Small Business Tax Credit

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On September 9, 2020, California’s Governor Newsom signed Senate Bill 1447 establishing the Small Business Hiring Tax Credit. This bill provides financial relief to qualified small businesses that have experienced unprecedented losses during 2020. The credit is used to offset income taxes; however an irrevocable election can be made to apply the credit toward sales and use taxes.

To qualify for the credit, taxpayers (employers) must:

  • 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 2020 to June 2020, compared to the gross receipts from April 2019 to June 2019,
  • Apply for a tentative credit reservation from the California Department of Tax and Fee Administration (CDTFA) during the period of December 1, 2020 through January 15, 2021, and
  • Not be required or authorized to be included in a combined report.

The credits are allocated by CDTFA on a first-come, first-serve basis until the credits are exhausted at $100 million. To be eligible, the employer must apply for a “Tentative Credit Reservation” from the California Department of Tax and Fee Administration, but credits are ultimately claimed on the 2020 California income tax filing.  The CDTFA’s reservations system can be accessed via the link below.  Reservations may begin December 1, 2020: https://www.cdtfa.ca.gov/taxes-and-fees/sept20tib.pdf

The credit amount is equal to $1,000 for each net increase in the monthly average number of employees (full-time employee equivalent). A qualified employee:

  • Must be paid wages by the employer.
  • Cannot receive wages that are used in the calculation of any other tax credit.
  • Is not paid as an independent contractor.

Each employer is limited to benefit from no more than $100,000 of this credit.

Please contact your DKC representative if you have any questions.

 

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