As the mandates and restrictions of the pandemic are at ease nowadays and things are slowly getting back to normal, the help of the California Main Street Small Business tax credit is vital to healing the economy. Entire areas and towns of the state need financial support to survive. Tax credits are a good way to help small firms. The main burden lies on the firms to get credits when it is to tax credits. Firms should know their needs and how they’ll get them.
Who Is A Qualified Small Business Tax Credit Employer?
A qualified small business tax credit employer is the one who files an original tax return to get the Main Street Small Business tax credit instead of an amended one. Also, employers must fulfill some vital criteria to qualify as small businesses.
- Have 500 staff count or less (like part-time) drawing the wages subject to California withholding the taxes.
- Show less than 20% or more gross receipts:
- Compare the gross receipts for 2019-2020 to those for the fiscal year 2018 to 2019.
- Compare average gross receipts for the same time.
- New businesses opened in the 2019 calendar year; compares the gross receipts as the total for Jan and Feb 2020 multiplied by 1.5 to the April gross receipts through 2020 June.
- Apply for a tentative CDTFA credit reservation (California Department of Tax and Fee Administration) in November 2021 and get the reservation.
- Should not be required or authorized to include it in the mixed report.
- For the tax year starting or after January 1, 2021, and before January 1, 2022, small businesses get the tax credit as qualifying small business employers when they get a tentative credit reservation from CDTFA.
Qualifying Criteria For S-Corps
S-Corps can apply for the main street small business tax credit against the qualified taxes and sales and:
- Only apply 1/3 of tentative credit reservation (as mentioned on CDTFA confirmation) against net income tax at the S-Corp level.
- Forfeit and can’t carry over the left out 2/3rd credit.
- Can pass the whole credit to the shareholders to use against the personal liability for income tax.
Calculation Of The Tax Credit
Calculating the Main Street Small Business tax credit based on the qualified employees’ FTE monthly (Full-Time Equivalent) is vital. The net increase for qualified staff would be equal to B minus A. Use monthly average FTE from April 1, 2020, to June 30, 2020. You should know the average monthly FTE after adding the total monthly FTE equal to qualified employees employed for the whole period and dividing it by three.
Use lesser of the either:
The average monthly FTE employees from July 1, 2020, through June 30, 2021. Know the monthly average FTE after totaling FTE employees for 12 months and divide it by 12.
Average FTE staff for April 1, 2021, through June 30, 2021. Add up to three months and divide it by three for the average.
By monthly FTE (full-time equivalent), we mean either:
- The qualified staff gets an hourly wage of: “monthly full-time equivalent wages,” meaning that the staff gets no more than 167 hours/month, and the paid wages are then divided by 167.
- A qualified employee must have a salary: “the full-time monthly equivalent,” meaning that the total number of employed weeks monthly divided by 4.33, then multiplied by the “time base” of the employees.
- By “time base,” we mean the fraction of full-time employment that the qualified employee has a full-time job.
- We get the total “employment weeks” by dividing the total calendar days by seven days in a month. The outcome can’t exceed 4.33.
Some Important FAQs For CDFTA Small Business Tax
California Department of Tax and Fee Administration gets many questions about the forms and regulations, and here are the most frequent questions people ask for Main Street Small Business Tax Credit:
Is It Possible To Qualify For Credit When You Begin The Business In 2019 Or 2020?
You can’t qualify for Main Street Small Business tax credit if you’re a firm started in 2020: it should be before January 1, 2020. If the firm has worked since 2019, and you only had 500 or fewer employees and have experience at least with 20% low gross receipts, you qualify.
You get a 20% less figure for Main Street Small Business tax credit after comparing the gross receipts for Jan and Feb (total for both the months) after multiplying it by 1.5. Compare the outcomes with the gross receipts for April 1, 2020, through June 30, 2021.
Whom Can You Term As An Eligible Employee?
When the firm is eligible for Main Street Small Business tax credit, the qualified employee is the one whose wage you don’t use in any other franchise or income tax credit claims.
How Many Wages Should The Employer Pay To The Eligible Employee?
There are no max or minimum levels for qualified paid wages to the staff. You should pay the qualified wages by keeping it in a net increase in the calculation of the Main Street Small Business tax credit for the qualified employees.
If The Firm Is Forced To Close But Reopened And Rehired The Staff, Would It Meet The Need To Claim Tax Credits?
When the employees are within the needs of qualifications and timeline, firms can keep it under the small business tax credits calculations.
Is There A-Max Allowable Credit Amount For Each Employer Of The Qualified Business?
The credit cap is $150,000 for all qualified small business firms. If you get the credits before the first type of Main Street Small Business tax credit, they can include it in the $150,000 bracket.
How To Get The Credit As A Direct Deposit, Check, Or Other?
Firms don’t get any monetary reimbursement for the credit. They must apply for a payroll tax deferment for the qualified sales, corporate or personal taxes.
Is it possible to apply before or after the balances when you qualify for the credit?
Firms can’t apply for credit before or after the balances. Firms can only take it when they file a current tax return. They can apply a credit to the California income tax returns for 2021 or the sales and use the tax due post-April 30, 2022.
Credit Amount For California Main Street Small Business Tax Credit
The amount is $1,000 for each net increase in the qualified employees, measured after the monthly full-time average of the employee equivalents.
- All firms have a $150,000 limit for credit.
- The Main Street Small Business Tax Credit lessens the credit you get for the taxable year 2020. The 2021 credit is lessened through either:
- The 2020 credit allocates the application to the Sales and Uses tax; or.
- The 2020 credit you get for the income tax application.
- They should get wages they can withhold under the California Unemployment Insurance Code.
- They can’t get wages to find any other tax credit except the Main Street Small Business Tax Credit for the 2020 tax year.
- Independent contractors don’t qualify.
Steps To Claim Main Street Small Business Tax Credit
Here are the steps to claim the main street small business tax credit:
- You should timely file the income tax return.
- Include the Main Street Small Business Tax Credit (FTB 3866) to claim the credit.
- Update FTB 3866 for the 2021 tax year, which is available until January 1, 2022.
- Feed the confirmation number (you get from the CDTFA on the Tentative Credit Reservation) when it is possible to claim the credit.
- Use credit code 241 when you claim the credit.
- You extend the unused credit over five years until you exhaust them.
The importance of FTE and these calculations for Main Street Small Business tax credit are available from the Affordable Care Act, and it decides the number of part-time and full-time employees in many IRS rules and laws. Only the government complicates something to this degree. You can get help for Main Street Small Business tax credit from qualified tax professionals of Business Tax Benefits. Any credit incentive you get from the tax bodies is worth the effort to see whether your firm qualifies and how to do so. Expert consultants at Business Tax Benefits have first-hand experience filing your taxes and claiming these benefits while complying with federal tax laws. Your firm and staff can rely on our proficient CPAs, tax lawyers, and advisors for their tax needs.