Press Room: Tax Release

August 06, 2010

California New Jobs Credit for Small Employers

California has provided a limited tax credit opportunity to stimulate hiring activity by small employers starting in 2009. California added to the Revenue and Taxation Code Sec. 17053.80 and Sec. 23623 to provide a new jobs tax credit for taxable years beginning on or after January 1, 2009.

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 is not subject to the 50% limitation for business credits.
  • 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, 2010, only about $35 million 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.
  • The federal HIRE credit provides additional benefits in 2010 related to hiring certain individuals that have an unemployment history. This credit is a cash tax benefit against the payroll tax that otherwise would be paid within 2010.

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.

WTAS has a team dedicated to helping clients obtain credits and incentives to which they are entitled.  Please contact us if you wish to explore these opportunities for your company.