California businesses who have hired new employees over the last few months may be eligible for a tax credit.
Senate Bill 1447 created the Small Business Hiring Credit Fund in the State Treasury and established the Main Street Hiring Tax Credit, which allows businesses to get a tax credit against personal and corporate income taxes each year.
Taxpayers must reserve their credits between December 1, 2020 and January 15, 2021, to qualify.
This credit only appliesto California businesses that meet the following qualifications:
- Employed 100 or fewer employees as of December 31, 2019, and
- Suffered a 50 percent decrease or more in income tax gross receipts (generally, all income less returns and allowances), when comparing second quarter 2020 to second quarter 2019.
The credits are good for $1,000 for each new employee hired between July and November, and the credit is capped at $100 million statewide, or $100,000 for each business. Businesses receive the credit only if they hire employees, not independent contractors. Small businesses that are owned by large companies are not eligible.
The employer will be able to apply for the credit against qualified sales and use taxes imposed for reporting period January 1, 2021 through April 30, 2026.
Tomorrow, December 1, 2020, the California Department of Tax and Fee Administration (CDTFA) will begin accepting applications for tentative small business hiring credit reservation amounts through an online reservation system.
Qualified business employers must apply with the CDTFA for a credit reservation.
The credit reservations will be allocated to qualified 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.
Within 30 days of receiving an application, CDTFA will notify each applicant via email whether a tentative credit reservation has been allocated to them and the amount of the tentative credit reservation.
This credit can be claimed on your income tax return and you will need to include a separate Small Business Hiring credit (FTB 3866) (coming soon) to claim this credit.
Please reach out to your RINA tax professional with any questions.