2021 Main Street Small Business Tax Credit II
S Corporations

S corporations electing to apply the credit against qualified sales and use taxes:

  • Can claim the full credit reservation amount against sales and use taxes.
  • Cannot pass through any of the credit to its shareholders.

S corporations electing to apply the credit against franchise and income taxes:

  • Are limited to applying 1/3 of the tentative credit reservation amount against the tax on net income at the S corporation level. They may not use the credit to offset the $800 minimum franchise tax.
  • Must disregard the remaining 2/3 of the credit and the S corporation may not use it as a carryover credit.
  • Can pass through the full credit amount to their shareholders, who may use the credit against their income taxes.

S Corporations Allocation Differences Between 2020 Main Street Small Business Tax Credit I (2020 Main Street I) and 2021 Main Street Small Business Tax Credit II (2021 Main Street II)

For Sales and Use Tax

Under 2020 Main Street I for S corporations that made an election to apply the credit against qualified sales and use taxes, the credit amount was limited to 1/3 of the tentative credit reservation amount and no amount passed through to its shareholders. Unlike the 2020 Main Street I, S corporations that elect to apply their credits against qualified sales or use tax in 2021 Main Street II, will be allocated the credits equal to a full credit reservation amount and the full amount will be applied to their sales and use tax returns. Again, no amount will pass through to shareholders.

For Income or Corporate Tax

Like the 2020 Main Street I program, S corporations that elect to apply their credits to income or corporate taxes in 2021 Main Street II program may use 1/3 of the credit as determined under that law to offset the tax on net income at the S corporation level. The remaining 2/3 of the credit must be disregarded and may not be used as a carryover. S corporations can pass through the full credit amount to their shareholders, who may then use the credit against their personal income taxes.

2021 Main Street Tentative Credit Reservations for S Corporations That Received Credits Under 2020 Main Street I

In calculating tentative credit reservations under 2021 Main Street Tax Credit II, your net increase in qualified employees multiplied by $1,000 will be reduced by either the credit amounts allocated, or tentative credits reserved under the 2020 Main Street I program, depending on the election that you made at that time. If under 2020 Main Street I, you elected to apply the credit against franchise or income taxes, the amount will be reduced by the previous tentative credit reservation amount you received. If you elected to apply the credit against qualified sales and use taxes, the amount will be reduced by the credit amounts allocated to you under 2020 Main Street I.

Scenarios

The following four scenarios only apply to qualified employers that were allocated credits from the 2020 Main Street I program.

The scenarios below demonstrate how the tentative credit reservation is calculated under 2021 Main Street II based on different elections (Income Tax or Sales and Use Tax) made in 2020 Main Street I and 2021 Main Street II, and what credits will be available to apply against taxes under 2021 Main Street II.

The following facts apply to the four scenarios below:

  • 2020 Main Street I tentative credit reservation amount: $30,000
  • 2021 Main Street II net increase in qualified employees: 50

Scenario 1

2020 Main Street I: Income Tax Election

As an S corporation, you were limited to applying 1/3 of the tentative credit reservation amount under 2020 Main Street I against the tax on net income at the S corporation level. So, 1/3 x $30,000, or $10,000 was applied at the S corporation level. The full amount of the tentative credit reservation, or $30,000 was passed through to shareholders to use against their income taxes.

2021 Main Street II: Income Tax Election

To calculate your tentative credit reservation under 2021 Main Street II, first, your net increase in qualified employees of 50 is multiplied by $1,000, for $50,000. This amount is reduced by the tentative credit reservation received under 2020 Main Street I, or $30,000. Your tentative credit reservation amount under 2021 Main Street II is $50,000 minus $30,000, or $20,000. You may apply 1/3 of this, or $6,667, against the tax on net income at the S corporation level. $20,000 passes through to shareholders to use against their income taxes.

Scenario 2

2020 Main Street I: Income Tax Election

As an S corporation, you were limited to applying 1/3 of the tentative credit reservation amount under 2020 Main Street I against the tax on net income at the S corporation level. So, 1/3 x $30,000, or $10,000 was applied at the S corporation level. The full amount of the tentative credit reservation, or $30,000 was passed through to shareholders to use against their income taxes.

2021 Main Street II: Sales and Use Tax Election

To calculate your tentative credit reservation under 2021 Main Street II, first, your net increase in qualified employees of 50 is multiplied by $1,000, for $50,000. This amount is reduced by the tentative credit reservation received under 2020 Main Street I, or $30,000. Your tentative credit reservation amount under 2021 Main Street II is $50,000 minus $30,000, or $20,000. You may apply all of this against the S corporation's qualified sales and use taxes. None of this amount will pass through to the S Corporation's shareholders.

Scenario 3

2020 Main Street I: Sales and Use Tax Election

As an S corporation, under 2020 Main Street I, you were limited to applying 1/3 of your tentative credit reservation amount against the S corporation's qualified sales and use taxes. So, you were allocated 1/3 x $30,000, or $10,000 in credit.

2021 Main Street II: Income Tax Election

To calculate your tentative credit reservation under 2021 Main Street II, first, your net increase in qualified employees of 50 is multiplied by $1,000, for $50,000. This amount is reduced by the credit amounts allocated under 2020 Main Street I, or $10,000. Your tentative credit amount under 2021 Main Street II is $50,000 minus $10,000, or $40,000. You may apply 1/3 of this, or $13,333, against the tax on net income at the S corporation level. $40,000 passes through to shareholders to use against their income taxes.

Scenario 4

2020 Main Street I: Sales and Use Tax Election

As an S corporation, under 2020 Main Street I, you were limited to applying 1/3 of your tentative credit reservation amount against the S corporation's qualified sales and use taxes. So, you were allocated 1/3 x $30,000, or $10,000 in credit.

2021 Main Street II: Sales and Use Tax Election

To calculate your tentative credit reservation under 2021 Main Street II, first, your net increase in qualified employees of 50 is multiplied by $1,000, for $50,000. This amount is reduced by the credit amounts allocated under 2020 Main Street I, or $10,000. Your tentative credit reservation under 2021 Main Street II is $50,000 minus $10,000, or $40,000. Under 2021 Main Street II, you may apply the full tentative credit reservation amount, or $40,000, against the S corporation's qualified sales and use taxes. None of this amount will pass through to the S Corporation's shareholders.