California Main Street Small Business Tax Credit Round 2

ACTION MAY BE REQUIRED ON NOVEMBER 1, 2021

The California legislature authorized another round of funding for the “Main Street Hiring Credit”. Employers that have increased hiring since the base period (April 1, 2020 to June 30, 2020) may qualify for this credit of $1,000 per additional full-time equivalent employee.

Beginning November 1, 2021, qualified small business employers need to apply for a credit reservation through the California Department of Tax and Fee Administration (CDTFA). The credit reservations will be allocated on a first-come, first-served basis until all available funds are allocated, so it’s important to apply as early as possible. The reservation system will be available November 1, 2021 – November 30, 2021. Qualified small businesses will be able to use the credit to offset their 2021 California income taxes or their 2022 sales and use tax deposits.

To qualify for the credit a California employer must:

  1. Have 500 or fewer employees on December 31, 2020 (this is a headcount test, so full-time, part-time, and temporary employees are included)
  2. Have experienced a decrease of 20% or more in gross receipts:
    • Calendar year filers compare gross receipts for 2020 to gross receipts for 2019
    • Fiscal year filers can either:
      • Compare gross receipts for fiscal year 2019-20 to the gross receipts for fiscal year 2018-19 OR
      • Compare the gross receipts average for fiscal year 2019-20 and fiscal year 2020-21 to the gross receipts for fiscal year 2018-19
    • New businesses that commenced business after January 1, 2019, but on or before January 1, 2020, can determine by comparing gross receipts from:
      • January 1, 2020, through February 28, 2020, multiplied by 1.5 to gross receipts for the period of April 1, 2020, and ending on June 30, 2020
    • Businesses that started in 2020 or 2021 are not eligible for the credit
  3. Not be required or authorized to be included in a combined report

The credit is calculated based on monthly, full-time equivalent (FTE) qualified employees. The net increase in qualified employees will be the amount equal to B minus A.

  1. The average monthly FTE employees employed during the three-month period: April 1, 2020, through June 30, 2020. The average monthly FTE is determined by adding the total monthly FTE equivalent qualified employees employed for all three months dividing the total by three.
  2. The lesser of either the following:
    • The average monthly FTE employees employed during the 12-month period: July 1, 2020, through June 30, 2021. The average monthly FTE is determined by adding the total monthly FTE employees employed for all 12 months and dividing the total by 12.
    • The average monthly FTE employees employed during the three-month period: April 1, 2021, through June 30, 2021. The average monthly FTE is determined by adding the total FTE employees employed for all three months and dividing the total by 3.

For additional information visit the CDTFA website

Additional information is also available from the Franchise Tax Board website

Please contact us if you have any questions about how you can benefit from the Main Street Small Business Tax Credit.