Main Street Small Business Tax Credit II

Main Street Small Business Tax Credit II

The Main Street Small Business Tax Credit II will provide Covid-19 financial relief to qualified small business employers. On November 1, 2021, the California Department of Tax and Fee Administration will begin accepting applications for tentative small business hiring credit reservation amounts through our online reservation system. Qualified small business employers must apply with the CDTFA for a credit reservation. The credit reservations will be allocated to qualified small business employers on a first-come, first-served basis. The reservation system will be available from November 1, 2021, through November 30. 2021 or an earlier date if the allocation limit is reached. Qualified small business employers may apply to reserve $1,000 per net increase in qualified employees (defined below), not to exceed $150,000. Tentative credit reservation amounts will generally be reduced by credit amounts reserved or received under the first Main Street Small Business Tax Credit. Qualified small businesses will be able to offset 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 or fewer employees as of December 31, 2020.

• As an employer you are required to possess a valid State Employer Identification Number (SEIN), also known as an EDD Employer Account or Employer Payroll Tax Account. This account number is issued by the California Employment Development Department (EDD).

• Experienced a decrease of 20 percent 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 January 1, 2020, through December 31, 2020, to January 1, 2019, through December 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 gross receipts for the period January 1, 2020, through February 28, 2020, multiplied by 1.5, to the gross receipts for the period April 1, 2020, and ending on June 30, 2020.

Net Increase In Qualified Employees

The “net increase in qualified employees” will be the amount equal to B minus A in the calculation below and it is based on monthly, full-time equivalent (FTE) qualified employees.

1. The average monthly FTE qualified employees employed during the three-month period from April 1, 2020, through June 30, 2020, by the qualified small business employer. The average monthly FTE qualified employees is determined by adding the total monthly FTE equivalent qualified employees employed by the qualified small business employer for all three months and dividing the total by three.
2. The lesser of either the following:
   • The average monthly FTE qualified employees employed during the 12-month period July 1, 2020, through June 30, 2021, by the qualified business employer. The average monthly FTE qualified employees is determined by adding the total monthly FTE qualified employees employed by the qualified small business employer for all 12 months and dividing the total by 12.
   • The average monthly FTE qualified employees employed during the three-month period from April 1, 2021, through June 30, 2021, by the qualified business employer. The average monthly FTE is determined by adding the total FTE employees employed for all three months and dividing the total by 3.

The “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 and then 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.

If you think that you qualify for this credit, please go to cdtfa.ca.gov between 8:00 a.m. November 1, 2021, through 11:59 p.m. November 30, 2021 to reserve the credit. 

This credit is on a first-come, first served basis, so reserve as soon as possible. More information is available on the CDTFA website, but if you have any questions, please call our office: 209-577-4800