small business hiring tax credit

Cameron Lee

Tax Staff

Applications have recently opened on December 1st, 2020 to apply for California’s small business hiring tax credit. This past September, Governor Gavin Newsom signed SB 1447 allowing qualifying small business owners to claim a $1,000 credit for each net increase in monthly average employees.

Each employer is limited to no more than $100,000 total credit under this program. In order to qualify for the credit, taxpayers must meet the following:

  • Have 100 or fewer employees on December 31, 2019 (all employees, including part-time employees).
  • Have experienced a 50% decrease in gross receipts from April to June, 2020, compared to the gross receipts in April to June 2019.
  • Apply for a tentative credit reservation from CDTFA during the period of December 1, 2020 through January 15, 2021.
  • Not be required or authorized to be included in a combined report (consolidated corporations or other unitary businesses).

Taxpayers must reduce any deduction otherwise allowed for qualified wages by the amount of the credit allowed.

It is important to note that S corporations can elect to apply the credit against qualified sales and use taxes or franchise and incomes taxes.  For sales and use taxes and for franchise taxes, the credit will be claimed 1/3 of the total credit and 2/3 of the credit must be disregarded. If the S corporation applied the credit against franchise and income taxes, you can also have the S corporation pass through the full credit down on your K-1 so that you will be able to use the credit on your personal income tax return.

The deadline is just around the corner on January 15th, 2021. We recommend reserving the credit early, as the credits are allocated by CDTFA on a first-come, first-served basis until the credits are exhausted at $100 million.

To reserve your credit, follow the application process on the CDTFA website: click here.

If you have any questions regarding the CA small business hiring credit, please contact your Wright Ford Young & Co. advisor here for more information.