CA Form 3507 - Prison Inmate Labor Credit
Form FTB 3507, known as the Prison Inmate Labor Credit, is used by California taxpayers to claim a tax credit for wages paid to prison inmates under an approved joint venture with the California Department of Corrections. This credit is designed to support employment opportunities for incarcerated individuals and incentivize businesses participating in such programs.
Purpose of Form 3507
- Calculate the credit for wages paid to prison inmates under an approved joint venture.
- Claim pass-through credits received from partnerships, S corporations, trusts, or LLCs classified as partnerships.
- Report the total available credit and the amount claimed on the current year’s tax return.
How to Calculate the Credit
- Line 1: Enter the total qualifying wages paid or incurred under the joint venture agreement.
- Line 2: Multiply Line 1 by 10% (0.10) to determine the base credit amount.
- Line 3: Add any pass-through credits received from Schedule K-1 (100S, 541, 565, or 568).
- Line 4: Include any carryover from the previous year (2024), if applicable.
- Line 5: Total available credit is the sum of Lines 2, 3, and 4.
Credit Limitations and Carryover
- The credit is subject to a $5,000,000 business credit limitation for corporations and other entities.
- For taxable years 2024 through 2026, disallowed credits may be carried over to future years.
- Corporations may elect to make disallowed credits refundable over a five-year period, starting in the third taxable year after the election is made. This requires filing Form FTB 3870.
- The credit cannot reduce tax below minimum franchise tax, annual tax, alternative minimum tax (AMT), built-in gains tax, or excess net passive income tax.
Who Can Claim This Credit?
- Corporations, S corporations, estates, trusts, partnerships, and LLCs classified as partnerships must complete Form FTB 3507 to figure the credit passed through to shareholders, beneficiaries, partners, or members.
- S corporations may not elect to make credits taken at the entity level refundable.
Filing Instructions
- Attach Form FTB 3507 to the appropriate return:
- Form 1008S (S Corporation Franchise or Income Tax Return)
- Form 541 (Fiduciary Income Tax Return)
- Form 565 (Partnership Return of Income)
- Form 568 (LLC Return of Income)
- Use credit code 162 when claiming this credit on your return.
Important Notes
- The credit applies only to wages paid under a contract agreement executed on or before the employee begins work.
- Credits disallowed due to limitations may be carried forward. The carryover period extends by the number of years the credit was not allowed.
- The credit is not refundable unless an irrevocable election is made via Form FTB 3870.
Source:
Prison Inmate Labor Credit (Form FTB 3507)
Disclaimer: Always verify details with official forms and instructions from the California Franchise Tax Board (FTB) or your local Department of Revenue. OLT (Online Taxes) provides guidance based on retrieved information but does not guarantee accuracy for all individual circumstances.