October 20, 2021
As part of California’s Assembly Bill (AB) 150, the Main Street Small Business Tax Credit II is a follow-up from Senate Bill 1447 from 2020, which allows a small business hiring credit against California state income taxes or sales and use taxes to certain California qualified small business employers that receive a credit reservation. The update to the bill provides financial relief to qualified small businesses for the economic disruptions in 2020 and 2021 that have resulted in unprecedented job losses. With this credit, taxpayers will be able to use the credit against income taxes, or they can make an irrevocable election to apply the credit against sales and use taxes.
Beginning at 8:00 a.m. 11/1/2021 through 11/30/2021, qualified California small business employer taxpayers can make reservations for the credit on the California Department of Tax and Fee Administration’s (CDTFA) website.
It’s important to note that these credit reservations will be awarded on a first-come, first-served basis— we urge you to apply early.
Highlights of the Tax Credit
- The application window is from 11/1/21-11/30/21.
- Qualified small business employers can apply to reserve $1,000 per net increase in qualified employees, not to exceed $150,000.
- The credit offsets either CA income tax or sales tax.
- Tentative credit reservation amounts will generally be reduced by credit amounts reserved or received under the first Main Street Small Business Tax Credit.
- Reservations can be made even if the taxpayer will claim the credit against their personal income tax or corporation franchise tax liability.
Small business qualification criteria
A qualified employee is an employee who is paid qualified wages by a qualified small business employer. Qualified wages are wages that are paid to qualified employees for services performed in the State of California for a qualified small business employer. Finally, a California qualified small business employer is a taxpayer who meets the following criteria:
- Must employ 500 or fewer employees as of December 31, 2020
- Must have started your business prior to 2020, to qualify for these credits
Must have experienced a decrease of 20% or more in income tax gross receipts (generally, all income less returns and allowances) and will be determined by comparing (for calendar year income tax filers):
20% drop in revenue comparing January 1, 2020, through December 31, 2020, to January 1, 2019, through December 31, 2019
- Note: Special rules apply for businesses that started in 2019.
- The increase in average monthly full-time equivalent employees (FTEs) from 4/1/20-6/30/20 compared to lesser of 7/1/20-6/30/21 or 4/1/21-6/30/21
- 20% drop in revenue comparing January 1, 2020, through December 31, 2020, to January 1, 2019, through December 31, 2019
Small business owners still have much to consider regarding specifics of qualifications, definitions, new or rehired qualified employees, and previously elected claims on the first Main Street Tax Credit. All this and more is detailed on the California Department of Tax and Fee Administration’s FAQ page.
You can count on GC to guide you in your businesses’ taxing decisions. Reach out to your CPA or email us at firstname.lastname@example.org to find out how we can help you assess your qualification for this important tax credit.