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New Jobs Credit Frequently Asked Questions


  1. If a sole proprietor incorporates in 2009 and begins paying wages, does he/she get the new jobs credit by virtue of becoming an employee in 2009?
  2. In measuring the requirement that an employer may not employ 20 or more employees as of the last day of the preceding taxable year in order to be potentially eligible for the credit, are only full-time employees at year-end counted, or are part-time employees also counted?
  3. Are non-California employees of related parties to the employer counted in measuring the no more than 20 employee threshold?
  4. Is the credit only available for employees hired in California?
  5. If a pass-through entity (partnership or S corporation) files its return prior to the cut-off date claiming the new jobs credit, must the partner or shareholder also file their own return prior to the cut-off date in order to claim the new jobs credit?
  6. If a partner or S corporation shareholder timely files their original return before the cut-off date claiming a new jobs credit as a pass-through item from a partnership or S corporation, and the pass-through entity does not file its original return claiming the credit until after the cut-off date, will the partner or shareholder be allowed the new jobs credit?
  7. If a pass-through entity files an amended return before both the cut-off date and the extended due date, and on that amended return increases the amount of the new jobs credit claimed on their original filing, are the partners or S corporation shareholders entitled to claim the revised credit amount on their returns?
  8. Can a partner or S corporation shareholder challenge or contest whether a new jobs credit was properly disallowed if the credit is denied due to a pass-through entity in which such partner or shareholder had an interest failing to file its return by the cut-off date or failing to claim the new jobs credit on an original return?
  9. Can a taxpayer claim a new jobs credit where the net increase in full-time employees is less than 1 employee?
  10. How do the related party rules in the new jobs credit apply to the following factual situation? Assume A, an individual, operates a farming business in California. Assume also that A owns 100% of a C corporation, X, and a 50% interest in a limited liability company, L, both of which are doing business solely within California. Assume further that as of the last day of the preceding taxable year of each of the businesses, December 31, 2008, A had 3 full-time employees, X had 9 full-time employees, and L had 6 full-time employees. Finally, assume that as of the last day of the 2009 taxable year, A had 5 full-time employees, X had 10 full-time employees, and L had 7 full-time employees, and that all wages paid by A, X, and L were wages subject to Division 6 of the Unemployment Insurance Code. What is the new jobs credit to which A, X, and L are entitled?
  11. Same facts as Example 1, except assume that as of the last day of the 2009 taxable year, A had 9 full-time employees, X had 4 full-time employees, and L had 10 full-time employees. What is the new jobs credit to which A, X, and L are entitled?
  12. Same facts as Example 1, except assume that X is a Montana corporation that does business solely in Montana, and that L does business both within and outside California. Assume further that all of the wages paid by L are wages subject to Division 6 of the Unemployment Insurance Code. What is the new jobs credit to which A, and L are entitled?
  13. Same facts as Example 3, except assume that X has 4 full-time employees at the end of their 2009 taxable year. What is the new jobs credit to which A, X, and L are entitled?
  14. If an employer is engaged in a trade or business within an enterprise or similar zone, and hires employees for which vouchers are obtained from the applicable vouchering authority, can those employees also qualify the employer for the new jobs credit?




  1. If a sole proprietor incorporates in 2009 and begins paying wages, does he/she get the new jobs credit by virtue of becoming an employee in 2009?

    While the business activity conducted by the sole proprietorship in 2008 is merely changing its "form" to a corporation, a sole proprietor who is now an employee may allow the corporation to qualify for the credit. The change in form rules in the credit would require that the corporation measure the 2008 full-time job equivalents of the sole proprietorship against the 2009 full-time job equivalents of the corporation to determine whether there would be an increase in full-time employment. If there is an increase, even if it is solely attributable to the former sole proprietor becoming an employee of the successor corporate entity, the corporation could qualify for the credit in 2009.

  2. In measuring the requirement that an employer may not employ 20 or more employees as of the last day of the preceding taxable year in order to be potentially eligible for the credit, are only full-time employees at year-end counted, or are part-time employees also counted?

    For purposes of determining whether an employer can be treated as a qualified employer, both full and part time employees as of the last day of the preceding taxable year are to be counted.

  3. Are non-California employees of related parties to the employer counted in measuring the no more than 20 employee threshold?

    Yes, under the related party rules in the credit statute, all employees of all related entities are aggregated for purposes of the 20-employee test.

  4. Is the credit only available for employees hired in California?

    The credit is available only for a net increase of employees being paid wages subject to Division 6 of the Unemployment Insurance Code ("California taxable wages").

  5. If a pass-through entity (partnership or S corporation) files its return prior to the cut-off date claiming the new jobs credit, must the partner or shareholder also file their own return prior to the cut-off date in order to claim the new jobs credit?

    If the pass-through entity files an original return claiming the credit with a completed form FTB 3527, New Jobs Credit, prior to the cut-off date, the partner or shareholder is not required to file its own return before the cut-off date in order to claim their proportionate share of the new jobs credit. However, if the pass-through entity fails to file its original return with the Franchise Tax Board claiming the new jobs tax credit by the cut-off date, any credit that could have been allocated from, or was attributable to, that entity cannot be claimed by any partner or shareholder, regardless of whether that partner or shareholder filed a separate original return on its or his or her own behalf claiming the new jobs credit before the cut-off date.

    Note that in the case of a disregarded entity, such as a single-member limited liability company (SMLLC), a timely entity-level return will be ignored in determining the date the return of the owner of that disregarded entity is received for purposes of determining the owner’s eligibility for the new jobs credit. The owner of the disregarded entity will have to file an original tax return claiming the credit before the cut-off date in order to be considered eligible for the new jobs credit.

  6. If a partner or S corporation shareholder timely files their original return before the cut-off date claiming a new jobs credit as a pass-through item from a partnership or S corporation, and the pass-through entity does not file its original return claiming the credit until after the cut-off date, will the partner or shareholder be allowed the new jobs credit?

    No. The entity filing date establishes whether the partner or shareholder will be eligible to claim the new jobs credit, so the date the partner or shareholder files is not relevant in determining their eligibility to claim the credit attributable to the pass-through item.

  7. If a pass-through entity files an amended return before both the cut-off date and the extended due date, and on that amended return increases the amount of the new jobs credit claimed on their original filing, are the partners or S corporation shareholders entitled to claim the revised credit amount on their returns?

    Yes. As long as the pass-through entity files both before the cut-off date and the extended due date, the partner or S corporation shareholder is entitled to claim the revised new jobs credit amount from the pass-through item on their return. However, if the pass-through entity either files its amended return after the cut-off date or after the extended due date, then that revised new jobs credit claimed on that amended return will not be allowed to increase the amount of the new jobs credit claimed by the pass-through entity or by the partners or S corporation shareholders of that entity.

  8. Can a partner or S corporation shareholder challenge or contest whether a new jobs credit was properly disallowed if the credit is denied due to a pass-through entity in which such partner or shareholder had an interest failing to file its return by the cut-off date or failing to claim the new jobs credit on an original return?

    No. Under the New Jobs Credit statutes, the Franchise Tax Board's determinations with respect to the cut-off date, the date a return is received, and whether a return has been timely filed may not be reviewed in any administrative or judicial proceeding.

  9. Can a taxpayer claim a new jobs credit where the net increase in full-time employees is less than 1 employee?

    Yes. If the amount on Line 3 of form FTB 3527 is less than 1, then the new jobs credit is calculated by multiplying the fraction on Line 3 by $3,000 (http://www.ftb.ca.gov/forms/2009/09_3527.pdf).

  10. How do the related party rules in the new jobs credit apply to the following factual situation? Assume A, an individual, operates a farming business in California. Assume also that A owns 100% of a C corporation, X, and a 50% interest in a limited liability company, L, both of which are doing business solely within California. Assume further that as of the last day of the preceding taxable year of each of the businesses, December 31, 2008, A had 3 full-time employees, X had 9 full-time employees, and L had 6 full-time employees. Finally, assume that as of the last day of the 2009 taxable year, A had 5 full-time employees, X had 10 full-time employees, and L had 7 full-time employees, and that all wages paid by A, X, and L were wages subject to Division 6 of the Unemployment Insurance Code. What is the new jobs credit to which A, X, and L are entitled?

    Under the related party rules in the new jobs credit statute, which apply both to the determinations of the prior year maximum 20 employee rule and the "net increase in full-time employment" rule, A is required to aggregate all of the related businesses (within the meaning of Internal Revenue Code sections 267, 318, and 707) and treat those related entities as a single employer.

    Under these facts, A, X, and L are related and thus treated as a single employer. Since A had 3 employees, X had 9 employees, and L had 6 employees as of the last day of the preceding taxable year, the maximum 20 employee test was met, as A, X, and L had an aggregate total of 18 employees. Since A, X, and L each increased their full-time employment in California, each of them will be treated as a qualified employer for 2009. Further, since A, X, and L each had a net increase in full-time employment, A is entitled to a $6,000 credit (net increase of 2 FTE's x $3,000), X is entitled to a $3,000 credit (net increase of 1 FTE x $3,000), and L is entitled to a $3,000 credit (net increase of 1 FTE x $3,000).

  11. Same facts as Example 1, except assume that as of the last day of the 2009 taxable year, A had 9 full-time employees, X had 4 full-time employees, and L had 10 full-time employees. What is the new jobs credit to which A, X, and L are entitled?

    Under these facts, A, X, and L continue to be qualified employers. However, under these facts, A and L had net increases in full-time employment, but X had a net decrease in full-time employment. As a result, the net aggregate increase in full-time employment among the related parties A, X, and L must be allocated pro rata between A and L only (net of X's decrease in full-time employment). Here the net increase in full-time employment for the three related businesses is + 5 (+6 for A, -5 for X, and + 4 for L), which must then be allocated pro rata between A and L -- A receives 6/10 of the net +5 increase, and L receives 4/10 of the +5 increase. A is thus entitled to a $9,000 credit ((6/10 x 5) x $3,000) and L is entitled to a $6,000 credit ((4/10 x 5) x $3,000).

  12. Same facts as Example 1, except assume that X is a Montana corporation that does business solely in Montana, and that L does business both within and outside California. Assume further that all of the wages paid by L are wages subject to Division 6 of the Unemployment Insurance Code. What is the new jobs credit to which A, and L are entitled?

    Under these facts, A, X, and L continue to be qualified employers. However, since X does business solely within Montana and thus pays wages to its employees that are not wages subject to Division 6 of the Unemployment Insurance Code, X has not paid qualified wages and thus is not entitled to a new jobs credit. Further, since each of the three related parties had an increase in full-time employment, no allocation is required and A is entitled to a $6,000 credit (net increase of 2 FTE's x $3,000) and L is entitled to a $3,000 credit (net increase of 1 FTE x $3,000).

  13. Same facts as Example 3, except assume that X has 4 full-time employees at the end of their 2009 taxable year. What is the new jobs credit to which A, X, and L are entitled?

    Under these facts, X is still not entitled to claim a new jobs credit. Further, although the related parties (A, X, and L) have a net decrease in full-time employment, since the entire decrease is attributable to a reduction in X's employees, all of whom are employed in Montana and thus not paid wages subject to Division 6 of the Unemployment Insurance Code, the decrease in X's full-time employees is disregarded for purposes of determining the amount of the new jobs credit to which A and L are entitled. As a result, A is entitled to a $6,000 credit (net increase of 2 FTE's x $3,000) and L is entitled to a $3,000 credit (net increase of 1 FTE x $3,000), since the credit is for an increase in full-time employment attributable to employees being paid wages that are subject to Division 6 of the Unemployment Insurance Code.

  14. If an employer is engaged in a trade or business within an enterprise or similar zone, and hires employees for which vouchers are obtained from the applicable vouchering authority, can those employees also qualify the employer for the new jobs credit?

    No. Under the new jobs credit statute, a "qualified employee" does not include any employee who is certified as a qualified employee in an enterprise zone (EZ), manufacturing enhancement area (MEA), targeted tax area (TTA), local area military base (LAMBRA), or whose wages are included in calculating any other credit allowable under the Revenue and Taxation Code, which would include, for example, the prison inmate credit and the research and development credit.

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