California Prison Inmate Labor Credit

Prison Inmate Labor Credit
2024 Form 3507 Prison Inmate Labor Credit
TAXABLE YEAR

2024

CALIFORNIA FORM

Prison Inmate Labor Credit

Attach to your California tax return. The employer must keep the approved joint venture agreement for audit purposes.

3507

□ SSN or ITIN □ CA Corporation no. □ FEIN

Name(s) as shown on your California tax return

California Secretary of State file number

1	 Total qualifying wages. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	1

00

2	 Multiply line 1 by 10% (.10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	2

00

3	 Pass-through Prison Inmate Labor Credit(s) from Schedule K-1 (100S, 541, 565, or 568). See instructions  .  	3

00

4	 Total available Prison Inmate Labor Credit. Add line 2 and line 3. See instructions  . . . . . . . . . . . . . . . . . . . . . 	4

00

5	 a	 Credit claimed. Enter the amount of the credit claimed on the current year tax return. See instructions.
(Do not include any assigned credit claimed on form FTB 3544, Part B.) . . . . . . . . . . . . . . . . . . . . . . . . . . . 	5a

00

	b	
Total credit assigned. Enter the total amount from form FTB 3544, Part A, column (g).
If you are not a corporation, enter -0-. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	5b

00

	c	
Credit amount to be elected as refundable in future years. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . 	5c

00

6	 Carryover of the disallowed credit amount to future years. Add lines 5a, 5b, and 5c,
subtract the result from line 4. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	6

00

What’s New
Credit Limitation – For taxable years beginning on or after
January 1, 2024, and before January 1, 2027, there is a $5,000,000
limitation on the application of business credits. The total of all business
credits including the carryover of any business credit for the taxable year
may not reduce the “net tax”, for personal income filers, or “tax”, for
corporate filers, by more than $5,000,000. Business credits should be
applied against “net tax” before other credits. For taxpayers included in a
combined report, the limitation is applied at the group level.
For each taxable year of the limitation, taxpayers may make an
irrevocable election to receive an annual refundable credit amount for
the credits disallowed due to the limitation. Taxpayers may claim 20% of
this refundable credit in each year of a five-year refundable period. The
refundable period begins the third taxable year after the taxable year in
which the election is made. To make this irrevocable election, complete
form FTB 3870, Election for Refundable Credit, and submit it with an
original, timely filed return.
S corporations may not elect to make credits taken at the entity level
refundable.
If a taxpayer does not choose to make the election outlined above,
business credits disallowed due to the limitation may be carried over.
The carryover period for disallowed credit is extended by the number
of taxable years the credit was not allowed. For more information, refer
to California Revenue and Taxation Code Sections 17039.4, 17039.5,
23036.4 and 23036.5 and get form FTB 3870.

General Information
A	Purpose
Use form FTB 3507, Prison Inmate Labor Credit, to figure a credit
for wages paid to prison inmates under an approved joint venture
with the California Department of Corrections. Also, use this form
to claim pass-through prison inmate labor credits you received
from S corporations, estates, trusts, partnerships, or limited liability
­companies (LLCs) ­classified as partnerships.
S corporations, estates, trusts, partnerships, and LLCs classified as
partnerships should complete form FTB 3507 to figure the amount
of credit to pass through to shareholders, beneficiaries, partners, or
For Privacy Notice, get FTB 1131 EN-SP.

­ embers. Attach this form to Form 100S, California S Corporation
m
Franchise or Income Tax Return; Form 541, California Fiduciary Income
Tax Return; Form 565, Partnership Return of Income; or Form 568,
Limited Liability Company Return of Income. Show the pass-through
credit for each shareholder, ­beneficiary, partner, or member on
Schedule K-1 (100S, 541, 565, or 568), Share of Income, Deductions,
Credits, etc.

B	Qualifications
California allows a credit equal to 10% of the wages paid to each
­prisoner who is employed under an approved joint venture with the
California Department of Corrections.
The credit amount is based on wages paid to each qualifying employee
during the taxable year for the duration of the contract agreement.
The credit applies only to wages paid pursuant to a contract agreement,
between the director of corrections and the joint venture ­employer,
­executed on or before the day the individual begins work for the
­employer.

C	Limitations
For taxable years beginning on or after January 1, 2024, and before
January 1, 2027, there is a $5,000,000 limitation on the application
of business credits, including carryover. For taxpayers included in a
combined report, the limitation is applied at the group level.
S corporations may claim only 1/3 of the credit against the 1.5%
entity‑level tax (3.5% for financial S corporations). The remaining 2/3
must be disregarded and may not be used as a carryover. S corporations
can pass through 100% of the credit to their ­shareholders.
If a taxpayer owns an interest in a disregarded business entity [a single
member limited liability company (SMLLC) not recognized by ­California,
and for tax purposes is treated as a sole proprietorship owned by an
individual or a branch owned by a corporation], the ­usable credit amount
received from the disregarded entity is limited to the ­difference between
the taxpayer’s regular tax figured with the income of the ­disregarded
entity, and the taxpayer’s regular tax figured without the income of the
disregarded entity.
For more information on SMLLCs, get Form 568, Limited Liability
Company Tax Booklet.

7261243

FTB 3507  2024  Side 1

This credit cannot reduce the regular tax below the minimum franchise
tax (corporations and S corporations), the annual tax (limited
partnerships, limited liability partnerships, and LLCs classified as
a partnership), the alternative minimum tax (corporations, exempt
organizations, individuals, and fiduciaries), the built-in gains tax
(S corporations), or the excess net passive income tax (S corporations).
This credit cannot reduce regular tax below the tentative minimum tax
(TMT). Get Schedule P (100, 100W, 540, 540NR, or 541), Alternative
Minimum Tax and Credit Limitations, for more information.
This credit is not refundable.

D	 Assignment of Credits
Assigned Credits to Affiliated Corporations – Credit earned by
members of a combined reporting group may be assigned to an
affiliated corporation that is an eligible member of the same combined
reporting group. A credit assigned may only be claimed by the affiliated
corporation against its tax liability. For more information, get form
FTB 3544, Assignment of Credit, or go to ftb.ca.gov and search for
credit assignment.

Specific Line Instructions
Line 1 – Enter the total amount of qualifying wages paid or incurred
under the provisions of the approved joint venture.
Line 3 – If you received more than one pass-through credit from
S corporations, estates, trusts, partnerships, or LLCs classified as
partnerships, add the amounts and enter the total. Attach a schedule
showing the names and identification numbers of the entities from
which the credits were passed through to you.
Line 5a – Credit claimed
Do not include assigned credits claimed on form FTB 3544, Part B, List
of Assigned Credit Received and/or Claimed by Assignee.
This amount may be less than the amount on line 4 if your credit
is limited by your tax liability. For more information, see General
Information C, Limitations, and refer to the credit instructions in your tax
booklet. Use credit code 162 when you claim this credit.
Line 5b – Total credit assigned
Corporations that assign credit to other corporations within the same
combined reporting group must complete form FTB 3544, Part A,
Election to Assign Credit Within Combined Reporting Group. Enter the
total amount of credit assigned from form FTB 3544, Part A, column (g)
on this line.
Line 5c – Credit amount to be elected as refundable in future years
You may elect to make credits that are disallowed due to the $5,000,000
credit limitation refundable in future years. If you make this election on
form FTB 3870, enter the amount of credit that would have otherwise
been available to reduce tax in this tax year but for the $5,000,000 credit
limitation. Do not include credit limited by your tax.
You may not elect to have a partial amount of your disallowed credit
be refundable. If you elect to make the amount of this credit that is
disallowed due to the $5,000,000 credit limitation refundable, you must
make the same election for all other credits you claimed this year that
were also disallowed due to the $5,000,000 credit limitation. If you enter
a value on in this line, you must also enter the same amount on form
FTB 3870 line 1, column (c). Attach your complete form FTB 3870 to
your original, timely filed tax return.
Line 6 - Carryover of the disallowed credit amount to future years.
Do not include any amount you will be electing as a refundable credit on
form FTB 3870.
Credit limited by your tax liability cannot be included in an election for
refundable credit. These amounts would not have otherwise been able to
be claimed, regardless of the $5,000,000 credit limitation and therefore
are not eligible for an election to be made refundable. They can, however,
be carried over for future years. Include any such amounts here.

Page 2  FTB 3507 Instructions  2024

Franchise Tax Board Privacy Notice on
Collection
Our privacy notice can be found in annual tax booklets or online. Go
to ftb.ca.gov/privacy to learn about our privacy policy statement, or
go to ftb.ca.gov/forms and search for 1131 to locate FTB 1131 EN-SP,
Franchise Tax Board Privacy Notice on Collection – Aviso de Privacidad
del Franchise Tax Board sobre la Recaudación. To request this notice by
mail, call 800.338.0505 and enter form code 948 when instructed.