California Prison Inmate Labor Credit

Prison Inmate Labor Credit
2022 Form 3507 Prison Inmate Labor Credit
TAXABLE YEAR

2022

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	 Carryover from 2020 and 2021. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	4

00

5	 Total available Prison Inmate Labor Credit. Add line 2, line 3, and line 4. See instructions . . . . . . . . . . . . . . . . 	5

00

What’s New
Repeal of Credit Limitation – For the 2022 taxable year, the credit
limitation has been repealed. For more information, see California Revenue
and Taxation Code Sections 17039.3 and 23036.3 or get Schedule P (100,
100W, 540, 540NR, or 541), Alternative Minimum Tax and Credit Limitations,
and Form 100S, S Corporation Tax Booklet.
Reminder: Normally there is no provision for carryover of any unused
Prison Inmate Labor Credit to succeeding taxable years, and in no event
can taxpayers carry this credit back and apply it against a prior year’s
tax. However, for taxable years 2020 and 2021, taxpayers are allowed to
carryover the amount of credit disallowed due to the $5,000,000 business
credit limitation.

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) c­ lassified 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 m
­ embers. 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
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 C
­ alifornia,
and for tax purposes is treated as a sole proprietorship owned by an
For Privacy Notice, get FTB 1131 EN-SP.

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.
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) 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 5 – The amount of this credit that you can claim on your tax return
may be limited. Refer to the credit instructions in your tax booklet for more
information. The instructions also explain how to claim this credit on your
tax return. Use credit code 162 when you claim this credit. See General
Information.

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.

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FTB 3507  2022