Incentives for businesses: What US companies need to know

If your business is based in the US — or you’re planning to set up there — you’re likely entitled to numerous government incentives that can save you money and encourage your growth.

But these incentives — such as grants or tax credits — aren’t just free money. They’re awarded with specific goals in mind, such as reducing unemployment or establishing new industries in a particular region.

In this article, we’ll look more closely at which incentives are available, what they’re meant to accomplish, and what the agencies issuing them expect in return. 

What are business incentives?

Business incentives are financial or non-financial benefits that governments offer to encourage specific business activities or behaviors. They can include tax credits, grants, subsidies, low-interest loans, or access to specific resources, and are designed to support business growth, innovation, job creation, and economic development.

These incentives often also promote regional development, as well as driving industry-specific advancements and aligning business operations with broader policy objectives, such as sustainability or social responsibility. 

They can help your business achieve its strategic goals by reducing operational costs or providing essential capital, while simultaneously contributing to broader economic and social outcomes.

How can incentives help your business?

Business incentives can help you reach your operational, financial, or strategic objectives in several ways. These include:

Cost reduction

Government incentives can significantly lower business costs. 

Tax credits, deductions, and exemptions directly reduce tax liabilities, while grants and subsidies can offset costs related to research, development, and expansion. For example, R&D tax credits can make innovation more attractive and financially viable for your business.

Market entry and expansion

Some incentives are designed to help your business enter new markets or expand within its existing ones.

For instance, export incentives or regional development grants can help you attract new customers and expand into new markets that might otherwise have been out of reach.

Capital for growth

Incentives such as low-interest loans or grants provide essential capital that your business can use for growth and expansion without diluting ownership.

This is particularly valuable for small businesses and startups that may have limited access to traditional funding sources.

Risk mitigation

Government incentives can mitigate risks associated with investment in new projects, research, or expansion into new markets. 

By sharing the financial burden, governments also shoulder a portion of the risk so that incentives like grants and subsidies can make it more feasible for your business to undertake ambitious or innovative projects.

Competitive advantage

Taking advantage of incentives helps your business gain a competitive edge over your competition.

For instance, incentives for technological development can help your company stay ahead in innovation. 

A less obvious competitive advantage is that tax incentives for hiring from certain demographics can help you attract a diverse and skilled workforce.

Sustainability

Incentives related to environmental sustainability can enable you to invest in green technologies and sustainable practices. 

This helps to not only ensure compliance with environmental regulations but also meet the growing consumer demand for environmentally responsible products and services.

Cash flow improvement

Incentives can improve your business’s cash flow in two ways: by either providing direct financial support or reducing outgoing expenses.

An improved cash flow allows for greater flexibility in capital investments, strategic planning, and operations.

Community relations and social responsibility

By participating in certain incentive programs — especially those focused on local development or employment — your business can strengthen its community relations and its reputation for being socially responsible.

How do business incentives work in the US?

Many incentives in the US are tailored to specific industries, such as technology, green energy, or manufacturing. If your company operates in one of the fields that are valued highly by the government, search for those categories of incentives first. 

Public-Private Partnerships (P3s) — which involve collaboration between businesses and government entities for mutual benefit — are also worth exploring.

In general, business incentives in the US are available at the federal, state, and local government levels. Let’s look at each of these categories in turn.

1. Federal business incentives

Federal incentives for businesses typically come in one of three financial categories:

Tax credits and deductions

• Research and development tax credits: These tax benefits allow businesses to reduce their tax liability by a percentage of their R&D expenses.

• Work opportunity tax credits: This business tax credit is designed to encourage the hiring of individuals from certain groups that are facing employment barriers.

• Energy efficiency tax credits: These credits are intended for businesses that want to invest in renewable energy solutions or make energy-efficient upgrades.

Grants

• Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs: These grants support research and development in technological innovation and scientific research by small businesses.

• Federal business grants for specific industries: These grants are designed to support specific industries such as agriculture, environmental conservation, and healthcare.

Loan programs

• Small Business Administration (SBA) loans: The SBA, a federal agency dedicated to small business development, offers a variety of loan programs for different purposes, including starting and expanding a business.

2. State-level business incentives

All states offer some form of business incentive, ranging from tax credits (663 programs) to grants (568 programs) and loans (481 programs). You can see the full list of available programs in the State Business Incentives Database.

Some of the most common types of state business incentives include:

State-specific tax credits

• Job creation tax credits: These credits are offered in many states for businesses that create a certain number of jobs and help reduce unemployment.

• Investment tax credits: These credits are designed for companies that invest in certain areas or industries within a state.

Grant programs

• Economic development grants: These grants are tailored to attracting or retaining businesses in certain industries or regions.

• Workforce training grants: These grants provide funds for employee training programs. 

Sales tax exemptions

• Sales tax exemptions are commonly available for investing in manufacturing equipment, purchasing raw materials, and — occasionally — for energy use.

3. Local business incentives

Many local communities also offer incentives for businesses, usually with the intention of attracting new businesses to their area.

Typical local programs include:

Property tax abatements

• Localities may offer these tax programs to entice businesses to invest in local real estate and develop properties for business use.

• Land or infrastructure grants

• These grants are designed to provide free or discounted land or infrastructure improvements to encourage business development in specific areas.

Local economic development programs

• Cities and towns may provide economic development grants or funding programs for small businesses and startups to promote new business initiatives.

To learn more about hiring in individual US states and what that entails, check out our US State Explorer tool.

What do governments expect in return?

In return for their largesse and business support, governments have clear expectations of what recipients must do to qualify for their incentive programs.

Here’s an overview of these requirements and expectations:

Compliance with eligibility criteria

Businesses are expected to meet specific criteria in terms of job creation numbers, investment amounts, or operational guidelines to qualify and maintain their incentive status. 

Sustained economic contributions

In return for receiving incentives, businesses are often expected to contribute to the economy over a period beyond the incentive’s immediate benefits. This includes maintaining job numbers and continuing operations in the incentivized area.

Alignment with policy goals

Businesses are expected to align their operations and practices with the broader policy goals of the incentive, such as innovation in technology, sustainable practices, or economic development in specific regions.

Reporting and transparency

Recipients of incentives are often required to report on their use of the funds granted, job creation numbers, and other relevant metrics. These reports help governments ensure companies are complying, and measure the effectiveness of their incentive programs.

Remember: government incentives for businesses are not just financial benefits. They also represent a symbiotic relationship between the public and private sectors.

Managing your incentives with Remote 

If you are enrolled — or plan to enroll — in an incentive program, you need to hold up your end of the bargain. Often, this can be a complex administrative process as you aim to jump through all the relevant hoops and stick to all the rules.

When you work with an experienced HR partner like Remote, our in-house experts work to ensure that you’re fully compliant at all times. This gives you peace of mind and helps you reap the rewards of whichever incentives you’re receiving — without worrying about the small print.

To learn more about how we can help you get the most out of government incentives — and how we can simplify all your HR needs, including payroll and benefits — speak to one of our experts today.

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