Tax Credit for New Jobs

Yesterday, the California Franchise Tax Board (FTB) posted answers to Frequently Asked Questions about a new tax credit that is available starting with the 2009 tax year. Here are some facts about the credit:

• A new tax credit of $3,000 for each additional full-time employee hired is available to small businesses with 20 or less employees beginning January 1, 2009.
• The credit is not subject to the 50% limitation for business credits.
• The total amount of credit available to be claimed by all taxpayers is capped at $400 million.
• The credit must be claimed on a timely filed original return received by the Franchise Tax Board on or before a cut-off date specified by the Franchise Tax Board.
• Taxpayers claiming the credit on an original return received by the Franchise Tax Board after the cut-off date is met will be notified that the credit has been denied.
• Taxpayers that have been denied the credit as a result of the $400 million cap being reached will not be assessed an underpayment of estimated tax or underpayment of tax penalty to the extent the underpayment was created or increased by the disallowance of this credit.

An employer will qualify for the credit if:

• Each qualified full-time hourly employee is paid wages for not less than an average of 35 hours per week.
• On the last day of the preceding taxable year, they employed a total of 20 or fewer employees.
• Each qualified full-time employee that is a salaried employee was paid compensation during the year for full-time employment within the meaning of Section 515 of the Labor Code.
• There is a net increase in qualified full-time employees compared to the number of full-time employees employed in the preceding taxable year. For taxpayers who first commence doing business in California during the taxable year, the number of qualified full-time employees employed in the preceding year would be generally be zero, unless certain special rules apply.

An employer may not claim the credit for those employees who are any of the following:

• Certified as a qualified employee in an enterprise zone or targeted tax area.
• Certified as a qualified disadvantaged individual in a manufacturing enhancement area.
• Certified as a qualified disadvantaged individual or qualified displaced employee in a local agency military base recovery area.
• An employee whose wages are included in calculating any other credit allowed.

More information is available on the FTB website.