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Pass-Through Entities Must Timely File Original Tax Returns Claiming New Jobs Tax Credit in Order for Owners to Claim the Credit

A new jobs tax credit of $3,000 is available to small businesses with 20 or less employees for each additional net full-time employee hired and employed in California for tax years beginning on or after January 1, 2009. The total amount of the credit that we can allocate may not exceed $400 million, and claims must be made before a statutorily provided "cut-off" filing date. 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").

If a pass-through entity files an original return with a completed Form 3527, New Jobs Credit, prior to the cut-off date, the partner, member or shareholder is not required to file his or her own return before the cut-off date in order to claim one's proportionate pass-through share of the new jobs credit. However, if the pass-through entity fails to file its original return with us 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, member or shareholder, regardless of whether that partner, member 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.

We published "frequently asked questions" concerning the new jobs tax credit on our website. For more information, go to ftb.ca.gov and search for new jobs tax credit.

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