The Main Street Small Business Tax Credit is Back for 2021 August 2021 Tax News

California enacted legislation for the Main Street Small Business Tax Credit II on July 16 to assist businesses impacted by the economic disturbances in 2020 and 2021. This credit is similar to the Main Street Small Business Tax Credit that was available for the 2020 tax year. However, there are key differences in the time frame and the requirements needed to receive the credit in 2021.

To qualify for the credit, taxpayers must have had:

  • 500 or fewer qualified employees on December 31, 2020 (this includes part-time employees).
  • A decrease of 20 percent or more in gross receipts determined by comparing gross receipts for 2020 to gross receipts for 2019.

And must:

  • Obtain a tentative credit reservation from the California Department of Tax and Fee Administration (CDTFA). When applying for the reservation, taxpayers must make an irrevocable election to apply the credit either to sales and use taxes or income taxes. The time period for requesting the required reservation begins on November 1, 2021, and ends on November 30, 2021, or an earlier date if the allocation limit for this credit is reached.

The credit is equal to $1,000 for each net increase in qualified employees, as measured in monthly full-time employee equivalents. The total amount of credit for each employer cannot exceed $150,000. Any credit available to the taxpayer under the Main Street Small Business Tax Credit in the 2021 taxable year will be reduced by either the amount received or allocated for the 2020 taxable year.

There are special rules for taxpayers that file on a fiscal year basis and for taxpayers that commenced business in 2019. We will be updating our webpage with more information regarding these and other requirements.

For information related to the tentative credit reservation and claiming the credit against your sales and use taxes, go to CDTFA and search for Main Street.