How to Fill Out and Submit California Form FTB 3554: New Employment Credit

California Form FTB 3554 is the form you attach to your state tax return to claim the New Employment Credit, worth 35% of qualified wages paid to eligible hires in a Designated Geographic Area. Filing the form is the last step. Before it will produce any credit, you need a Tentative Credit Reservation from the Franchise Tax Board for each employee, filed within 30 days of your EDD new-hire reporting, and your business has to clear several eligibility gates the form itself does not walk you through.¹

One date to keep in view before you invest any time: the credit only applies to employees hired before January 1, 2026, so 2025 is the final year a new hire can start generating it. Workers already inside their 60-month eligibility window keep producing credit on later wages, and unused amounts carry forward five years.¹

Get the Tentative Credit Reservation First

You cannot claim the credit on Form 3554 for any employee you did not reserve. The reservation request goes directly to the FTB through its online portal at ftb.ca.gov, and it has to be submitted within 30 days of the date you completed EDD new-hire reporting for that worker. Miss the window and that employee is permanently out, with no restart.²

Have this information for each employee ready before you open the portal:¹

Full name and Social Security number
Work location address (must sit inside the DGA)
Home address
Hire date and the date EDD new-hire reporting was completed
Starting hourly rate and average weekly hours
Which of the six qualification categories the employee meets
Paid preparer name and ID, if any

A wrong work address or EDD date can get the reservation denied, and the 30 days do not reset.

Confirm You and the Employee Qualify

Form 3554 assumes your business and your hires meet the statutory tests. Confirm them before filing.

Your Business

Your work location must be inside a Designated Geographic Area, which you can check using the state’s mapping tool at maps.gis.ca.gov/gobiz/dga/. Certain industries are excluded by NAICS code: temporary help services, retail trade, several food service categories, theater companies and dinner theaters, drinking places serving alcohol, and casinos and casino hotels.³ If your aggregate California gross receipts in the prior year were under $2 million, none of those exclusions apply to you. Sexually oriented businesses never qualify.

Each Employee

Every qualified employee must work at least 35 hours per week (or be salaried full-time), perform at least 50% of their services in the DGA, and start at wages of at least 150% of the California minimum wage.⁴ With the 2026 minimum wage at $16.90 per hour, that floor is $25.35.⁵

The employee must also fit at least one of these categories at hire:¹

Unemployed for the six months immediately before being hired
A veteran separated from the U.S. Armed Forces within the previous 12 months
Received the federal Earned Income Tax Credit in the prior tax year
An ex-offender previously convicted of a felony
Current CalWORKs recipient
Current county general assistance recipient

A trap worth flagging: a recent college graduate who was unemployed for six months still does not qualify unless at least 12 months have passed between degree completion and hire date.⁴

Your Headcount

Your current-year California full-time equivalent headcount has to exceed your base-year headcount, which is the tax year immediately before the claim year. Both are measured on an annual FTE basis. If the net increase is zero or negative, the credit is zero for the year no matter how many qualified hires you reserved.³

Calculate the Credit

The credit is 35% of qualified wages. Qualified wages are only the portion of pay between 150% and 350% of the California minimum wage. At $16.90 minimum wage, that band runs from $25.35 to $59.15 per hour.⁵ Wages below the floor or above the ceiling do not count.

A quick example. You pay a qualified employee $40.00 per hour for 2,000 hours. The qualified portion is $14.65 per hour ($40.00 minus $25.35). That is $29,300 in qualified wages for the year, times 35%, for a tentative credit of $10,255 from that one employee.

Each employee produces credit for up to 60 months from their first day with you. After that window closes, their wages stop counting.⁴

Filling Out Form 3554

Download the current Form 3554 from ftb.ca.gov. Each qualified employee gets a separate entry linking their TCR number to their hours and wages for the year. Before you start, assemble:

TCR confirmation number for each employee
Total hours worked by each qualified employee during the tax year
Total wages paid to each qualified employee
The qualified wage amount (the portion between 150% and 350% of minimum wage)
Current-year and base-year California FTE headcounts

The form steps through the arithmetic in sections. Enter each employee’s qualified wages, apply the 35% rate to get each one’s tentative credit, and total them. A separate section handles the net-increase test; if your current-year FTE does not exceed the base year, the result zeroes out.³

Partnerships, S corporations, LLCs, and fiduciaries pass the credit through to owners or beneficiaries. The entity reports the credit on its own return (Form 565, 568, 100S, or 541) and allocates shares on the matching Schedule K-1.³

Where to Attach and Submit It

Attach the completed Form 3554 to the California return your entity files, whether that is Form 100, 100S, 100W, 109, 540, 540NR, or 541.³ E-filing through the FTB system gives you digital confirmation.

The credit is nonrefundable, so it only reduces tax you actually owe. Anything left over carries forward for five taxable years.¹

If the Employee Leaves Within 36 Months

If a qualified employee leaves within 36 months of their start date, you may have to pay back the credits you claimed for them, including prior years, on the return for the year they departed.¹ Recapture does not apply if:

The employee voluntarily quits
The employee is terminated for misconduct
The employee becomes disabled and cannot perform the job (unless the disability later resolves and you fail to offer reemployment)
Your business has a substantial reduction in operations, including seasonal fluctuations
You replace the employee with another qualified full-time worker, keeping a net increase in both headcount and hours
The role is seasonal and you rehire the employee seasonally

Recapture most often hits when you lay someone off for business reasons inside three years without hiring a qualified replacement.

Records to Keep

Retain supporting documentation for at least five years after you file. That means TCR confirmations, payroll records showing hours and wages for each qualified employee, EDD new-hire reporting dates, and proof of each employee’s qualification category at hire.¹ If you carry credits forward, hold the original year’s records until five years after the last return that uses any part of the credit.

Two Statewide Limits to Plan Around

Two outside constraints can shrink what the form produces. The 2026 cutoff on new hires means a worker starting after December 31, 2025 generates nothing under this credit, even if everything else lines up. And for tax years 2024 through 2026, California caps total business credits (including carryovers) at a combined $5 million per year, applied at the combined-report group level rather than per entity. Under S.B. 175, the Director of Finance can suspend the cap for 2025 and 2026 if general fund projections support it, but until that call is made, plan around the $5 million ceiling.

1
Franchise Tax Board. New Employment Credit
2
Franchise Tax Board. New Employment Credit Reservation
3
Franchise Tax Board. Instructions for Form FTB 3554 New Employment Credit Booklet
4
California Legislative Information. California Code, Revenue and Taxation Code RTC 17053.73
5
California Department of Industrial Relations. Minimum Wage