3507: Prison Inmate Labor Credit (2024)
California · FTB · Used for tax years 2024
California Form 3507 figures the Prison Inmate Labor Credit for qualifying wages paid under an approved joint venture with the California Department of Corrections. It reports qualifying wages, pass-through credits, credit claimed or assigned, amounts elected as refundable in fut
Who files this form
Use California Form FTB 3507 for tax year 2024 to figure the 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 received from S corporations, estates, trusts, partnerships, or LLCs classified as partnerships.
Those entities should complete the form to figure the credit to pass through to shareholders, beneficiaries, partners, or members.
Qualifying wages must be paid under a contract between the director of corrections and the joint venture employer. The contract must have been executed on or before the day the employee begins work.
What you'll need
- Approved joint venture agreement: The employer must keep it for audit purposes.
- Qualifying wage information: You need the total qualifying wages paid or incurred under the approved joint venture.
- Schedule K-1, if applicable: Use Schedule K-1 (100S, 541, 565, or 568) for pass-through credits. If you received more than one, attach a schedule listing the names and identification numbers of the entities that passed the credits through to you.
- Form FTB 3544, if applicable: Corporations assigning credits within the same combined reporting group must complete Part A.
- Form FTB 3870, if applicable: Complete and attach this form if you elect to make credits disallowed by the $5,000,000 business credit limitation refundable in future years.
How to file
Attach Form FTB 3507 to your California tax return. S corporations, estates, trusts, partnerships, and LLCs classified as partnerships attach it to Form 100S, 541, 565, or 568, as applicable. Show each recipient’s pass-through credit on Schedule K-1.
To complete the credit calculation:
- Enter total qualifying wages on line 1 and multiply by 10% on line 2.
- Enter pass-through credits on line 3. Add lines 2 and 3 for line 4.
- Enter the credit claimed on line 5a, credit assigned on line 5b, and any amount elected as refundable in future years on line 5c.
- Subtract the total of lines 5a, 5b, and 5c from line 4 to calculate the carryover on line 6.
Use credit code 162 when claiming the credit. If making the refundable-credit election, attach completed Form FTB 3870 to your original, timely filed return.
The supplied text does not give a mailing address or e-filing instructions.
Common mistakes
- Do not include assigned credits claimed on Form FTB 3544, Part B, in line 5a.
- Enter 0 on line 5b if you are not a corporation.
- Do not include credits limited by your tax liability in the refundable-credit election. Those amounts can be carried over instead.
- Do not elect to make only part of the eligible disallowed credit refundable. The election must also cover all other credits claimed that year that were disallowed by the $5,000,000 limitation.
- If you enter an amount on line 5c, enter the same amount on Form FTB 3870, line 1, column (c).
- Do not include amounts elected as refundable on Form FTB 3870 in the line 6 carryover.
- S corporations may not elect to make credits taken at the entity level refundable.
Questions people ask
How much is the credit?
The credit equals 10% of qualifying wages paid to each eligible prisoner during the taxable year for the duration of the contract agreement. Tax limitations may reduce the amount you can claim.
Can an S corporation claim the entire credit against its own tax?
No. An S corporation may claim only one-third against its entity-level tax. The remaining two-thirds must be disregarded and cannot be carried over. It can pass through 100% of the credit to its shareholders.
Is the credit refundable?
The credit itself is not refundable. However, eligible credits disallowed by the $5,000,000 business credit limitation may be elected as refundable in future years using Form FTB 3870. The election is irrevocable. Taxpayers may claim 20% each year over a five-year period beginning in the third taxable year after the election year.
What if I receive more than one pass-through credit?
Add the credits and enter the total on line 3. Attach a schedule showing the names and identification numbers of the entities that passed the credits through to you.