An act to add and repeal Sections 17053.10 and 23621.1 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.
AB 231 would create a temporary California income and corporation tax credit for employers that hire certain formerly incarcerated people. For taxable years beginning on or after January 1, 2026, and before January 1, 2031, a qualified taxpayer could claim a credit equal to 40% of qualified first-year wages paid to a qualified employee, capped at $5,000 per employee. The bill defines a qualified employee as an individual convicted of a felony who is hired within one year of conviction or release from prison, works in California, and has been employed by the taxpayer for at least six months. The credit is limited to taxpayers with fewer than five employees.
The bill also specifies that the credit applies to both the Personal Income Tax Law and the Corporation Tax Law, and that it must be taken in lieu of other wage-based credits and reduce any otherwise allowable wage deduction by the amount of the credit. It includes a sunset date of December 1, 2031, and requires the Franchise Tax Board to report to the Legislature beginning December 1, 2028 on the number of taxpayers claiming the credit and the average dollar amount claimed. The bill states its purpose is to reduce recidivism by lowering unemployment among recently released ex-felons.
AB 231 would change state tax law by adding new Revenue and Taxation Code sections 17053.10 and 23621.1, creating a new tax expenditure for small employers that hire eligible formerly incarcerated workers. It would also satisfy existing tax expenditure reporting requirements by identifying goals, performance indicators, and data collection/reporting obligations. Because it is designated a tax levy, it would take effect immediately if enacted.
The general sentiment reflected in the available voting history is favorable: the bill received a 7-0 do pass vote in committee before being re-referred to Appropriations. No committee transcript was provided, so there is no recorded debate in the supplied materials. The vote suggests broad initial support for the policy concept.
The main point of contention likely concerns the fiscal cost and policy design of the credit, especially because it is a new tax expenditure and was sent to Appropriations. Other potential issues include the narrow eligibility rules, the small-employer threshold of fewer than five employees, the six-month employment requirement, and whether the credit is the most effective way to promote reentry and reduce recidivism. The bill’s supporters appear to frame it as a workforce and reentry incentive, while any concerns would center on revenue loss, administrative complexity, and whether the benefits will reach enough employers and returning citizens.
AB 231 would add two temporary tax credit provisions to the Revenue and Taxation Code, affecting both individual and corporate taxpayers. It would authorize a 40% credit on qualified first-year wages, up to $5,000 per eligible employee, for small employers hiring certain recently released or recently convicted felony offenders. The bill would also require annual Franchise Tax Board reporting on credit usage and would sunset the credit in 2031, thereby creating a time-limited tax expenditure tied to reentry employment.
The available record shows positive committee sentiment, with the bill passing 7-0 and moving forward without recorded opposition in the provided materials. The absence of transcript discussion limits insight into detailed views, but the vote suggests the concept was broadly acceptable at the committee stage. The bill’s framing around reducing recidivism and supporting employment for formerly incarcerated people likely contributed to that support.
No specific objections are documented in the provided materials, but the bill’s referral to Appropriations indicates likely concern about fiscal impact and the cost of a new tax expenditure. Potential areas of debate include whether the credit is sufficiently targeted, whether the five-employee cap is too restrictive, and whether the six-month work requirement and one-year hiring window may limit participation. There may also be policy disagreement over using tax credits versus direct hiring subsidies or other reentry programs to address unemployment among formerly incarcerated people.