The Secret is Out About California’s New Job Tax Credit

Among Gov. Jerry Brown’s proposals in his revised budget is to modify a $3,000 credit small businesses can take if they hire a new employee.

The Democratic governor says the credit appears to be “substantially underutilized.

Indeed, Brown notes that some of the $400 million earmarked by lawmakers and former Gov. Arnold Schwarzenegger in 2009 “will continue to be available for at least the next five years, beyond the time that the recession-driven unemployment is projected to persist.

A visit to the Franchise Tax Board website shows that from February 27, 2010, when the credit took effect, through April 30, 2011, 3,214 income tax returns have claimed it, at a cost to the state of $22.5 million.

Just over 5,100 employers who paid Business Entity taxes claimed the credit, at a cost of $28 million.

All told, 8,317 businesses claimed the credit since its inception, leaving nearly $350 million unused.

Why is it “substantially underutilized?”

Brown says employers don’t know the credit exists and the “documentation requirements on eligible small business are too onerous to warrant seeking the credit.”

The credit is claimed using the tax board’s Form 3527, which includes instructions.

Brown proposes to up the credit from $3,000 to $4,000 per employee, expand eligibility from businesses with 20 employees or less to those with fewer than 50 employees.

Also, rather than let employers avail themselves of the credit for five years, Brown sunsets the credit at the end of the 2012 tax year.

While eliminating or consolidating 43 boards and commissions, Brown’s budget plan calls for creation of a public awareness campaign by the Business, Transportation and Housing Agency “so that businesses will be aware of and actually take advantage of the credit.”

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