California Prison Inmate Labor Credit

Prison Inmate Labor Credit
2020 Form 3507 Prison Inmate Labor Credit
TAXABLE YEAR

2020

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 Carryover of the disallowed credit amount to future years. See instructions  . . . . . . . . . . . . . . . . . . . . . . . . . . 	5

00

What’s New
Credit Limitation – For taxable years beginning on or after January 1, 2020,
and before January 1, 2023, there is a $5,000,000 limitation on the
application of business credits for taxpayers. 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 tax filers, or the “tax”, for corporate
filers, by more than $5,000,000. For taxpayers included in a combined report,
the limitation is applied at the group level. The business credits disallowed
due to the limitation may be carried over. The carryover period for disallowed
credits is extended by the number of taxable years the credit was not allowed.
This limitation does not apply to the Low-Income Housing Credit.

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 members. Attach
this form to Form 100S, California S Corporation 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, 2020, and before January
1, 2023, 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. The limitation does not apply to
the Low-Income Housing Credit.
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.
For Privacy Notice, get FTB 1131 ENG/SP.

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 SMLLC, get Form 568, Limited Liability Company
Tax Booklet.
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.
There is no provision for carryover of any unused credit to succeeding tax
years and in no event can you carry this credit back and apply it against a
prior year’s tax.
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 4 – The amount of this credit that you can claim on your tax return may
be limited. See General Information C, Limitations. Also refer to the credit
instructions in your tax booklet for more information. Use credit code 162
when you claim this credit.
Line 5 – For taxable years 2020 through 2022 you are allowed to carryover
the amount of credit that was disallowed due to the $5,000,000 limitation.
The carryover period for a disallowed credit is extended by the number
of taxable years the credit was not allowed. For more information see the
applicable Schedule P.

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FTB 3507  2020