In the recently approved 2021-22 fiscal year budget, California has created several new business incentives and tax credits.
Assembly Bill 150, signed on July 16, includes a new Small Business Hiring Credit and a credit for hiring homeless individuals. AB 151 adds funds to the existing California Competes Tax Credit program and creates a new California Competes Grant Program.
Small Business Hiring Credit
This new hiring credit is authorized just for taxable years beginning on or after January 1, 2021 and before January 1, 2022. The credit is equal to $1,000 for each net increase in qualified employees, not to exceed $150,000 for any qualified small business employer. To be eligible, an employer must have employed 500 or fewer employees as of December 31, 2020 and have a 20% decrease in gross receipts when comparing 2020 to 2019. The bill describes the method for calculating the net increase in employees.
Credit for Hiring Homeless Individuals
The credit for hiring homeless individuals applies to tax years beginning on or after January 1, 2022 and before January 1, 2027. The credit is available in different amounts depending on the amount of time the eligible employee works during the tax year:
- $2,500 for each eligible individual that works at least 500 hours but fewer than 1,000 hours.
- $5,000 for each eligible individual that works at least 1,000 hours but fewer than 1,500 hours.
- $7,500 for each eligible individual that works at least 1,500 hours but fewer than 2,000 hours.
- $10,000 for each eligible individual that works at least 2,000 hours.
However, there is a cap of $30,000 per taxpayer per taxable year.
To be eligible for the credit, an employer must pay at least 120% of the minimum wage (it’s not clear if that requirement applies to eligible individuals for whom the credit is being claimed or for all employees) and receive a certification for each eligible individual. The certification, to be obtained from a “continuum of care or community-based service provider” must certify that the individual was homeless anytime during the 180-days immediately before the hire date, or is receiving supportive services from a homeless services provider. Beside obtaining a certification, the taxpayer will need to request a credit reservation from the Franchise Tax Board within about 30-days of hiring the eligible individual. There is a statewide cap of $30 million for each year designated toward the credit, and credit reservations will be granted on a first-come-first-serve basis.
California Competes Grant Program
The existing California Competes Tax Credit Program has provided income tax credits to businesses that commit to certain hiring and/or capital investment targets. Credits are only available when specific milestones are achieved and may be clawed back if the original goals are not met. The Governor’s Office of Business Development (GO-Biz) awards hundreds of millions in credits, however, only a minority of these credits are ever utilized by taxpayers. In their March 2020 report on the CCTC to the legislature, FTB noted that $114.7 million was awarded that could be claimed for the 2017 tax year. $10.3 million of that credit was recaptured by GO-Biz itself. Of the remaining $104.4 million, $27.1 million was claimed on 788 returns, or just 24% of the awarded credit. Similar data is available for the 2018 tax year.
The new legislation expands the program through 2030 to new businesses that may not have the tax liability to benefit from a non-refundable income tax credit. Applicants must do at least one of the following:
- Commit to creating at least 500 new, full-time jobs;
- Make a significant infrastructure investment of at least $10 million over no more than 5 years; or
- Create jobs or make investments in high-poverty areas of the state.
Grants are subject to recapture if initial commitments are not met