SB 1447: What CA Employers Need to Know About the $1K New Hire Credit

In September, California Governor Gavin Newsom signed into law SB 1447, which allows qualified California small businesses to apply for a $1,000 per eligible new hire credit against qualified sales and use tax or personal income tax or corporate income tax.

The California Department of Tax and Fee Administration has allocated $100 million for this credit on a first-come, first-served basis for qualified small businesses. The credit is $1,000 per net new hire increase, up to a maximum of $100,000 per taxpayer. The deadline to submit a completed application to “reserve” your credit is January 15, 2021.

Qualified small businesses must meet two requirements:

• Employed 100 or fewer employees as of December 31, 2019
• Had a 50% reduction in gross receipts during Q2 2020 vs. Q2 2019

Qualified employees:

• Are based on an average monthly full-time equivalent (FTE) of 167 hours a month.
• To calculate the credit, you compare the average FTE in Q2 2020 to the average FTE in July-November 2020, and the net increase is pro-rated at $1,000 per net new hire increase.

For example, in Q2 2020 you had 1,670 FTE hours (10 employees). Then your average FTE hours in July-November was 1,837 hours (11 employees). This results in a $1,000 credit.

The credit applies to the future tax years January 1, 2021, through April 30, 2026.

If you have questions or need help calculating the credit, contact our experts.

November 25, 2020