by Stuart Rubin, EA and Nicholas Sanchez, J.D., LL.M. Taxation
Last month, Governor Newsom signed SB 1447 authorizing a $100 million hiring tax credit program for businesses with 100 or fewer employees (as of December 31, 2019) that experienced a 50% decrease in gross receipts when comparing 2020 second quarter gross receipts with 2019 second quarter gross receipts. The credit may be claimed against personal and corporate income taxes or, at the election of the taxpayer, state and local sales and use taxes. The income tax credit will only be available for the 2020 taxable year, whereas the sales tax credit may offset taxes through April 30, 2026.
The credits can be claimed by businesses that reserve the credit through the California Department of Tax and Fee Administration. The application process is still being worked out, but taxpayers must file the request during the period beginning December 1, 2020 and ending the earlier of January 15, 2021 or the date the maximum total allocation is reached.
The amount of the credit is equal to $1,000 for each net increase in qualified employees up to a maximum of $100,000 per taxpayer. The net increase will be measured by comparing the taxpayer’s average number of monthly full-time equivalent employees for the second quarter of 2020 with the average number for the five-month period beginning July 1, 2020 and ending November 30, 2020.
The credit will be particularly beneficial to retail and restaurant businesses that use the credit to offset sales taxes. There are several disqualifying provisions, however, and wage deductions claimed by the employer will have to be reduced by the amount of the credit. Please contact us for further details.
We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you.