Last week, 9/14/2020, the Governor signed SB 1447, which enacts a new small business hiring credit for the 2020 taxable year only. This bill could be the sleeper bill of the year because it provides some very real, somewhat immediate relief to small businesses, especially those in the restaurant and retail industries. The catch is that you reserve the credit with the CDTFA between December 1, 2020, and January 15, 2021, in order to be able to claim it. So it’s definitely something you want to plan for now.
Under the bill, businesses can receive a $1,000 credit (up to a $100,000 maximum) for every net increase in full-time equivalent employees. The credit can only be claimed by businesses that reserved the credit and that:
Employed 100 or fewer employees as of December 31, 2019; and
Experienced a 50% decrease in gross receipts when comparing their 2020 second calendar quarter gross receipts with 2019 second calendar quarter gross receipts.
The net increase in employees is measured by comparing the taxpayer’s average number of monthly full-time equivalent employees for the second quarter of 2020, with the average number of monthly full-time equivalent employees for the five-month period beginning July 1, 2020, and ending November 30, 2020. So this could play a role in helping businesses determine when they might want to add employees back on to their payrolls.
The credit cannot be claimed for employees whose wages are included in calculating any other California personal income tax or corporation franchise tax credit, like the California Competes Credit or California’s New Employee Credit.
This nonrefundable credit can be claimed against:
Personal income or corporation franchise and income taxes (including the $800 minimum tax) on a timely filed original return; or
At the election of the taxpayer, It can be applied against the business’ sales and use taxes due beginning with the April 30. 2021 return.
Electing the sales tax route could be huge for businesses like restaurants and retail businesses, whose income tax liability might be greatly reduced or even nonexistent for the 2020 tax year (and possibly beyond) because of COVID-19.
Any unused credit can be carried forward for up to five succeeding taxable years, and wage deductions claimed by the employer have to be reduced by the amount of credit claimed.