950-Main Street Small Business Tax Credit II
* Applies to 2021 *
California’s governor signed Assembly Bill 150 establishing the Main Street Small Business Tax Credit II. This bill provides financial relief to qualified small businesses for the economic disruptions in 2020 and 2021. It is similar to the Main Street Small Business Tax Credit that applies to 2020, but there are some differences.
Taxpayers can use the credit against income taxes or can make an irrevocable election to apply the credit against sales and use taxes. AB 194, signed int law June 30, 2022, allows this credit to be claimed on an amended tax return.
Eligible Employers
To qualify for the credit, a qualified small business employer must:
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Have 500 or fewer employees (including part-time employees) on December 31, 2020, whose wages are subject to California withholding laws, and
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Have experienced a decrease of 20% or more in gross receipts, and
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Apply for and receive a credit reservation.
Calendar year filers compare gross receipts for 2020 to gross receipts for 2019, while fiscal year filers can either compare the:
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Gross receipts for fiscal year 2019-20 to the gross receipts for fiscal year 2018-19, OR
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Gross receipts average for fiscal year 2019-20 and fiscal year 2020-21 to the gross receipts for fiscal year 2018-19.
New businesses that began business after January 1, 2019, but on or before January 1, 2020, can determine the decrease by comparing gross receipts from January 1, 2020, through February 28, 2020, multiplied by 1.5 to gross receipts for the period of April 1, 2020, and ending on June 30, 2020.
To be eligible, the business must not be required or authorized to be included in a combined report.
Reservations Required
Eligible businesses can apply for a tentative credit reservation from the CDTFA during the period of November 1, 2021, through November 30, 2021 (or earlier if the credit limitation of approximately $116 million is reached before then) and receive a tentative credit reservation. The credit is allocated by CDTFA on a first come, first-served basis.
Eligibility
To be eligible, the business must not be required or authorized to be included in a combined report.
No Double Dipping
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.
Credit Amount (Credit Code 241)
The amount is equal to $1,000 for each net increase in qualified employees, measured by the monthly average full-time employee equivalents. Each employer is limited to no more than $150,000 in credit.
The credit is calculated based on monthly, full-time equivalent (FTE) qualified employees. The net increase in qualified employees will be the amount equal to B minus A.
A. The average monthly FTE employed during the three-month period April 1, 2020, through June 30, 2020. The average monthly FTE is determined by adding the total monthly FTE equivalent qualified employees employed for all three months and dividing the total by three.
B. The lesser of either the following:
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The average monthly FTE employees employed during the 12-month period July 1, 2020, through June 30, 2021. The average monthly FTE is determined by adding the total monthly FTE employees employed for all 12 months and dividing the total by 12.
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The average monthly FTE employees employed during the three-month period April 1, 2021, through June 30, 2021. The average monthly FTE is determined by adding the total FTE employees employed for all three months and dividing the total by 3.
"Monthly full-time equivalent" means either of the following:
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For a qualified employee paid hourly qualified wages, "monthly full-time equivalent" means the total number of hours employed per month for the qualified small business employer by the qualified employee, not to exceed 167 hours per month per qualified employee, divided by 167.
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In the case of a salaried qualified employee, "monthly full-time equivalent" means the total number of weeks employed per month for the qualified small business employer by the qualified employee divided by 4.33 multiplied by the time base the qualified employee was employed.
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"Time base" means the fraction of full-time employment that the qualified employee is employed.
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"Weeks employed" means the total number of calendar days that a qualified employee was employed by the qualified small business employer during the month, divided by seven, not to exceed 4.33.
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The amount of credit for the 2021 taxable year is reduced by the Main Street Small Business Tax Credit for taxable year 2020. The 2021 credit will be reduced by either:
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The business’s 2020 credit allocated for application to Sales and Use Tax; or
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The 2020 credit received that was applied against income taxes
Qualified Employee
To be a qualified employee, the employee must be paid wages subject to withholding under the California Unemployment Insurance Code and cannot receive wages that are used in the calculation of any other tax credit, except for the 2020 Main Street Small Business Tax Credit. Payments to independent contractors don’t qualify.
How to Claim
Complete and include form FTB 3866. The confirmation number (received from CDTFA on the business’s Tentative Credit Reservation) must be included when claiming the credit. Unused credits may be carried over for 5 years or until used up. AB 194, signed int law June 30, 2022, allows this credit to be claimed on an amended tax return.