On September 9, 2020, California Governor Gavin Newsom signed Senate Bill 1447, which created the Main Street Hiring Tax Credit, a new opportunity for certain businesses that are hiring employees. The credit is intended to support businesses that have been impacted by the COVID-19 pandemic but have since increased their hiring.
Below, we explain details about the credit and how you can apply.
Overview & Amounts
A qualified small business can claim a credit of $1,000 for each net increase in qualified employees, with a cap on the total credit per business of $100,000. The net increase is measured by comparing a company’s average monthly full-time equivalent employees for the period July 1, 2020, to November 30, 2020, against the Q2 2020 period.
The credit has been established with a total pool of $100,000,000, which will be granted on a first-come-first serve basis.
Any business wishing to claim a credit is required to submit a tentative credit reservation application to the California Department of Tax and Fee Administration (CDTFA) between December 1, 2020, and January 15, 2021.
The application must identify the following:
- A company’s increase in employees
- The total credit amount claimed
- Whether the employer elects to apply the credit against sales and use taxes in lieu of claiming the credit against their income taxes
The CDTFA is required to respond to each application within 30 days, and, in the event that the credit isn’t immediately exhausted, periodically update the public on the amount of the remaining credit available for allocation.
For the credit, a qualified small business is any business in California that meets both of the following criteria:
- Fewer than 100 total employees at the end of 2019
- At least a 50% reduction in gross receipts for Q2 2020—April 1, 2020, to June 30, 2020—compared to Q2 2019–April 1, 2019 to June 30, 2019
The definition of a qualified small business doesn’t identify any preferable or ineligible industries, making the credit available to any business that falls under the 100-employee threshold and meets the gross receipts test.
A business has the option of reporting the credit against its California income tax liabilities or against its sales and use taxes.
For income tax purposes, any excess credit shall be carried over and cannot be refunded. The carryover may be utilized against returns filed on or before April 30, 2026, after which the unutilized credit will be forfeited.
A qualified small business can make an irrevocable election to apply the credit amount against certain sales and use taxes. The tax periods for reporting the credit include:
- Monthly filers: Amounts due and payable for the month beginning on March 1, 2021, ending on March 31, 2021, and due April 30, 2021
- Quarterly filers: Amounts due and payable for the quarter beginning on January 1, 2021, ending on March 31, 2021, and due April 30, 2021
- Annual filers: Amounts due and payable on the first return due on or after April 30, 2021
Any excess credit will be carried over and applied against amounts due and payable for the following periods on returns due and filed on or before April 30, 2026, after which the unutilized credit will be forfeited.
We’re Here to Help
If you have questions about this tax opportunity or would like assistance pursing it, please reach out to your Moss Adams professional.