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Small Business Relief Tax Credit

The Small Business Relief Tax Credit is a refundable tax credit available to small businesses that provide their employees with paid sick and safe leave.

BENEFITS

Small businesses may claim a refundable tax credit for the accrued paid sick and safe leave for each employee earning paid sick and safe leave up to $500 per employee, or $7,000 per small business.

ELIGIBILITY

To qualify for the tax credit, a small business must employ 14 or fewer employees whose primary work location is in Maryland, and provide its employees with paid sick and safe leave in accordance with the Maryland Healthy Working Families Act. Under the Maryland Healthy Working Families Act, employees earn 1 hour of paid sick and safe leave for every 30 hours worked, and sick and safe leave is paid at the same rate as an employee's normal hourly wages.

Qualified employee(s) earning wages paid by the small business must be equal to or less than 250% of the annual federal poverty guideline for a single-person household. For Tax Year 2023, 250% of the annual poverty guideline is $36,450/year or $17.52/hour.

APPLY

  • The Department of Commerce will begin accepting applications for the Small Business Relief Tax Credit on January 1, 2024 for Tax Year 2023. Small businesses applying for the tax credit must submit an application along with copies of employee(s) W-2 or pay stubs, and statement of accrued paid sick and safe leave provided to employee(s), for each employee for whom the tax credit is being claimed.

  • Commerce will certify or deny an application within 45 days after the receipt of a complete application.

Application

CLAIM TAX CREDIT

After receiving the tax credit certification from Commerce, the employer must file a tax return with the Comptroller of Maryland for the taxable year in which the certification was issued using Maryland Tax Form 500CR. Maryland Tax Form 500CR must be filed electronically with an attached copy of the certification from Commerce. Please note that the credit can be taken against the State income tax ONLY. It is not taken against the county income tax "add-on". For more information regarding the tax forms and tax return instructions, please visit the Comptroller of Maryland website.

If the employer needs tax information or guidance beyond the scope of the information which is required to apply for the Small Business Relief Tax Credit program, please contact the Comptroller of Maryland. Commerce cannot dispense tax advice.

RESOURCES

CONTACT

For more information about the Small Business Relief Tax Credit contact:

Cindy Zeng, Tax Specialist, Tax Incentives
Maryland Department of Commerce, Office of Finance Programs
410-767-6351

FREQUENTLY ASKED QUESTIONS

  • How does the Small Business Relief Tax Credit relate to the Maryland Healthy Working Families Act?

    • ​The Maryland Healthy Working Families Act requires small businesses with 14 or fewer employees to provide their employees with unpaid sick and safe leave. The Small Business Relief Tax Credit is designed to help those small businesses that want to provide paid sick and safe leave to their employees.

      The Office of Small Business Regulatory Assistance at the Department of Labor, Licensing, and Regulation is available to answer any questions about the Maryland Healthy Working Families Act. Before contacting them, visit this page, which includes a brochure with more Frequently Asked Questions.

  • What information do I have to provide the Department? How do I get that information?

    • ​To receive the tax credit a small business must provide information that demonstrates it is good standing with the Maryland Department of Assessment and Taxation (SDAT) and current with its tax obligations. In addition, the small business will have to provide information on employee wages and benefits.

      Business Information

      A) SDAT Good Standing – A small business may provide the Department of Commerce with a Certificate of Status (also called a Good Standing Certificate) from SDAT. To avoid the $20 cost for a Certificate of Status, a small business may instead submit a screen shot from the SDAT's website stating that the small business is in good standing. A screen shot may be obtained by following these steps:

      • Visit the Maryland Business Express web site.
      • Enter the name of the business in the search engine;
      • Click on "View Business Detail" once the name of the business is found in the search results. 
      • Print the screen showing that the business is in good standing.

      B) Current with Tax Obligations – A small business must provide a Good Standing Certificate from the Office of the Comptroller of Maryland to show that it is current in all of its Maryland tax obligations. Request a Certificate here.

      Employee Information

      The following information needs to be provided to the Department of Commerce for each employee for whom a Small Business Relief Tax Credit is being claimed.

      A) A copy of the employee's W-2 form, to establish both the payment of wages and to demonstrate that the employee earns less than 250% of the federal poverty level for single-person household.

      B) A copy of the statement provided to the employee stating the amount of paid sick and safe leave used and accrued by the employee to demonstrate that the employee is receiving paid sick or safe leave.

  • How do I apply? What is included in the application?

    • You can apply to the Department of Commerce for the Small Business Relief Tax Credit. Click here to download the application form. 

      In addition to the documentation listed in the previous FAQ, the application requires information about both your business and your employees.

      Business Information:

      • Name of the small business
      • How the small business is organized (Corporation; S-Corp, LLC; Partnership; Individual; or LP LLP)
      • Business address
      • Federal Employer Identification Number (FEIN)
      • The small business’s Unemployment Insurance (UI) Number, if applicable
      • The North American Industry Classification (NACIS) Code for the small business (find it here).
      • Total number of employees employed by the small business
      • Tax year for which the credit is being claimed
      • Total amount of the tax credit

      Employee Information:


      • Each employee’s name
      • The type of employee (full-time; part-time; or temporary)
      • The number of paid sick and safe leave hours an employee has accrued in accordance with the Maryland Healthy Working Families Act (employees who work at least 12 hours per week earn 1 hour of paid sick and safe leave for every 30 hours worked).
      • An employee’s hourly wages

  • What records must a business maintain? Are there any reporting requirements?

    • A small business applying for the tax credit will need to maintain wage records and paid sick and safe leave balances as required by the Maryland Healthy Working Families Act.

      There are no ongoing reporting requirements for the tax credit. Small businesses only have to provide the requested documentation when applying for the tax credit.

  • Will the business have to use an independent CPA to verify the information?

    • ​No, the Maryland Department of Commerce will verify all information submitted with an application.

  • What type of small businesses are eligible for the credit?

    • ​Any type of small business, including a nonprofit, may apply for the tax credit. The only limitations are that the small business has 14 or fewer employees and the primary work location of its employees is in Maryland. A business may be: an individual; a partnership; a limited partnership; a limited liability partnership; a limited liability company; or a corporation.

  • What is the wage requirement?

    • ​A small business may claim the tax credit for any employee who earns up to 250% of the annual federal poverty guidelines for a single-person household, which is currently $36,450/year or $17.52/hour.

  • Is the information submitted to the Departmental confidential?

    • ​Wage, benefits, and personal identifying information are strictly confidential. Otherwise, information provided in the application and information concerning a tax credit award, including the recipient's name and amount of the tax credit, are subject to Maryland's Public Information Act.

  • Is this a one-time credit, or can I apply next year?

    • ​An eligible small business may apply for the tax credit every year. However, the tax credit is awarded on a first come first served basis. The amount of funding for the tax credit available to the Department of Commerce is subject to appropriation in the State's annual budget. The Department of Commerce has $5 million available for the Small Business Relief Tax Credit for tax year 2022.

  • How do I receive the credit?

    • ​The Department of Commerce will mail a certification of eligibility for the tax credit to the address provided on the application by the small business. The certification is submitted by the small business to the Maryland Comptroller when a small business submits its tax returns.

  • Are businesses eligible to receive other tax incentives along with this program?

    • ​Yes, receiving the Small Business Relief Tax Credit does not prohibit a small business from participating in other tax credit programs.

  • What happens if the credit is more than my tax liability?

    • ​The tax credit is refundable, so a small business will receive a refund for any amount of the credit that exceeds its tax liability. For example, if a small business is awarded a $4,000 credit, and owes only $2,000 in State taxes, then it will receive a $2,000 State refund.