Those of you with a business in California know all too well about COVID-19 wreaking havoc on keeping things afloat. There’s good news, though: if you still have not experienced a turnaround in your business due to the virus, some tax credits are now available to help you.
One bill passed in California this fall is SB 1447, or a $100 million hiring tax credit for small businesses. A lot of business owners are already taking advantage of this to help them get back on track, including those who had to let employees go.
What do you need to know about this new tax credit? Take a look at the details and how to use it to your advantage to avoid further crisis.
SB 1447 Explained
SB 1447 is defined as a small business hiring credit to give tax credits if employers hire more employees throughout 2020. It applies to the tax year beginning this year and going through January 1, 2021.
For businesses like yours, it helps save you exponential money if you need more employees to keep your business operating optimally. You might have held off hiring more employees since spring out of fear of the future tax burdens.
Three California Democrats put this bill in motion: Sen. Steven Bradford, Sen. Anna Caballero, and Assemblymember Sabrina Cervantes. It was just one part of California’s recent laws put in place to help the business community bounce back after COVID-19 hardships.
These legislators noted a sobering fact before getting the bill passed: Small businesses suffered a 21.5% loss of jobs earlier in the year. This new bill brings major relief, even if you need to know a few more things to qualify.
Are You a Qualified Small Business Owner?
To qualify for this tax break, you need to fall under two guidelines:
- You’ve employed fewer than 100 employees since December 31, 2019.
- You had a 50% reduction in gross receipts between April 1, 2020 and June 30, 2020.
Keep in mind the credit is capped at $100,000 per qualified small business owner. When you hire new people, the new employees need to be paid qualified wages and not paid through the Personal Income Tax law or the Corporation Tax law.
These provisions are just the basics. Calculating your tax credits has specific rules you need to look at more carefully. One thing to note is any new hires working full-time can not work for you more than 167 hours per month.
Calculating Your Tax Breaks
To figure the tax break you get back, know you receive $1,000 for each net increase in qualified employees. You have to compare your average number of employees for the 2nd quarter of this year with the average number you had between July 1 and November 30.
Another great thing to consider with this new bill: You can apply your credit against qualified sales and use taxes. If you are a retailer, this is a major benefit when you have a lot of other tax burdens annually.
The aggregate amount of credit available will also have a cap at $100 million, if covering the majority of California’s hurting small businesses.
What will the tax benefits really be, though? Will it lead to a brighter future for California’s small businesses? On a national scale, many small businesses likely wish for the same.
Bringing New Lifeblood to the Small Business Community
When California Governor Gavin Newsom signed the bill back in September, he said: “This is really about the lifeblood of California’s economy, it’s about a sense of pride and spirit that we all have. This is about the California dream.”
Now available as a tax credit for the next five years, you can bring your business back from the brink. This tax bill joins an exclusion of federal Paycheck Protection Program loans from gross income tax filings, giving Californian businesses further breaks.
Contact us at Incentax LLC so we can help educate you on the many tax breaks available to businesses today.