04/28/2009 02:50:00 PM EST
Tax Credit for Net Increase in New Jobs, a Califiornia Tax Practice Insight
Beginning on January 1, 2009, qualified employers may take advantage of a new tax credit in the amount of $3,000 for each increase in a qualified full-time employee hired during the taxable year as determined on an annual full-time equivalent basis. Any credits not used for the taxable year may be carried forward up to eight years, and the credit is not subject to the temporary 50 percent limitation for business credits. In this Commentary, Troy M. Van Dongen discusses the California Net Jobs Tax Credit and illustrates how to measure the tax credit. He writes:
On February 20, 2009, California enacted sections 17053.80 and 23623 of the Revenue and Taxation Code to provide a tax credit for new jobs created by businesses for each tax year beginning on, or after, January 1, 2009. Under the new law, taxpayers with 20 or fewer employees at the end of the preceding tax year may qualify for a new jobs credit against their personal or corporate income taxes for each new qualified employee hired. To qualify, the new employees must work an average of 35 hours or more each week if they are paid on an hourly basis, or they must meet the standards for full-time employment as set forth in section 515 of the Labor Code if the new employees are paid on a salaried basis.
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Inga owns and operates Bakery located in California. On January 1, 2008, Bakery had 10 full-time employees, all of which were being paid on an hourly basis. Due to decreased business, however, Bakery laid off two of its employees on June 30, 2008, and another employee resigned voluntarily on December 31, 2008. Accordingly, on January 1, 2009, Bakery had just seven employees. In 2009, business picked up, so Bakery hired six new full-time employees on July 1, 2009, which brought its total number of employees up to 13. Assuming that all 13 employees worked full-time for Bakery while employed by the company in 2009, Bakery would only be entitled to a $3,000 tax credit for that year. Although Bakery hired six new employees in 2009, because the increase is measured on a net annual full-time equivalent basis, the company may only recognize the net increase of one new job for purposes of this credit. (In contrast, if Bakery first commenced doing business on July 1, 2009, and hired six new full-time employees, then it would be entitled to a $9,000 credit.)
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