Apply early for California’s new Small Business Hiring Tax Credit

Applications open Tuesday, Dec. 1, for a new California hiring tax credit available on a first-come, first-served basis to qualifying small businesses.

Pursuant to Senate Bill 1447, enacted on Sept. 9, 2020, the Small Business Hiring Tax Credit is being offered for tax year 2020 to help alleviate the economic burden and resulting job losses caused by the COVID-19 pandemic.  The new hiring tax credit is administered by the California Department of Tax and Fee Administration (CDTFA). 

The Small Business Hiring Tax Credit can be claimed against personal income tax, corporate franchise or income tax, or, through an irrevocable election by the taxpayer, against sales and use tax.

The credit is available to qualified small business employers, defined as those that:

1. Had 100 or fewer employees (including part-time employees) on Dec. 31, 2019.

2. Experienced a 50% decrease in gross receipts from April 1, 2020, through June 30, 2020, in comparison to April 1, 2019, through June 30, 2019; the employer would need to have met the requirement of having a significant decline in gross receipts for that quarter under Public Law 116-136, the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

3. Are not required or authorized to be included in a combined report.

The credit is equal to $1,000 for each “net increase in qualified employees,” not to exceed $100,000 per employer. The net increase is calculated by subtracting the average monthly full-time equivalent qualified employees employed during the three-month period of April 1, 2020, through June 30, 2020, from the average monthly full-time equivalent qualified employees employed during the five-month period of July 1, 2020, through Nov. 30, 2020.

“Qualified employees” are those who are paid qualified wages: wages paid to an employee for services performed in California for a qualified employer that are subject to the withholding tax for wages pursuant to the California Unemployment Insurance Code. 

To qualify for the credit, businesses must submit applications to CDTFA to reserve the credit, starting Dec. 1, 2020. The application must be submitted online on the CDTFA site, even if the credit is being claimed against the personal income or corporate franchise or income tax. Applications will be accepted until the earlier of Jan. 21, 2021, or until credit allocation of $100 million is reached. 

For more information, see the California Franchise Tax Board’s page for the credit, or the CDTFA’s Small Business Hiring Tax Credit web page and FAQs.

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}