What You Should Do To Capture California State Employment Tax Credits

Written by Taz Singh, CPA. Updated Jul 15, 2015.

ThinkstockPhotos-451846939Companies that frequently hire new employees over the course of a tax year may be missing out on significant tax savings if they do not submit for employment tax credits. California offers businesses a number of opportunities to earn credits through the California Enterprise Zone Program, the California Competes Tax Credit and the California New Employment Tax Credit.

Instead of disregarding valuable tax credits your business may be eligible to claim, consider implementing new tax savings strategies that benefit your budget. Learn more about how to capture California state employment tax credits.

Understand The Available State Employment Tax Credits

Before you are able to pursue specific tax credits, you must understand the options available to your business. A tax consultant is able to guide you through the credit process if one of the following tax solutions is applicable to your company.

The California Enterprise Zone (CAEZ) Program

Although the CAEZ program was repealed for employees hired and equipment purchased after December 31, 2013, businesses may continue to generate credit during the first 60 months of a qualified individual’s employment through the year 2018.

The California Competes Tax Credit

This discretionary state tax credit, which ranges in value between $20,000 and $6 million, may be claimed by qualified businesses that are located in California. Applicants compete for the pooled funds, while the program makes provisions to ensure small businesses are represented among companies that are awarded the credit.

The California New Employment Credit (NEC)

If your business is qualified to claim the California NEC, you receive reduced tax liability given you provide the right supporting documentation. The NEC requires a net increase in your total number of employees, and your company must also operate within a Designated Geographic Area (DGA).

An eligible business that hires 10 new employees, for example, could earn a tax credit up to $672,000 depending on the employees’ hourly pay rates. This tax credit is equal to 35% of wages during a new employee’s first year. In order to be eligible, these wages must exceed 150% of the minimum wage but must not exceed 350% of the minimum wage.

Keep Employment Documentation Secure

Retaining documentation to support California state employment tax credits is crucial. You may be audited many years after you hire a qualified employee, and your audit representative must provide proof that you are qualified to claim the credit.

Partner With A Tax Consultant

While accounting professionals at your company are often indispensable, pursuing many tax solutions requires a tax expert’s knowledge if you wish to gain savings. Tax consultants must be familiar with state employment tax credit requirements, deadlines and how to apply.

Your business has to provide your property location and a small amount of information in order for your tax consultant to identify which tax benefits you are able to claim and what needs to be completed during the application process.

The right consulting partner should be experienced in pursuing tax savings strategies that help businesses like yours reduce tax liability and increase cash flow. If you have questions about other tax solutions available to you, speak with a tax expert at Corporate Tax Incentives today.

Ready to learn about other tax credits that your company may be qualified to claim? Discover ways to capture and profit from R&D credits.

Tax Incentives 101: The major Deductions You're Missing

Topics: Employment Incentives

Taz Singh, CPA

Written by Taz Singh, CPA

Taz has 20 years of experience in tax and business incentives. Prior to establishing CTI, Taz served as a corporate tax auditor for the California Franchise Tax Board. During his tenure, Taz specialized in auditing tax credits, including manufacturers’ investment credits, research & development credits and credit limitations (IRC 382 Limitation) due to ownership changes.