Updated: Nov 13, 2020
If you have a California business with employees, please read on...
California approved a tax credit for hiring new employees on or after July 1, 2020. The credit can be used against income tax or sales taxes. To qualify, your business must meet both of the following requirements:
- have 100 or fewer employees as of dec 31 2019 (if you own 50% or more of multiple businesses, employees of all your businesses must be 100 or less) and
- have a 50% decrease in gross receipts by comparing the 3 month period April 1, 2020 - June 30, 2020, to 3 month period April 1, 2019 - June 30, 2019
THE CREDIT...... it's $1k per net increase in the number of full time equivalent employees. Increase is defined as the average FTE in the 5 month period July 1, 2020 - Nov 30, 2020, compared to the average FTE in the 3 month period April 1, 2020 - June 30, 2020.
In other words, if you started hiring in July 2020 and continue to ramp up thru Nov 2020, and if your FTE during that period is more than the 3 month period April 1, 2020 - June 30, 2020, you're eligible for a $1k credit for each FTE increase.
HOW TO USE THE CREDIT........... It can be applied against either individual/business income taxes or, can be used against sales taxes. If you choose income taxes, it applies to the 2020 tax year. If there are unused amounts, they carry over to future tax years.
Or you can use the credit against sales taxes collected starting Jan 1, 2021. Unused amounts carry over 5 years
INCOME OR SALES TAXES..............In my opinion, if your business regularly collects significant sales taxes, apply to that. Otherwise, apply against income taxes
HOW TO APPLY FOR THE CREDIT......... Final rules are not yet available and are being worked out. There will be an application that can be submitted no earlier than Dec 1, 2020. Once the application is approved by the State, a credit will be "reserved" in your account and can be claimed on either an income tax return for 2020 or sales tax return for 2021.
LIMITATION............. The credits will be reserved on a first-come/first-serve basis. Meaning very important to remit the application as soon as the filling deadline is announced. Once $100M of credits are "reserved" by the program, no more. This is pretty unusual, given that most other tax credits are available to all who claim it. In this case, however, the state has placed a limit on the total amount it is willing to offer.
BUSINESS LIMITATION............. $100k of credits is the maximum each business will be allowed.
We called CDTFA (Sales Tax Agency of CA). They tell us that the application period begins December 1, 2020. The application will be made through their website and keep in mind it's first come-first serve. Meaning important to mark your calendar for that date so you get to the head of the list.
As we get closer to the Dec 1, 2020 application deadline, we can review your FTE increase and calculate the potential credit amount.
Hope this helps. Please let us know if there are questions.
Here is the link to the CDFTA website: https://cdtfa.ca.gov/