September 9th, the Governor of California signed Senate Bill 1447 into law. This bill, authored jointly by Senator Steven Bradford (D-Gardena), Senator Anna Caballero (D-Salinas), and Assemblymember Sabrina Cervantes (D-Corona), expands California’s assistance programs for small businesses during the COVID-19 pandemic by establishing a new $100 million small businesses hiring tax credit program.
What Is the Law?
Senate Bill No. 1447, signed into law on September 9, 2020, allows qualified small business employers a tax credit for re-hiring employees and increasing the number of staff members that have been reduced due to the ongoing COVID-19 pandemic.
The tax credit is $1,000 for each net increase in qualified employees up to a maximum amount of $100,000. The total tax credit can either be claimed against a taxpayer’s personal income or their business income taxes for one calendar year or the business owner would allow an irrevocable election to apply the credit against qualified sales and used taxes imposed for the reporting period January 1, 2021, through April 30, 2026.
A qualified small business employer means a taxpayer that meets both of the following requirements:
(i) As of December 31, 2019, employed a total of 100 or fewer employees; and
(ii) Has a 50% decrease in gross receipts determined by comparing gross receipts for the three-month period beginning on April 1, 2020, and ending June 30, 2020, with the gross receipts for the three-month period beginning on April 1, 2019, and ending June 30, 2019.
The net increase in qualified employees is calculated by comparing the net increase in qualified employees by subtracting the average amount of monthly full-time equivalent (FTE) employees measured from April 1, 2020, through June 30, 2020, from the average amount of monthly FTE employees measured from July 1, 2020, through November 30, 2020, which is illustrated below:
- FTE count from April 1, 2020 through June 30, 2020, = 15
- FTE count from July 1, 2020, through November 30, 2020, = 25
- Net increase in FTE = 10
A monthly FTE employee is measured by dividing the total hours worked by each employee in the month by 167.
A qualified small business employer will be required to submit an application to the California Department of Tax and Fee Administration for a tentative credit reservation from the Small Business Hiring Credit Fund, which are based on a first-come, first-served basis up to a total of $100 million.
What is the rollout timing of the law?
The applications will be submitted to the California Department of Tax and Fee Administration between December 1, 2020, and January 1, 2021. The aggregate amount of tax credits that may be allocated cannot exceed $100 million—the amount allotted to the Small Business Hiring Credit Fund through Senate Bill No. 1447. The application is expected to be released before the application window opens on December 1, 2020.
How can RSI assist restaurants to remain in compliance with the law?
RSI can assist with the measurement of average monthly full-time equivalent (FTE) employees by supplying summary level check data that can be utilized to fulfill the application requirements in regards to measuring FTE employees and calculating the net increase in qualified employees. Please send a support request to Compliance or an email to Compliance@rsiaccounting.com if you are a qualified small business employer and are interested in taking advantage of this tax credit.