Main Street Small Business Tax Credit II
California enacted legislation for the Main Street Small Business Tax Credit II to support taxpayers impacted by the economic troubles in tax years 2020 & 2021. Like the Main Street Small Business Tax Credit available for 2020, this credit can be applied against sales and use taxes or income and franchise taxes.
The credit is equal to $1,000 for each net increase in qualified employees, as measured in monthly full-time employee equivalents (FTE). Each eligible employer’s total credit cannot exceed $150,000.
Some of the new eligibility requirements for 2021 include that Taxpayers must:
- Employed 500 or fewer qualified employees as of December 31, 2020 (including part-time employees).
- Have a decrease of 20% or more in gross receipts for tax year 2020 compared to tax year 2019.
- Acquire a tentative credit reservation from the California Department of Tax and Fee Administration (CDTFA).
Application for the required reservation is available November 1, 2021 through November 30, 2021. You may apply at an earlier date if the funds for the credit is fully allocated. Taxpayers must make an irrevocable election to apply the credit to either sales and use taxes or income and franchise taxes when applying for the reservation.
You can get more information on this credit at CDTFA’s webpage.
Homeless Hiring Tax Credit
California also enacted The Homeless Hiring Tax Credit (HHTC) for tax years 2022 through 2026 to qualifying taxpayers who hire new employees deemed to be eligible homeless individuals.
To qualify, the individual must:
- Be homeless on the date hired or experienced homelessness in the 180-days prior to their hire date; or receive homeless supportive services from a service provider.
- Work at least 500 hours for the employer during the taxable year
An eligible employer must:
- Pay a wage that is 120 percent of the California minimum wage.
- Obtain certificate of eligibility for each eligible employee to provide to the FTB
- Apply to the FTB for a credit reservation within 30 days of hiring the eligible individual.
- Claim the credit only on timely filed original returns.
The credit amount is based on the number of hours the eligible employee works during the taxable year. $30,000 is the maximum amount of credit a qualified employer can claim annually. The tax credit may range from $2,500 – $10,000 per qualified employee hired.
The credit may be claimed against employers’ personal income taxes or corporate taxes. Any excess credit may be carried forward 3 years until the credit is utilized.
This program creates meaningful employment in a way that positively incentivizes small businesses. Establishment of this tax credit will not only help revitalize local businesses across California who need the support to recover from the impact of the pandemic, but also move further towards housing all Californians, which will change lives.
We recommend that you contact our team today so we can discuss how tax credits and incentives can impact your State tax situation and maximize your company’s tax savings.
Dana R. Borys, an Accountancy Corporation is a boutique tax consulting, compliance, and representation firm working with affluent individuals and owners/officers/founders of start-up/emerging growth companies. Building connections beyond the code.