Press Room: Tax Release

August 15, 2013

CA New Jobs Credit for Small Employers

California provided a limited tax credit opportunity starting in 2009 to stimulate hiring activity by small employers. It has been claimed less than lawmakers expected, which suggests employers may not be aware of its benefits.  

About the Credit

  • A new tax credit of up to $3,000 for each additional full-time employee hired is available to small businesses with 20 or fewer employees beginning January 1, 2009. The credit is prorated on an annual full-time equivalent basis for employees employed less than a full year.
  • The credit must be claimed on a timely filed original return received by the Franchise Tax Board on or before a cut-off date specified by the Franchise Tax Board.

Tax Credit Amounts
California allocated $400 million for this tax credit. Through July 31, 2013, less than half of the credit has been claimed.

To Qualify
An employer will qualify for the credit if:

  • Each qualified full-time hourly employee is paid wages for not less than an average of 35 hours per week.
  • Each qualified full-time employee that is a salaried employee was paid compensation during the year for full-time employment.
  • On the last day of the preceding taxable year, it employed a total of 20 or fewer employees.
  • There was a net increase in qualified full-time employees compared to the number of full-time employees employed in the preceding taxable year. For taxpayers who first commence doing business in California during the taxable year, the number of qualified full-time employees employed in the preceding year would generally be zero, unless certain special rules apply.

Coordination with Other Credits
An employer may not claim the credit for those employees who are certified for other California credits, such as California enterprise zone credits. Note that companies located in enterprise zones or other favored locations may be eligible for significantly higher credits.

Claiming the Credit
The credit must be claimed on an originally filed tax return. There is no opportunity to claim refunds on amended returns however the credit may be carried forward for 8 years and used against future tax liability if not used in the year claimed.