taxes

California Goldmine: A Complete List Of Tax Credits For CA

May 15, 2024

In the Golden State, both individual and corporate taxpayers can benefit from various federal and state tax credits designed to alleviate financial burdens and encourage growth. This blog post delves into the myriad tax credits available, helping businesses in California uncover valuable opportunities and reduce their tax liabilities. Stay informed and maximize your savings as we navigate the complex world of tax incentives.

We’re going to cover California state tax credits for individuals and state tax credits for businesses and corporations located or operating in California.

California Earned Income Tax Credit

The California Earned Income Tax Credit (also called the CalEITC) offers support for low-income, working Californians. Eligible taxpayers may receive up to $3,529 cash back or a reduction of their owed taxes. Incidentally, being eligible for the CalEITC might also mean you qualify for the Young Child and Foster Youth tax credits.

The amount of the CalEITC you receive depends on your earned income and family size and you can either receive a cash tax refund back or a reduction in taxes owed. Note that earned income is wages, salaries, tips, and other employee compensation that is subject to California withholding, or net income from self-employment.

To qualify for the CalEITC, you must meet all of the following requirements during the tax year:

You’re at least 18 years old or have a qualifying child
Have earned income of at least $1.00 and not more than $30,950
Have a valid Social Security Number or Individual Taxpayer Identification Number (ITIN) for you, your spouse, and any qualifying children
Live in California for more than half the filing year
Not be eligible to be claimed as a qualifying child of another taxpayer
Not be eligible to be claimed as a dependent of another taxpayer unless you have a qualifying child

Additionally, married and registered domestic partners (RDPs) filing separately must meet all of the following requirements:

Had a qualifying child who lived with you for more than half of the tax year, and:
You lived apart from your spouse or registered domestic partner for the last 6 months of the tax year, or

You are legally separated by state law under a written separation agreement or a decree of separate maintenance and you did not live in the same household as your spouse/RDP at the end of the tax year

You can use the EITC calculator on the Franchise Tax Board’s website here to check your eligibility for the CalEITC. Before using this EITC calculator, you’ll need to have the following information on hand:

Your filing status
Your age on December 31 of the prior tax year (For 2024, this date is December 31, 2023)
Your number of qualifying children
Your earnings from jobs or self-employment in California for the prior tax year
Your income received in the prior tax year from jobs or self-employment not based in California
Your investment income (dividends, net rent, net capital gains, non-business royalties, etc.)
Your Social Security Number or Taxpayer Identification Number

Child Adoption Costs Credit

If you’ve adopted a child in California, you can claim a tax credit for 50% of the cost, provided they are a legal resident or U.S. citizen and are in the custody of a California agency or political subdivision.

Qualifying expenses for the Child Adoption Costs Credit include:

Fees for the Department of Social Services or a licensed adoption agency
Medical costs not covered by insurance
Travel expenses
Costs incurred during an adoption attempt that was initially unsuccessful, but later successful (even with a different child)

You can receive up to $2,500 per child in the tax year and any excess costs can be carried over into future years as a tax credit.

To claim the Child Adoption Costs Credit, you must file your state tax return, either the 540 Form (California Resident Income Tax Return) or the 540NR Form (California Nonresident or Part-Year Resident Income Tax Return).

California Child and Dependent Care Credit

You can claim this credit if you have paid someone to take care of your child, spouse, registered domestic partner (RDP), or dependent while you worked or looked for work. You must have also earned income during the year. Note that this credit does not provide a tax credit refund.

As of 2024, you can claim up to $3,000 in expenses for one person and up to $6,000 for two or more people. You will receive a credit that is a percentage of the amount you have claimed.

To claim this credit, you must:

File a return (jointly filed, if married).
Have provided care in California.
Have paid for care in order to work or look for work.
Have earned income.
Must have paid a provider other than your spouse, domestic partner, or child’s parent (Your child can be the provider if they are 19 years or older).
Have lived in the same house with the qualifying person for more than half the year.
Your adjusted gross income must be $100,000 or less

Qualifications for child and dependents

Relationship: To qualify for this tax credit, the child must be your son or daughter, stepchild, adopted child, foster child, half-brother or half-sister, niece or nephew, or a descendant of one of these.
Age: The child must be under 13 years old.
Residency: The child must have lived with you for more than half of the year.
Support: The child must not have provided more than half of their own support.
Joint Return: The child must not have filed a joint federal or state income tax return.
Citizenship: The child must be a U.S. citizen, national, or resident of Mexico or Canada.

Qualifications for spouses and registered domestic partners

To count your costs for a spouse or RDP, your spouse must be one of the following:

Incapable: Your spouse or RDP must be mentally or physically incapable of taking care of themselves.
Enrolled: Your spouse or RDP must be enrolled as a full-time student during any 5 months of the year.

To claim the California Child and Dependent Care Credit, you must file your California income tax return and attach Form 3506 (Child and Dependent Care Expenses Credit).

College Access Tax Credit

You can claim this credit if you contribute to the California Access Tax Credit (CATC) fund. This fund provides financial assistance to low-income college students. Available until 2027, this credit gives qualifying taxpayers with a tax credit totaling 50% of their contribution to the CATC fund.

You can apply for, and donate to, the CATC fund by following these steps:

Complete and submit the application form (here) on the website of the Educational Facilities Authority (CEFA).
CEFA will mail you a letter that notifies you that it has granted the tax credit to you and provides a payment due date for you.
Make your payment to CEFA by the due date specified in the letter.
CEFA will send a College Access Tax Credit Certification

To claim the California College Access Tax Credit, follow these steps:

File your income tax return (540 Form or 540NR Form).
Enter your certification number from your CEFA certificate letter on FTB 3592 (College Access Tax Credit), which you can request by email here on the FTB website.
Attach FTB 3592 to your income tax return

Key points to consider when claiming the College Access Tax Credit:

This credit can reduce tax below tentative minimum tax thresholds.
Any charitable contribution deduction claimed on your federal return must be added as an adjustment on your state return.
Unused credit amounts can be carried over for up to 6 years following the original return’s filing date.

Dependent Parent Credit

If you cared for an elderly parent, you may be able to claim this credit – even if your parent did not live with you during the tax year. As of 2024, you can claim up to $574 in expenses with this tax credit.

To qualify for this tax credit, you must meet the following qualifications:

Filing Status: You can only claim this credit if you file separately. You cannot claim this credit if you file as single, head of household, qualifying surviving spouse, or domestic partner. ‍
Spousal Relation: Your spouse or domestic partner cannot have lived with you during the last 6 months of the year. ‍
Expenses Paid: You must have paid over half of the household expenses for your dependent parent.

If you are filing a 540 Form (California Resident Income Tax Return), you can calculate your tax credit amount with these steps:

Take the amount from line 35.
Multiply this amount by 30%.
Enter the result or $573, whichever is lesser, on line 43 or line 44.

If you are filing a Form 540NR (California Nonresident or Part-Year Resident Income Tax Return), you can calculate your tax credit amount with these steps:

Subtract line 11 from line 31.
Enter the amount from line 41.
Add line 1 and line 2.
Multiply the amount by 30%.
Enter the result or $573, whichever is less, on line 52.

Note that, if you claim this credit, you cannot claim the Joint Custody Head of Household Credit.

Foster Youth Tax Credit

The Foster Youth Tax Credit (FYTC) is designed to provide additional financial support for eligible young adults who have experienced foster care in California. By claiming this credit, qualifying individuals can receive a reduction in their owed taxes or even a cash refund, helping to ease the financial burden and promote self-sufficiency as they transition into adulthood.

For tax year 2023, the Foster Youth Tax Credit offers a maximum credit of $1,117 per eligible individual or up to $2,234 if both the primary taxpayer and spouse/RDP qualify. The FYTC can provide you with cash back or reduce any tax you owe. To be eligible for the FYTC, current and former foster youth must meet the following requirements:

Qualify for the California Earned Income Tax Credit (CalEITC)
Be between the ages of 18 and 25 at the end of the tax year
Have been in foster care at age 13 or older and placed through the California foster care system
Claim the credit on the 2023 FTB 3514 form, California Earned Income Tax Credit, or follow the instructions on your tax software

Satisfy the foster care verification requirement

Your foster youth status will be verified in one of three ways:

Check the consent box on line 33 of the FTB 3514 form, or follow the instructions specific to your tax software. Providing this consent allows the California Department of Social Services (CDSS) to attempt to verify your foster youth status using a statewide database.

Add your foster youth verification letter when paper filing, or upload the letter (if possible) when e-filing.

If neither option one or two of this list applies, the Franchise Tax Board (FTB) will mail you a letter requesting that you provide verification.

You can use the EITC calculator here to check your eligibility for the FYTC.

Joint Custody Head of Household

You can only claim up to $573 with this credit if you have joint custody of a child, stepchild, or grandchild and are not a joint filer (married or RDP), head of household, or qualifying surviving spouse. Additionally, there must be a custody agreement and the following must for you:

You were not married or a registered domestic partner at the end of the year, OR
You were married or a registered domestic partner but lived apart from your spouse for the whole year, AND
You supplied more than half of the household expenses for your home.
Your home must have been your child’s main home for at least 146 days but not more than 219 days.

If you meet the above criteria and file a California Resident Income Tax Return (Form 540), you can estimate the credit amount with these steps:

Note the amount on line 35 of your Form 540.
Multiply this amount by 30%.
Enter the result or $573, whichever is less, on line 43 or line 44.

If you qualify and file a California Nonresident or Part-Year Resident Income Tax Return (Form 540NR), calculate your credit amount by:

Subtract line 11 from line 31.
Enter the amount from line 41.
Add the amounts from line 1 and line 2.
Multiply the amount by 30%.
Enter the result or $573, whichever is lesser, on line 51.

Note that if you claim this credit, you cannot claim the Dependent Parent Tax Credit.

Other State Tax Credit

This credit lets you offset taxes paid to another state so you are not paying twice in taxes. The following types of taxpayers may claim this credit:

Individuals
Estates
Trusts
Resident beneficiaries of estates and trusts
Shareholders of S corporations
Members of LLCs classified as partnerships
Partnerships

You can check your eligibility for the Other State tax credit by following the Instructions for Schedule S.

To claim this tax credit, you must file a California income tax return (Form 540 or Form 540NR) and attach Schedule S (Other State Credit). Note that you must complete and attach a separate schedule for each state credit you are claiming, as well as any income tax returns from other states.

Prior Year Alternative Minimum Tax Credit

You can claim this credit for the prior year alternative minimum tax if you meet the following qualifications:

You had an AMT credit carryover from last year.
You paid AMT for last year and had adjustments and tax preference items other than exclusions.

To claim this tax credit, you must:

File your income tax return.

Attach Form 3510 (Credit for Prior Year Alternative Minimum Tax – Individuals or Fiduciaries)

Senior Head of Household Credit

This credit, which lets you claim up to $1,748, is available to California taxpayers who meet the following qualifications:

You are 65 or older as of December 31 of the tax year.
You previously qualified as a head of household for at least 1 of the past 2 years.
Your qualifying person died in the past 2 years.
Your income is less than $92,719.

If you file a 540 Form, you can estimate the amount possible with this tax credit with these steps:

Enter the amount from line 19 on your state income tax return.
Multiply the result by 2%.
Enter the result of $1,748, whichever is lesser, on line 43 or line 44.

If you file the 540NR Form, you can calculate your tax credit amount by:

Enter the amount from line 19 of your state income tax return.
Multiply this amount by 2%.
Enter the result or $1,748, whichever is less, on line 43 or line 44 of your state return.

Young Child Tax Credit

California families who qualify for the Young Child Tax Credit (YCTC) can get up to $1,117 per tax return, either as cash back or reduced taxes. You must have an eligible child under 6 years old at the end of the year and also be eligible for the CalEITC.

The only exception to this is that beginning in 2022, no earned income is required and you can qualify with a net loss amount of up to $33,497. Please note the following definitions:

Earned income is defined as wages, salaries, tips, and other employee compensation that is subject to California withholding, or net income from self-employment.
Net losses occur when your losses exceed your income for the year, and include losses within this current tax year (not just the not just losses that can be used to reduce taxes). Examples of eligible taxpayers with net losses include gig workers, self-employed individuals, and

For 2019, 2020, and 2021, you may still be able to qualify for the YCTC if you have between $1 and $30,000 in earned income (you cannot qualify if you have zero income).

You can claim the 2023 YCTC by completing the 2023 FTB 3514 Form or, if you e-file, following your tax software’s instructions. You can claim the YCTC for the 2019, 2020, 2021, and 2022 tax years by amending your state income tax return. However, for years prior to 2022, you can only qualify for the YCTC if you have at least $1 of earned income for that year.

We’ve linked to the official FTB 3514 Form for current and prior tax years, beginning with 2019:

California Competes Tax Credit (CCTC)

This income tax credit is designed to incentivize businesses that want to come to California or grow their business within California. As of the 2023-2024 fiscal year, there is an estimated $492,129 available through the CCTC for allocation and roughly $120,000,000 in California Competes Grant funding.

You must apply for the California Competes Tax Credit on www.calcompetes.ca.gov, which you can do so during the following periods:

July 24, 2023 – August 14, 2023
January 2, 2024 – January 22, 2024
March 4, 2024 – March 18, 2024

Grant funding and tax credits are awarded to businesses based on 14 factors:

Number of jobs created or retained

Compensation paid to employees

Amount of investment

Duration of proposed project and commitment to remain in this state

The extent of unemployment or poverty in the business area

The extent that the benefit to the state exceeds the amount of the credit

Incentives available in other states

Opportunity for future growth and expansion

Other incentives available in California

Overall economic impact

Strategic importance to the state, region, or locality

Training opportunities offered to employees

Commitment to treating its workforce fairly and creating quality, full-time, wage and salary jobs

The extent to which the credit influences the applicant’s decision to relocate jobs in California from states that have laws that permit discrimination based on sex or gender or interfere with women’s reproductive rights.

For more information about the California Competes Tax Credit, you can check out the Frequently Asked Questions on the California state web page for businesses.

California Research Tax Credit

This tax opportunity is available to businesses that are engaged in qualified research activities in California. Note that this credit is based on the federal research credit, with some modifications made. Your credit amount is the sum of the following:

15% of qualified expenses that exceed a base amount
24% of basic research payments

To claim the California Research Tax Credit, file your income tax return and attach the Research Credit (FTB 3523). Note that you can carry over unused credit until it is exhausted.

Cannabis Equity Tax Credit

The Cannabis Equity Tax Credit (CETC) is a nonrefundable credit that is available from 2023 through 2027 to qualified cannabis businesses that can receive up to $10,000 with this tax credit. To qualify for this tax credit, you must be an equity licensee who has received approval (this includes approval contingent upon the availability of funds) for the fee waiver and deferral program administered by the California Department of Cannabis Control. This department will provide a list of qualified taxpayers to the Franchise Tax Board (FTB).

You can claim this the Cannabis Equity Tax Credit between 2023 through 2027, and any unused credit can be carried over for up to 8 years following the year in which the credit was first claimed.

High-Road Cannabis Tax Credit

Update as of February 2024: The California Franchise Tax Board stated that the reservation system for the High-Road Cannabis Tax Credit (HRCTC) is no longer available because the full $20 million has been allocated.

The High-Road Cannabis Tax Credit is available between January 1, 2023 and December 31, 2027, with a total amount of $20 million available through a reservation system. The High-Road Cannabis Tax Credit lets qualified cannabis businesses receive a tax credit for 25% of qualified expenses within a tax year, with a maximum credit amount of $250,000 per year.

To qualify for this tax credit, a cannabis business must provide full-time employees with all of the following:

Wages (see Qualified Expenditures below)
Group health insurance
Retirement benefits or pension benefits:

A defined benefit plan
401K
Simplified Employee Pension (SEP)
Savings Incentive Match Plan for Employees (SIMPLE)
Automatic enrollment payroll deduction IRA
Other plans that qualify for favorable federal income tax treatment under the federal Internal Revenue Code
Stock options where the employer pays for the full value of the stock.

If you meet the above qualifications, you can deduct the following expenses:

Qualified wages for full-time employees: Full-time employees must either be salaried employees or be paid for at least 35 hours per week. They must also be paid between 150% and 350% of the state’s minimum wage. Qualified wages include amounts paid by the employer for group health insurance, childcare benefits, employer contributions to employer-provided retirement benefits, and employer contributions to pension benefits.
Safety-related equipment, training, and services: This includes equipment primarily used by employees of the cannabis business to ensure their personal and occupational safety or that of customers.
Workforce development and safety training: This includes joint labor-management training programs, membership in a joint apprenticeship training committee registered by the Division of Apprentice Standards and a state-recognized high-road training partnership (as defined in Section 14005 of the Unemployment Insurance Code), and similar programs.

Homeless Hiring Tax Credit

The Homeless Hiring Tax Credit (HHTC) is available between January 1, 2022, and December 31, 2026, and allows eligible employers to receive between $2,500 and $10,000 per eligible employee, up to $30,000 within a tax year.

Qualified employees are individuals who have been homeless or have received homeless services within the past 180 days and who have been confirmed by a certifying organization, which includes Continuum of Care (CoC) programs and community-based service providers.

You can find a list of certifying Continuum of Care program contacts here. These certifying organizations must be connected to the local coordinated entry systems or a local homeless management information system to certify eligible individuals as HHTC-eligible employees. Note that certificates expire one year after issuance.

To be an eligible employer, you must:

Obtain an HHTC certificate for each eligible employee from a certifying organization.
Pay wages equaling at least 120% of their California minimum wage.
Make a credit reservation within 30 days of hiring a new employee or within 60 days of receiving new certification for an eligible employee.

Main Street Small Business Tax Credit II

The Main Street Small Business Tax Credit II aims to provide financial relief to qualified small businesses affected by economic disruptions in 2020 and 2021, leading to unprecedented job losses. Here’s what you need to know about this tax credit and how it may benefit your business:

Taxpayers can use the credit against income taxes or make an irrevocable election to apply the credit against sales and use taxes.
Qualified small business employers must have 500 or fewer employees on December 31, 2020, whose wages are subject to California withholding laws.
These businesses must have experienced a decrease of 20% or more in gross receipts, with specific comparisons based on the calendar year, fiscal year, or new business commencement dates.
To receive the tax credit, businesses must apply for a tentative credit reservation from the California Department of Tax and Fee Administration (CDTFA) between November 1 and November 30, 2021.

The credit amount for the Main Street Small Business Tax Credit II equals $1,000 for each net increase in qualified employees, measured by the monthly average full-time employee equivalents. Each employer can claim up to $150,000 in credit. However, the 2021 credit will be reduced by the Main Street Small Business Tax Credit received for the 2020 taxable year.

To claim the credit, businesses must:

File their original or amended income tax return.
Include the Main Street Small Business Tax Credit (FTB 3866) form with their return.
Provide the confirmation number received from the CDTFA when claiming the credit.
Use credit code 241 when claiming the credit.
Unused credits can be carried over for five years or until exhausted.

Important notes about this tax credit

The CDTFA will accept applications for a tentative credit reservation from November 1 through November 30, 2021. However, they may close the application period earlier if the $116 million allocation limit is reached before November 30. Visit the CDTFA website to apply.

California S corporations can choose between applying the credit against qualified sales and use taxes or franchise and income taxes. Each choice comes with different rules on claiming credits, passing them through to shareholders, and offsetting taxes.

Motion Picture and Tax Credit

The California Motion Picture and Television Production Credit is designed to support the state’s film and television industry. If you’ve produced a motion picture or television show in California, you may be eligible for this credit.

There are currently four types of motion picture and television production credits available:

Original California Motion Picture and Television Production Credit
New California Motion Picture and Television Production Credit
Program 3.0 California Motion Picture and Television Production Credit
Soundstage Filming Tax Credit (enacted under Senate Bill 144)

Additionally, there will be a new Program 4.0 California Motion Picture and Television Production Credit (enacted under Senate Bill 132) available in 2025.

For corporations, the following credits can be used to reduce your tax below the tentative minimum tax threshold (TMT):

Original California Motion Picture and Television Production Credit
New California Motion Picture and Television Production Credit
Program 3.0 California Motion Picture and Television Production Credit
Soundstage Filming Tax Credit

For individual taxpayers, you may use the following credits to reduce your regular tax below TMT:

Program 3.0 California Motion Picture and Television Production Credit
Soundstage Filming Tax Credit

However, individual taxpayers cannot use the Original or New California Motion Picture and Television Production Credits to reduce their regular tax below TMT.

Tax credits are allocated and certified by the California Film Commission (CFC). To check if you qualify for any of these credits, create an account and apply at the California Film & Television Tax Credit Program website.

To claim the credits, you’ll need to:

File your income tax return.
Include a separate California Motion Picture and Television Production Credit (FTB 3541) form for each credit you’re claiming.
Provide the copyright registration and certificate numbers when claiming the credits.
Follow the specific instructions for each credit type as detailed in the instructions for FTB 3541.

Unused credits can be carried over for an additional 6 years for the Original and New California Motion Picture and Television Production Credits, while the Program 3.0 and Soundstage Filming Tax Credits can be carried over for an additional 9 years.

You may sell the entire credit attributable to an Independent Film or part of it to an unrelated party, but not to multiple parties. Purchased credits can only be applied against income or franchise tax liabilities, and cannot be resold. To sell your credit, complete the Sale of Credit Attributable to an Independent Film (FTB 3551) form.

If you’re interested in assigning the credits, note that you may assign these credits only if you are:

A corporation or a Limited Liability Company (LLC) reporting as a corporation
An affiliated corporation that is an eligible assignee as defined in the laws relating to motion picture credits or in the laws relating to general assignment
A corporation that is either a member of an LLC, partner in a partnership, or a shareholder of an S corporation and the credit flows through to you

General Rules

You can use all four credits simultaneously to reduce your income, franchise, or sales and use tax liabilities. The credit can be assigned either under motion picture and television credit rules or general credit assignment rules, but not both. If you elect to apply a portion or all of your credit against sales and use tax, you must inform the Franchise Tax Board (FTB) about the election on FTB 3541. You are required to report allocation, assignment, purchase, sale, and application of credit against income/franchise tax with the FTB and sales and use tax with the California Department of Tax and Fee Administration (CDTFA)

Motion Picture and Television Production Credit Rules

The assignment of this credit is irrevocable once made
You may assign only the portion of the credit that is in “excess of your tax” for the taxable year when making the assignment
If assigning a prior-year carryover amount, you must still use the credit against your current-year tax liability before assigning the excess amount
If you have more than one motion picture credit, you may apply any or all of the credits to your existing tax liability before assignment. Once the tax liability has been met for a taxable year, you can make the assignment on your original return or an amended return
If you made an invalid election to assign, you may withdraw the election and file a valid election to assign on an amended return
If the credit was generated by an SMLLC treated as a disregarded entity, the limitations regarding the amount of credit that can be used by the owner of the disregarded entity will not apply to the assignee

How to Assign Credits

File your income tax return.
To assign credit under:
Motion picture and television credit rules, include a separate FTB 3541 for each of the four credits
General credit assignment rules, refer to credit assignment instructions
Provide the certificate number when completing all forms.
Each assignee must also file a separate FTB 3541 form with complete details to report receiving the assigned credit.

New Employment Credit

The New Employment Credit is a California state tax credit that encourages employers to hire qualified full-time employees and pay wages for work performed in designated geographic areas (DGAs). Here is an overview of the credit, its requirements, and how it can benefit your business.

To be eligible for the New Employment Credit, employers must:

Hire qualified full-time employees
Receive a reservation for that employee
Pay wages for work performed by that employee in a DGA
Report the credit on a timely filed (including extensions) original return

The Franchise Tax Board (FTB) provides a searchable database on its website that includes employer names, the amount of tax credit claimed, and the number of new jobs created for each taxable year.

Qualified Employer Requirements

To qualify as an eligible employer, you must:

Be engaged in a trade or business in California within the DGA
Hire qualified employees
Obtain a tentative credit reservation for the qualified employees
Pay qualified wages
Not be in an excluded business
Have a net increase in jobs

Qualified Employee Requirements

A qualified employee must meet the following criteria:

Be hired on or after the employee’s work location was made part of the DGA
Perform at least 50% of their services in the DGA
Receive starting wages that exceed 150% of California minimum wage at the time of hire
Be hired for full-time work (paid hourly wages for an average of at least 35 hours per week or salaried and paid for full-time work)

They must also meet one of the following qualification categories at the time of hire:

Unemployed for the previous 6 months or more (not receiving wages
Not self-employed
Not a full-time student (if the employee completed a college or similar program, the completion date must have been at least 12 months prior to the date of hire)
Veteran, separated from the U.S. Armed Forces within the previous 12 months
Received the federal Earned Income Credit in the previous taxable year
Ex-offender convicted of a felony
Current recipient of CalWORKs or county general assistance

To complete the reservation, you will need the following information:

Employer Information

Name of business
Type of entity (corporation, partnership, individual, etc.)
Your ID (California Corporation number, Federal Employer Identification Number, Social Security Number, etc.)
Date business began in California
Taxable year-end
Gross receipts of business for the previous taxable year (estimates can be used)
Type of business (North American Industry Classification System (NAICS) classification)
Address of business (this location does not need to be in the DGA)
Business contact name and phone number

Employee Information

Employee’s name
Social Security Number
Address where the employee works (this location needs to be in the DGA)
Employee home address
Hire date
Date you completed EDD New Hire Reporting requirements for the employee
Starting hourly rate of pay
Average number of hours the employee will work per week
Employee’s qualification category

Paid Preparer Information (if applicable)

Preparer name
Preparer ID

Qualified Wages

Qualified wages are those that exceed 150% of California minimum wage but do not exceed 350% of California minimum wage. These wages include actual wages paid, overtime, and commissions. Employees can continue generating qualified wages for 60 months from their original hire date.

Pass-Through Entity Elective Credit

Starting from January 1, 2021, qualifying pass-through entities (PTEs) in California have the option to pay an entity-level state tax on income. Here is an overview of the pass-through entity elective tax for California businesses and help you determine if your business qualifies.

A qualifying PTE is an entity taxed as a partnership or S corporation. However, publicly traded partnerships and entities permitted or required to be in a combined reporting group do not qualify. Qualified taxpayers are partners, members, or shareholders of an electing qualified entity subject to California personal income tax. To be qualified, a taxpayer must consent to have their pro rata or distributive share and guaranteed payments included in the qualified net income of the electing qualified PTE.

Electing as a pass-through entity

An annual election is made on an original, timely filed tax return. Once the election is made, it is irrevocable for that year and binding on all partners, shareholders, and members of the PTE.

For the 2021 taxable year, the election must be made on a timely filed tax return. From 2022 to 2025, the election must be made when the tax return for the taxable year is filed and an initial payment must be made by June 15.

The elective tax is 9.3% of the entity’s qualified net income, which is the sum of the pro rata or distributive share and guaranteed payments of each qualified taxpayer’s income subject to California personal income tax.

The payment date must be within specific time frames depending on the taxable year. For details on payment dates and amounts, refer to the original text above.

How to Pay the PTE Elective Tax Payments

Qualified entities must use either the free Web Pay application accessed through FTB’s website or a Pass-Through Entity Elective Tax Payment Voucher for all PTE elective tax payments. The elective tax payment cannot be combined with the entity’s other tax payments. Qualified taxpayers are eligible to claim a nonrefundable credit for the amount of tax paid on their pro rata or distributive share and guaranteed payments included in the qualified entity’s qualified net income. Unused credits can be carried over for up to 5 years.

Credit Assignments for California C Corporations

Members of a California C corporation should understand the credit assignments so they can identify opportunities to assign credits to others in their reporting group. Here is a brief overview of the eligibility requirements for credits, roles involved in credit assignment, how to assign and claim/report credits, and some important regulations and rules to be aware of.

Any credit held by a C corporation is eligible for credit assignment, except for the Alternative Minimum Tax (AMT) credit. This information applies only to assignments made under the general assignment statute.

Note: This information is not for credit assignments made under the California Motion Picture and Television Production credit or the Low-Income housing credit (FTB 3521) provisions.

Roles in Credit Assignment

There are two roles associated with credit assignment:

Assignor: The member of a combined reporting group that generates an eligible credit and can assign it to an eligible assignee within the same group. ‍
Assignee: The affiliated corporation that is a member of the same combined reporting group as the assignor and is eligible to receive the assigned credit.

How to Assign Credits

If you’re an assignor, follow these steps:

File your combined income tax return using either Form 100 or 100W.
Complete Part A of Assignment of Credit (FTB 3544) and attach it to your original return.
Use a different FTB 3544 for each assignor and each type of credit you’re assigning.
Assign credits by listing specific dollar amounts, type of credit, year of generation, and any applicable limitations for the credit’s use.

Important: A credit assignment will not be allowed if Form FTB 3544 is attached to an amended tax return.

How to Claim/Report Credits

If you’re an assignee, follow these steps:

File your combined income tax return using Form 100, 100W, or 100X, as applicable.

Complete Part B of the Assignment of Credit (FTB 3544) and attach it to your return.

Use a different FTB 3544, with a completed Part B, for each assignee and each type of credit you’re receiving.

Defective Credit Assignments

Defective assignments include incomplete forms, assignments made to an ineligible assignee, non-specific assignments, and assigning more credits than the assignor has.

Allocation Rules

California Code of Regulations (CCR) 23663-1 to 23663-5 provides options to allocate credits in case of defective credit assignments:

Standard allocation

Alternative allocation

Correction of an error

Unitary determination

Corporate Reorganizations and Restructuring

Effective January 1, 2022, California adopted a new regulation section regarding the assignment of credits following corporate reorganizations and other corporate restructurings. For more information, refer to the California Code of Regulations (CCR) section 23633-6.

Seize the tax opportunities in the state of California

Understanding the various tax credits and assignments available in California can greatly benefit businesses and individuals alike. By staying informed about eligibility requirements, processes, and regulations surrounding these credits, you can maximize your tax savings and make strategic decisions for your business. Remember to consult with MBS Accountancy in your corporate tax planning so we can ensure proper compliance and help you seize the opportunities provided by these tax incentive opportunities in the state of California.