2020 Main Street Small Business Tax Credit Small business hiring credit - Senate bill 1447

Overview

California’s governor signed Senate Bill 1447 establishing the Main Street Small Business Tax Credit. This bill provides financial relief to qualified small businesses for the economic disruptions in 2020 that have resulted in unprecedented job losses.

Taxpayers can use the credit against income taxes, or can make an irrevocable election to apply the credit against sales and use taxes.

To qualify for the credit, taxpayers (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.

For each taxable year beginning on or after January 1, 2020, and before January 1, 2021, the new law allows a qualified small business employer a small business hiring tax credit, subject to receiving a Tentative Credit Reservation through the California Department of Tax and Fee Administration (CDTFA).

The credits are allocated by CDTFA on a first-come, first-served basis until the credits are exhausted at $100 million.

All taxpayers (including those electing to use the credit to offset qualified sales and use taxes) must reduce any deduction otherwise allowed for qualified wages by the amount of the credit allowed.

Considerations for S corporations

S corporations electing to apply the credit against qualified sales and use taxes:

  • Are limited to using 1/3 of the tentative credit reservation amount (from their confirmation letter from CDTFA) to offset their sales and use taxes. 
  • Must disregard the remaining 2/3 of the credit and the S corporation may not use it as a carryover credit.
  • Cannot pass through any of the credit to its shareholders.  

S corporations electing to apply the credit against franchise and income taxes:

  • Are limited to applying 1/3 of the tentative credit reservation amount (from their confirmation letter from CDTFA) against the tax on net income at the S corporation level.  They may not use the credit to offset the $800 minimum franchise tax.
  • Must disregard the remaining 2/3 of the credit and the S corporation may not use it as a carryover credit.
  • Can pass through the full credit amount to their shareholders, who may use the credit against their income taxes.

Credit amount

Equal to $1,000 for each net increase in the monthly average number of employees, as measured in full-time employee equivalents. For more information on computing the credit, visit CDTFA.

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.

Each employer is limited to no more than $100,000 of this credit.

How to claim

  • File your original or amended income tax return.
  • Include your Main Street Small Business Hiring Credit (FTB 3866) form, to claim the credit.
    • Provide the confirmation number (received from CDTFA on your Tentative Credit Reservation) when claiming these credits.
    • Use credit code 240 when claiming the credit.
  • Visit Instructions for FTB 3866 for more information.
  • Unused credits may be carried over for 5 years or until exhausted.

Other

All employees of the trades or businesses that are treated as related under Section 267, 318, or 707 of the Internal Revenue Code shall be treated as employed by a single qualified small business employer.

Contact

ftbsbhc@ftb.ca.gov