On Your Mark, Small Businesses: Get Set to Reserve the 2021 Main Street Hiring Credit

The Main Street Hiring Credit has been reenacted for 2021, bringing financial relief to small businesses disrupted by COVID. Qualifying small businesses can reserve their credit between Nov. 1 – Nov. 30, or sooner if the $70 million cap is reached first.

This year’s hiring credit has been expanded to allow more businesses to qualify for the credit and increases the credit amount for eligible businesses. 

Due to the limited funds, California businesses impacted by COVID-19 are encouraged to reserve the credit by completing the reservation application at the California Department of Tax and Fee Administration (CDTFA) website shortly after the system opens. The credits will be apportioned based on a first-come, first-served basis.

How to Qualify

The Main Street Hiring Credit offers a financial incentive to small businesses that were forced to terminate or reduce staffing due to economic impacts from COVID and that are now able to rehire or increase the hours of the same or new employees as a result of improved economic conditions.

To be eligible, businesses must have:

• 500 or fewer employees (includes both full-time and part-time employees) as of December 31, 2020, and
• experienced at least a 20% decline in gross receipts from 2019 to 2020 and show a net increase in full-time equivalent employees during the comparable periods in 2020 to 2021.

In comparison to last year’s Main Street Hiring Credit, the bill offered a credit to businesses with 100 or fewer employees that experienced at least a 50% decline with the maximum credit amount capped at $100,000. This year’s reenacted credit brings a welcomed expansion for businesses that have experienced pandemic-driven financial setbacks.

Calculating the Credit Amount

Eligible employers may apply to reserve a credit in the amount of $1,000 per net increase in qualified employees, not to exceed $150,000. To find out what the tentative credit amount will be, businesses must calculate the monthly average full-time equivalent (FTE) employees by using the following method:

• Salaried Employees: The total number of weeks worked per month divided by 4.33, multiplied by the fraction of full-time employment that the qualified employee works (e.g., 75% for a part-time employee that worked ¾ time)
• Hourly Employees: The total number of hours worked per month (not to exceed 167 hours per employee per month) and divide that number by 167.

Keep in mind, employee wages that have already been used for other California income tax or corporate tax credits cannot be double dipped and used in parallel to this credit as well, with exception to last year’s Main Street Hiring Credit.

How to Claim the Credit

Once the credit amount has been approved through the CDTFA application process, there are a number of different ways to claim the credit come filing time. Eligible taxpayers may apply the amount against their personal income tax, corporate income and franchise taxes, or sales and use tax liability.

New this year of note, S Corps are allowed 100% of the reserved amount to be allocated toward sales and use taxes, rather than being restricted to one-third of the reserved credit amount under last year’s bill.

Taxpayers may carry forward any unused credit amount for up to five succeeding taxable years.

Next Steps

Due to the time sensitive nature of credit availability, you may consider setting a reminder on your calendar for Nov. 1, 2021 to reserve your credits. If you need guidance on how to calculate your eligible amount, please contact me at jsheffield@bpw.com or (805) 963-7811.