CALIFORNIA SMALL BUSINESS HIRING TAX CREDIT
In September, California Governor Gavin Newsom signed State Senate Bill 1447, establishing the Small Business Hiring Tax Credit – also known as the “Main Street Hiring Credit.” The legislation provides financial relief to qualified small businesses for the economic disruptions in 2020 that have resulted in unprecedented job losses.
The credit is targeted to businesses that had to lay off employees or dramatically reduce their employee work schedules earlier this year, and are now rehiring these employees, hiring new employees, and/or increasing their workers’ hours. It is available for the 2020 tax year only.
Only a limited amount of money is available for the credit. To be eligible, taxpayers must reserve the credit. Reservations are being taken on a first-come, first served basis starting December 1, 2020, and will only be taken until the earlier of January 15, 2021, or when the $100 million credit allocation is reached.
It is likely that the $100 million set aside for this credit will be completely reserved well before January 15, 2021, so eligible businesses should reserve credits as early in December as possible.
How Much Is the Credit?
The credit is equal to $1,000 for each net increase in qualified employees, up to $100,000 maximum per taxpayer, but can only be claimed by businesses that:
- Employed 100 or fewer employees (all employees, including part-time employees) as of December 31, 2019; and
- Experienced a 50% decrease in gross receipts from April 1, 2020 to June 30, 2020, as compared to April 1, 2019 to June 30, 2019.
The net increase is measured by comparing the taxpayer’s average number of monthly full-time equivalent (FTE) employees for the second quarter of 2020 with the average number of monthly FTE employees for the five-month period beginning July 1, 2020, and ending November 30, 2020.
How Do You Apply?
Qualified small business employers must apply with the California Department of Tax and Fee Administration (CDTFA) for a credit reservation. The credit reservations will be allocated to qualified small business employers on a first-come, first-served basis. The reservation system will be available from December 1, 2020 at 8:00 a.m. through January 15, 2021. CDTFA will notify each applicant via email within 30 days of receiving the application whether a tentative credit reservation has been allocated to them and the amount of the tentative credit reservation.
You can access the application here.
How Do You Claim the Credit?
The credit can be claimed against your California income tax. You must file your 2020 California business tax return and include a separate Small Business Hiring Credit form (coming soon) to claim the credit. The credit is not refundable, and any unused credits may be carried over for 5 years. Note: There are special rules on how S-corporations can claim the credit.
Even better, if you believe you will owe little or no income tax for 2020, you can claim this credit against state and local sales and use taxes instead.
We can help you determine if your business qualifies for this program. Please connect with us for guidance.