On September 9, 2020, California Governor Gavin Newsom signed S.B. 1447 into law, providing hiring credits to offset individual and corporate state income and franchise taxes for the 2020 tax year, or sales and use taxes liabilities over a five-year reporting period. The credits are nonrefundable and expire on April 30, 2026. Businesses applying for the credits must have hired qualified employees by the end of November 30, 2020. The credits are allocated by the California Department of Tax and Fee Administration (CDTFA) on a first-come, first-served basis, until the credits are exhausted. Each employer is limited to no more than $100,000 of this credit.
How to qualify for the Small Business Hiring Credit
To qualify for the credit, employers must:
- Have 100 or fewer employees on December 31, 2019 (all employees, including part-time employees).
- Have experienced a 50% decrease in gross receipts from April to June 2020, compared to the gross receipts in April to June 2019.
- Apply for a tentative credit reservation from CDTFA during the period of December 1, 2020 through January 15, 2021.
- Not be required or authorized to be included in a combined report.
How to claim
- File your California income tax return and include a Small Business Hiring credit (FTB 3866) to claim this credit.
- Provide the certificate numbers when claiming these credits.
- Use credit code 240 when claiming the credit.
- Visit Instructions for FTB 3866 for more information.
How pass-through entities apply for the credit
The credits are computed at the entity level and subsequently applied to the shareholders and members of pass-through entities.
Equal to $1,000 for each net increase in the monthly average number of employees, as measured in fulltime employee equivalents.
A Qualified employee:
- Must be paid wages by the employer (subject to California Unemployment Insurance Code).
- Cannot receive wages that are used in the calculation of any other tax credit.
- Is not paid as an independent contractor.