California’s Expanded Tax Credit Now Covers Animation

California has officially expanded its film and TV tax incentive to include animated features, series, and shorts, with a significantly increased credit of 35% (up from 20-25%). This marks the first time animation has been directly eligible for the state’s production incentive program.

Signed into law under Assembly Bill 1138, the new policy also coincides with an increase in the state’s overall tax credit fund, which has more than doubled from $330 million to $750 million annually.

This move is a direct response to years of runaway animation production. While California has remained a hub for pre-production and post, the majority of animation work, especially for series and features, has shifted to countries and states offering more aggressive subsidies.

The 35% credit and increased cap significantly boost California’s competitiveness, aiming to retain what remains and draw production back to the state, revitalizing its animation sector. The expansion is expected to help more projects meet budget thresholds and resume production amid an ongoing industry slowdown.

It also supports the broader filmmaking ecosystem, including post-production, scoring, and VFX, which rely heavily on in-state work. While final regulations are still forthcoming, including details on how funds will be allocated between live-action and animation, this marks a significant first step in California’s move to reinvest in animation.

Studios, creators, and producers now have new financial incentives to keep their animation pipelines fully in-state, potentially restoring jobs, greenlighting stalled projects, and strengthening California’s role as an animation production leader.