October 14, 2020
California Offers New Small Business Hiring Credit
Posted by Mark Cummings
Taxpayers who employed 100 or less people as of December 31, 2019, and had a 50% decrease in gross receipts for the period April 1, 2020, to June 30, 2020, are allowed a hiring credit of $1,000 for each net increase in full-time equivalent qualified employees during the period July 1, 2020, to November 30, 2020. This credit can be claimed starting with the income tax year beginning on or after January 1, 2020, and before January 1, 2021. The taxpayer may also make an irrevocable election to use the credit against sales and use taxes starting January 1, 2021.
On September 9, 2020, Governor Newsom signed Senate Bill No. 1447 which allows for a hiring credit for small businesses negatively impacted in 2020. This non-refundable credit can be used against individual or corporate income taxes for tax years beginning on or after January 1, 2020, and before January 1, 2021, and any unused credit after the first year may be carried forward four years. Alternatively, the taxpayer can make an irrevocable election to apply the credit to sales and use taxes for periods beginning January 1, 2021, to April 30, 2026. The credit is equal to $1,000 for each increase in qualified employees up to a maximum of $100,000 per qualified employer.
Qualified employers eligible for the credit must meet the following criteria:
- Employs 100 people or less as of December 31, 2019
- Has a 50% decrease in gross receipts for the period April 1, 2020, to June 30, 2020, as compared to April 1, 2019, to June 30, 2019
- Is ineligible to be included in a combined income tax report
- Submits an application to receive a tentative credit reservation from the CA Department of Tax and Fee Administration (CDTFA) for the period December 1, 2020, to January 15, 2021
The net increase in employees is determined by taking the total monthly full-time equivalent qualified employees employed July 1, 2020, to November 30, 2020, and dividing by five, then subtracting the total monthly full-time equivalent qualified employees employed April 1, 2020, to June 30, 2020, divided by three.
To date, no regulations have been issued by either the Franchise Tax Board (FTB) or the CDTFA.
The total allocation for the hiring credit is $100,000,000 for all California taxpayers. The department shall allocate a tentative credit reservation to qualified small business employers on a first-come, first-served basis. Once the funds are exhausted, no further credits will be granted.
Small business employers shall submit, and the department shall accept, applications for tentative credit reservation amounts during the period beginning December 1, 2020, and ending January 15, 2021, or any earlier date determined by the department when the maximum cumulative total allocation limit is reached.
Please note that the first date to submit an application is December 1, 2020, yet the period to calculate the full-time equivalent qualified employees ends November 30, 2020.
Applications for a tentative credit reservation regarding this credit are not yet available and the credit allocation amount is limited. Taxpayers should begin calculations early to see if they are eligible for this credit so that applications may be submitted as soon as they are available.
To learn more, reach out to our tax experts.
Mark is a Tax Director at Armanino and is the practice leader of the Southern California State and Local Tax division, specializing in finding innovative solutions for clients. With over 30 years of experience, he specializes in planning, reorganizations, mergers, acquisitions, compliance and tax provisions. Specific areas of expertise include tax controversy, global tax structures, ASC 740, tax due diligence on acquisitions, defense contractors and media entertainment companies, and tax issues related to Intellectual Property rights.
Mark has a bachelor’s degree in business administration with an emphasis in marketing from the University of Illinois Urbana-Champaign. He is a Certified Public Accountant in California and Texas.
Co Authors :
Malcolm is a Tax Partner at Armanino with more than 20 years of experience in multistate sales/use taxes. Malcolm’s primary focus is assisting high-growth Software as a Service (SaaS) and other cloud service providers in identifying, quantifying and resolving potential sales/use tax liabilities prior to an S-1 filing or other liquidity event. Malcolm’s technology client base, although concentrated in Silicon Valley, extends to technology centers nationwide. Malcolm is a frequent speaker and course instructor in the area of sales/use taxation of cloud-based services. Malcolm is a California CPA and a member of the American Institute of Certified Public Accountants.