with an incentives expert to learn more.