California Small Business Hiring Tax Credit

Senate Bill 1447

September 21, 2020
Douglas Andersen, State and Local Tax Partner, Edvin Givargis, State and Local Tax Senior Manager

On September 9, 2020 Governor Newsom signed Senate Bill 1447 enacting a hiring tax credit for qualified small businesses. The credit is effective for corporate and personal income tax (for tax years beginning on or after January 1, 2020 and before January 1, 2021) or sales and use taxes (for periods beginning Q1 2021 through April 30, 2026). The program total for this tax credit (i.e. available funds) is $100 million.

Overview of the California Small Business Hiring Tax Credit

The California small business hiring tax credit provides qualified small business employers a $1,000 corporate or personal income tax credit for each net increase in qualified employees, not to exceed $100,000, for any qualified small business employer.  

Qualified Small Business Employer

A “qualified small business” employer means a taxpayer that:

  • Employed 100 or fewer employees as of December 31, 2019;
  • Experienced a qualifying 50 percent decrease in gross receipts for the 3-month period beginning on April 1, 2020 and ending June 30, 2020, as compared with the gross receipts for the three-month period beginning April 1, 2019 and ending June 30, 2019; and
  • Is not required to be included in a combined report under Cal. Tax. & Rev. Code §§ 25101 or 25110 or authorized to be included in a combined tax report under Cal. Tax. & Rev. Code §§ 25101.15.

Net Increase in Qualified Employees

The net increase of qualified employees of a qualified small business employer is determined by the net increase in the average monthly full-time equivalent qualified employees during April – June 2020 period, as compared to the average monthly full-time equivalent qualified employees during the July – November 2019 period. Note that both full-time and part-time salaried and hourly employees may be qualified full-time equivalent employees. For purposes of this credit, a “Qualified employee” cannot include an employee whose wages are included in calculating any other credit provided under the California personal income tax code (Part 10, of Division 2, of the California Revenue and Taxation Code).

Credit Application Process

Qualified small business employers are required to submit an application to the California Department of Tax and Fee Administration (CDTFA) between December 1, 2020 and January 15, 2021. The CDTFA will allocate a tentative credit reservation amount on a first-come, first-served basis. The CDTFA will notify the applicant of the tentative credit reservation amount within 30 days after the application is received. 

Application our Clients

This credit applies to what seems a narrow set of employers that grew their employee base while experiencing a 50 percent or more reduction of gross receipts. However, the broad application of the credits to corporate and individual income taxes, as well as sales and use taxes will make these credits highly valuable to the qualifying employers.   

If you believe the California small business hiring tax credit may apply to you, please contact one of the following HCVT state and local tax team members: 

Douglas Andersen douglas.andersen@hcvt.com
Nancy Chher nancy.chher@hcvt.com
Edvin Givargis edvin.givargis@hcvt.com 
Elisa Reyes elisa.reyes@hcvt.com 
Goran Jovicic goran.jovicic@hcvt.com 
Micah Sims micah.sims@hcvt.com 

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