A temporary tax incentive has been created for small businesses that create California jobs in 2009 and 2010. A $3,000 non-refundable income tax credit can be claimed by California employers for each qualified new, full-time employee they hire. The credit is available for employers with no more than 20 employees.

To qualify for the credit, each employee must be a full-time employee and paid wages for at least an average of 35 hours per week. The business must document that there was a net increase in full-time employees compared to the preceding tax year. A "qualified employee" does not include any employee who is certified as a qualified employee in an enterprise zone, manufacturing enhancement area, targeted tax area, local area military base, or whose wages are included in calculating any other allowable credit, like the research and development credit.

California has allocated $400,000,000 for this program. The FTB is monitoring the credits claimed weekly and will announce a cut-off date for claiming the credit. As of March 20, 2010, nearly $13,750,000 has been claimed. The credit must be claimed on an original filed return and may be claimed on either a 2009 individual or business entity return.

If you have any questions regarding the information in this article, or have any other issues you would like to discuss, please feel free to contact the DZH Phillips tax department at 415.781.2500 or email cpas@dzhphillips.com.