California Assembly Bill No. 50 (AB-50) established the California Main Street Small Business Tax Credit II, which will provide COVID-19 financial relief to qualified small business employers.

Overview

Beginning 11/1/21, and ending 11/30/21, the California Department of Tax and Fee Administration (CDTFA) will be accepting applications through their online reservation system for qualified small business employers to reserve $1,000 per net increase in qualified employees, not to exceed $150,000.  Tentative credit reservation amounts will generally be reduced by credit amounts reserved or received under the first Main St. Small Business Tax Credit.  The credits are reserved on a first-come, first-served basis.  Qualified small businesses will be able to offset either their income taxes or their sales and use taxes with the credit when filing their returns.

Qualifications

This credit only applies to California small businesses that meet the following qualifications:

• Employed <=500 employees as of 12/31/2020.
  

• Experienced a decrease of 20% or more in gross receipts reported to Franchise Tax Board (FTB) for income taxes and will be determined by comparing:

For calendar year income tax filers:

• Compare 1/1/20 – 12/31/20 to 1/1/2019 – 12/31/2019.

For fiscal year income tax filers:

• Compare gross receipts for fiscal year 2019-2020 to fiscal year 2018-2019.

or

• Compare average of gross receipts for fiscal year 2019-2020 and fiscal year 2020-2021 to gross receipts from fiscal year 2018-2019.

For a taxpayer that started business in 2019:

• Compare (1) gross receipts for the period 1/1/20 – 2/28/20 multiplied by 1.5,  to (2) the gross receipts for the period 4/1/20 – 6/30/20.

Credit Calculation

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.

1. The average monthly FTE employed during the three-month period 4/1/20 – 6/30/20. The average monthly FTE is determined by adding the total monthly FTE equivalent qualified employees employed for all three months dividing the total by three.
2. The lesser of either of the following:

• The average monthly FTE employees employed during the 12-month period 7/1/20 – 6/30/21. The average monthly FTE is determined by adding the total monthly FTE employees employed for all 12 months and dividing the total by 12.

• The average monthly FTE employees employed during the three-month period 4/1/21 – 6/30/21. 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:

• 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.

• 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.

• • “Time base” means the fraction of full-time employment that the qualified employee is employed.

• • “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.

CDTFA Resources

For more information on the California Main Street Small Business Tax Credit II, visit the Main Street Small Business Tax Credit II website.

(This is Blog Post #1095)