To help small businesses that are climbing back from financial devastation caused by COVID-19, California is providing a new credit for small businesses for the 2020 tax year only. The credit, also referred to as the Main Street Hiring Credit, is targeted to those businesses that had to lay off employees or dramatically reduce their employees’ hours earlier this year and are now rehiring these employees, hiring new employees, and/or increasing their workers’ hours.
Only a limited amount of money is available for the credit. To be eligible, taxpayers must reserve the credit with the California Department of Tax and Fee Administration. Reservations are being taken on a first-come, first served basis starting December 1, 2020, and will only be taken until the earlier of January 15, 2021, or when the $100 million credit allocation is reached.
We believe the $100 million set aside for this credit will be completely reserved well before January 15, 2021, so we recommend making credit reservations as early in December as possible.
The credit is equal to $1,000 for each net increase in qualified employees, up to $100,000 maximum per taxpayer, but can only be claimed by businesses that:
- Employed 100 or fewer employees (all employees, including part-time employees) as of December 31, 2019; and
- Experienced a 50% decrease in gross receipts from April 1, 2020–June 30, 2020, as compared to April 1, 2019–June 30, 2019.
The net increase is measured by comparing the taxpayer’s average number of monthly full-time equivalent (FTE) employees for the second quarter of 2020 with the average number of monthly FTE employees for the five-month period beginning July 1, 2020, and ending November 30, 2020.
And what’s even better, if you will owe little or no income tax, you can claim this credit against state and local sales and use taxes instead.
Call our office today to make sure you can take advantage of this credit. We’ll make sure you qualify for the maximum amount of credit available by counting your gross receipts and full-time employees accurately.
As we are approaching to the year-end, now is a great time to reach out and discuss tax planning opportunities. See the following link for our 2020-2021 tax planning guide: https://www.webtaxguide.net/MGGCPA/