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First-come, First-served by November 30! California Hiring Tax Credit II

The California Main Street Small Business Tax Credit has been expanded with modifications. Because of the changes to the program, it allows more businesses to qualify for increases in the credit amount that businesses can be eligible for.

The Main Street Hiring Credit II may be claimed against taxpayer personal income tax, or corporation franchise and income taxes, or at the election of the taxpayer, against state and local sales and use taxes. Taxpayers who qualified for Employee Retention Credit may also qualify for this credit.

Reserving the Credit

A tentative credit reservation must be made with the CDTFA during the period of November 1, 2021, through November 30, 2021, or when the funds are depleted, whichever comes first. This credit is allocated on a first-come, first-serve basis.

Qualification Criteria

The credit is only available during the 2021 taxable year. It can only be claimed by businesses that pay wages subject to California withholding, and meet the following requirements:

  • 500 or fewer employees as of December 31, 2020.
  • Experienced at least a 20% decline in gross receipts from 2019 to 2020.

For taxpayers that started businesses after January 1, 2019, but on or before January 1, 2020, the 20% decline is measured by comparing gross receipts from January 1, 2020, through February 28, 2020, multiplied by 1.5, to the gross receipts for the period beginning on April 1, 2020, and ending on June 30, 2020.

Credit Amount

The amount of the credit is $1,000 for each qualified employee, not to exceed $150,000. The credit is calculated based on the net increase of full-time equivalent qualified employees that occurred after June 30, 2020.

Qualified Employees

The CDTFA has issued the following regarding how to count employees eligible for the credit:

  • Employees who are paid wages for services performed in the State of California
  • Employees who were previously laid off are included in the net-increase
  • New or rehired employees do not have to be on the payroll for the entire period to be counted
  • Part-time employees that had increased hours are also included in the net increase
  • As long as the employee is paid wages subject to California withholding, there is no minimum/maximum wage requirement

Sales Use Tax Credit

If you are a monthly, quarterly, or annual filer, the sales and use tax credit may be applied.

  • Monthly filers can apply against amounts due and payable for the month of March 2022 and due by April 30, 2022.
  • Quarterly filers can apply against amounts due and payable for the first calendar quarter in 2022 and due on April 30, 2022.
  • Other filers (annual or fiscal year) can apply against amounts due and payable on the first return due on or after April 30, 2022.

Excess credits may be claimed on subsequently filed returns up until April 30, 2027. Any remaining excess credit amount after April 30, 2027, will be forfeited. You cannot use the credit to pay prior or past due balances.

Help Claiming Credits

Taxpayers may claim the credit against their personal income tax, corporation income, and franchise taxes, or sales and use tax liability. Taxpayers who received both the Main Street Hiring Credit I and II can make different elections for 2020 and 2021.

The following information is needed to help assess the opportunity:

  • Both 2020 and 2019 gross receipts.
  • Payroll information during the periods April 1, 2020, to June 30, 2021.
  • Number of employees as of December 31, 2020.

If you meet these requirements, Windes can look into the feasibility of reserving a tax credit on your behalf.  Time is of the essence since California began accepting applications on November 1, 2021, on a  first-come, first-serve basis. Connect with us today to take advantage of this opportunity.
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