Does California Tax ERC Federal Credit?

Key Takeaways

• The ERC was created to provide financial relief to businesses that retained employees despite facing significant revenue losses due to government-imposed shutdowns and restrictions.
• California does not tax the Employee Retention Credit.
• At ERTC Express, we help California business owners with the ERC filing process, offering specialized guidance, audit protection, and a contingency-based model to ensure the highest possible refund.

 

ERC Basics

The Employee Retention Credit (ERC) is a refundable payroll tax credit designed to incentivize businesses such as restaurants and salons to retain employees during the economic challenges posed by the COVID-19 pandemic. It was established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020.

 

Credit Details

• For 2020, the credit was initially set at 50% of qualified wages paid up to $10,000 per employee, resulting in a maximum credit of $5,000 per employee for the year.
• In 2021, this was expanded to 70% of qualified wages paid up to $10,000 per quarter, allowing for a maximum credit of $7,000 per employee per quarter, totaling up to $28,000 per employee for the year.

 

Eligibility Criteria

To qualify for the ERC, employers must meet specific criteria:

• Operational Disruption: Businesses must have experienced a full or partial suspension of operations due to government orders related to COVID-19.
• Decline in Gross Receipts:

• • For 2020, a decline of at least 50% in gross receipts compared to the same quarter in 2019.
  • For 2021, a decline of at least 20% compared to the same quarter in 2019.

 

Differences between the 2020 and 2021 ERC claims by financestrategists.com

 

Claiming the ERC

While the ERC program officially ended on September 30, 2021, employers can claim the ERC retroactively by amending their payroll tax returns using Form 941-X for the applicable quarters. The filing deadlines are April 15, 2024, for 2020 claims, and April 15, 2025, for 2021 claims.

While the ERC is exempt from federal taxes, some states may choose to tax the refunds. Next, we’ll learn whether California imposes taxes on the ERC credit.

 

ERTC Express: Maximize Your Employee Retention Credit (ERC)   Secure the maximum ERC refund effortlessly with ERTC Express. Our US-based CPAs specialize in ERTC claims, using a “Power of 3” system to ensure each submission is audit-ready. Typically outperforming standard claims by 40-120%, our client-centric service charges only after you receive your funds, ensuring our goals align with your success. Enjoy dedicated support and significant financial benefits with ERTC Express. Get expert help today!

 

Does California Tax ERC Federal Credit?

California does not tax the Employee Retention Credit (ERC) at the state level. 

 

The California Franchise Tax Board states that while the federal law requires employers claiming the ERC to reduce their wage and salary expense deduction by the amount of the credit, California does not conform to this provision and does not have a similar credit. 

 

Therefore, employers in California are not required to include the ERC in their gross income for state income tax purposes.

 

Choose ERTC Express for Your ERC Filing

At ERTC Express, we offer a specialized service dedicated to helping business owners, including in California, to successfully claim the ERC. 

 

How ERTC Express Can Help California Business Owners

• We only employ U.S.-based CPAs with expertise in ERC claims so that you will receive accurate guidance throughout the filing process. Our team focuses on maximizing potential refunds while maintaining compliance with IRS regulations.
• We simplify the application process to enable you to start claiming quickly. We also manage all documentation and ensure filings are audit-ready. 
• With our expertise, we can achieve refunds that exceed those obtained through traditional payroll and software companies by 40-120%.
• We also believe strongly in the Power of 3 System – which involves three separate CPA teams verifying the final credit amount before submission to enhance claim accuracy and audit defensibility. 
• We only bill you once you’ve received your funds.

 

Here’s how you can get the ERC claim in three easy steps through us. 

 

Contact ERTC Express

 

Frequently Asked Questions (FAQ)

 

What are the potential benefits of claiming the ERC?

Eligible businesses can receive significant financial relief, with credits up to $26,000 per employee. This can help businesses maintain payroll during challenging economic times and support overall business continuity.

 

Does California tax the ERC federal credit?

No, California does not tax the Employee Retention Credit. While federal law requires employers to reduce their wage deductions by the amount of the ERC claimed, California does not conform to this provision and does not require the credit to be included in gross income for state tax purposes.

 

How do I start the process with ERTC Express?

You can initiate the process by contacting ERTC Express – you will undergo a quick eligibility assessment and begin gathering the necessary documentation for your ERC claim.

 

What makes ERTC Express unique?

At ERTC Express, we employ a “Power of 3” system, involving multiple CPA teams to verify claims, ensuring claim accuracy and audit defensibility. We also charge clients only after they receive their funds.