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Tom is a filmmaker, producer, and marketing specialist based in Los Angeles.
At Wrapbook, we pride ourselves on providing outstanding free resources to producers and their crews, but this post is for informational purposes only as of the date above. The content on our website is not intended to provide and should not be relied on for legal, accounting, or tax advice. You should consult with your own legal, accounting, or tax advisors to determine how this general information may apply to your specific circumstances.
Artificial intelligence took a leading role at the 2025 Academy Awards. The Brutalist and Emilia Pérez, both nominated for Best Picture, drew scrutiny for their use of AI-generated elements, with some critics questioning whether the films should qualify for awards at all.
With AI’s influence in film production growing rapidly, and filmmakers around the world embracing the technology to save time, reduce costs, and streamline creative workflows, the debate over AI’s use in film isn’t cooling down anytime soon.
While AI is undoubtedly reshaping how films are made, it also raises new questions about how productions get funded. In particular: should AI-generated content qualify for production incentives? And if so, what activities might qualify, where, and how?
In this post, we’ll explore how AI is currently being used in film production, and we’ll examine how AI-related work might fit into the traditional labor and expense categories that production incentive programs use to determine eligibility.
Before we take a look at the role of AI in production incentives, let’s first briefly recap what production incentives are and how they work.
Production incentives are typically government-backed programs designed to attract motion picture production to a particular state or locality. Incentives do this by returning a portion of the money a project spends in the area to the production as a tax credit, grant, or rebate.
Eligibility criteria for incentive programs can vary widely, but the goal is always the same: to create jobs and stimulate the local economy.
That means state production incentives typically reimburse projects for in-state spending, local labor, and use of in-state vendors and infrastructure.
With production payroll incentives, for example, we see that some states including Georgia and New York offer the same incentive for both resident and nonresident cast and crew. Others, such as Louisiana and New Mexico, scale the benefit depending on residency, with higher returns for in-state hires. And some states—Texas being a prime example—do not incentivize nonresident payroll at all.
Most states also set forth a minimum amount of money that productions must spend in-state to qualify. This minimum spend requirement may range anywhere from $10,000 to $1 million, depending on the state.
On top of that, some programs may require productions to hire union labor, rent from local vendors, or shoot on in-state soundstages—or provide additional bonus incentives to productions that do.
In essence, the more a production engages with the local film ecosystem—people, places, and infrastructure—the more likely it is to qualify for incentives and the more money it can potentially see in savings.
But what happens when your “vendor” is an AI tool trained on data from around the world? Or your VFX team is one software engineer and a generative model running in the cloud?
That’s where the traditional production incentive framework begins to blur—and where we need to consider how AI can be used in film production.
Artificial intelligence, once confined to sci-fi storylines, now plays a role in nearly every stage of filmmaking. From scripts written by language models to synthetic characters, AI-generated content includes voice cloning, background design, dubbing, and scene previsualization.
Post-production tasks such as editing, color grading, and VFX are increasingly accelerated by AI tools, cutting costs and timelines. In earlier stages, machine learning assists with script analysis, casting, location scouting, budgeting, and production accounting. On set, autonomous vehicles support aerial photography, transport, and stunts.
Although often framed as efficiency boosters, many filmmakers see creative potential in AI. Directors like Ben Affleck and James Cameron argue the technology enhances artistry by handling repetitive tasks and opening new problem-solving approaches. Still, as AI grows more powerful, its integration challenges systems—such as incentive programs—built around human labor.
Most film incentive programs are structured around a core assumption: productions create economic value by hiring people and spending money locally. The more a production engages local labor and infrastructure, the more eligible expenses it racks up—and the larger the tax credit or rebate it earns in return.
But AI complicates that framework.
An AI tool that generates a VFX sequence or adjusts dialogue for dubbing might perform the same function as a team of artists or editors—but without the same headcount, payroll, or physical footprint.
When AI does in hours what a traditional department might take weeks to complete, it dramatically reduces local labor costs. And because many AI tools are accessed through cloud-based platforms, they may not be physically tethered to any single location at all.
This creates a fundamental tension between the decentralized nature of AI and the hyper-local focus of most incentive programs. If a production uses AI to replace a significant portion of its post-production team, should the work still count as qualified labor? Does it qualify as an in-state expense if the tool is cloud-based and the engineers are out of state?
Fully synthetic content—such as digital characters, procedurally generated environments, or entirely AI-crafted sequences—could be especially problematic. Without a clear connection to a physical location, crew member, or vendor, will these elements fall outside the scope of qualifying expenses entirely?
These aren’t hypothetical questions. As AI becomes more embedded in film workflows, productions increasingly face the challenge of reconciling technological efficiencies with the eligibility requirements of incentive programs designed to support and reward traditional, boots-on-the-ground filmmaking.
The rapid rise of AI in production hasn’t gone unnoticed by policymakers.
This past year in New York, legislators introduced two bills—Assembly Bill A06180 and Senate Bill S06751—that would specifically exclude spending on AI-generated content and autonomous technologies that replace human labor from qualifying for the state’s film tax credit.
While neither bill passed into law, their introduction highlights a growing concern: that AI could be used to sidestep the very labor and spending that tax incentives are designed to support.
Other states are likely watching closely. New Jersey, for example, has built one of the most competitive film incentive programs in the country, offering up to 40% back on qualified production spending and generous bonuses for use of studio infrastructure and diversity hiring.
The Garden State’s robust production incentives have attracted major projects in recent years, from productions including Joker, West Side Story, and The Many Saints of Newark to significant infrastructure investment including Netflix’s planned production facility at Fort Monmouth.
At the same time, New Jersey is also embracing AI in a big way, with a $500 million incentive package aimed at attracting AI companies and startups.
While the film and AI incentives are technically separate programs, the intersection of the two is inevitable. As more filmmakers use AI tools to produce content in New Jersey, the question becomes: will film projects that lean heavily on AI be penalized or rewarded under either program?
The answer isn’t clear yet. As of 2025, New Jersey has not modified its film incentive to address artificial intelligence or automated production technology, though the state may do so soon.
International production incentives will likely begin to address the AI question soon as well.
Some countries that prioritize job creation may follow New York’s lead in excluding AI-derived work that replaces human labor. Others, particularly those looking to position themselves as global technology hubs, may choose to reward innovation over headcount.
For example, in countries like France and Japan, AI is increasingly being seen as a tool for regional filmmakers to compete with higher-budget productions from the US, and AI-assisted film production is garnering government support.
As AI adoption accelerates, production incentive programs around the world will be forced to reckon with its implications. For some, that may mean tightening definitions of eligible labor and qualifying expenses. For others, it may mean rewriting the rules altogether.
While the rules around AI-generated content and production incentives remain unsettled, producers can still take steps to align AI-assisted productions with the goals—and often the requirements—of incentive programs.
The key consideration is location.
Most production incentives reward spending within a specific jurisdiction, whether that spending is on talent, software, or services. That means AI work may still count toward local spend thresholds—if it’s performed by local vendors. Hiring in-state AI firms, post houses using AI-assisted workflows, or freelance engineers who reside in the jurisdiction could all help a production meet eligibility benchmarks.
Hybrid productions that combine traditional human labor with AI tools may be particularly well-positioned. For example, a film that uses AI to previsualize shots but still employs an in-state crew to shoot them might qualify for incentives in the same way as any other project—especially if that crew is union-affiliated and working within the state.
The truth is, we’re still in a gray area. Incentive regulations don’t yet offer clear or consistent definitions of how AI services should be categorized, let alone whether they count as qualified expenditures.
But the broader objectives of these programs—supporting local economies, creating jobs, and encouraging production infrastructure—still apply. Productions that use AI in a way that supports those goals may find themselves in a stronger position when it comes to incentive eligibility.
As the rules continue to evolve, Wrapbook’s Production Incentive Center can help producers stay ahead of the curve. This comprehensive incentive resource offers up-to-date information on incentives offered across the US, and it will reflect any changes to how jurisdictions treat AI-related production work.
While lawmakers draft policy, organized labor is already reshaping the conversation around AI and incentives.
Following the WGA and SAG-AFTRA strikes in 2023, many union contracts now contain specific language around AI, setting boundaries for its use in writing, acting, and digital replication. As AI continues to enter post-production workflows and below-the-line roles, more guilds are expected to follow suit.
Labor standards may influence how incentive programs evolve. State agencies and film commissions often view union compliance as a benchmark for ethical labor practices. If AI is used in a way that undermines those standards—particularly if it replaces human labor that would otherwise be union-covered—it could raise red flags.
In some cases, incentive applications may be scrutinized not just for their budget details, but for how they treat intellectual property and human contribution. Projects that use AI-generated assets trained on copyrighted material, for example, could face heightened scrutiny, even if their budget appears compliant on paper.
As AI’s role in filmmaking continues to expand, incentive programs will almost certainly evolve to meet the moment.
Some jurisdictions may move to limit or exclude AI-generated work that displaces human labor, following the lead of New York’s proposed legislation. Others may embrace the technology more fully, especially if it allows low-budget or homegrown productions to compete on a global stage.
It’s also possible that entirely new categories of incentives will emerge. States or countries looking to attract innovation-driven production might create “AI carveouts” like bonus incentives designed specifically to reward transparency, ethical use, or hybrid AI-human workflows.
We saw a similar response following the advent of streaming and popularization of digitally distributed media on the internet. Many states, including Louisiana, New Jersey, and North Carolina, created digital media incentives and bonuses to both support production of digital media and also to structure a permissible, economically beneficial approach to digital media production in the state.
Just as these digital media incentives have gained traction in recent years, we may soon see parallel structures for productions that use AI responsibly, document their workflows clearly, and contribute to local job markets.
The incentive framework of the future may not just ask what you spent or where, but how the work was done—and by whom.
For producers working with AI today, the best approach is proactive transparency.
Start by carefully documenting all qualified expenditures, especially those involving local vendors or in-state talent. If you’re using AI tools, clarify who is operating them, where the work is being performed, and how it fits into the broader production.
Make sure that traditional, qualifying labor is still engaged—especially when union contracts or incentive guidelines suggest it. The more a production can show that AI is being used to augment, not replace, human work, the better positioned it will be.
Finally, keep lines of communication open. Work closely with film commissions, tax advisors, and legal counsel to ensure that your project is structured in compliance with the latest rules.
The landscape is shifting quickly, but early engagement can prevent late-stage surprises.
AI is reshaping the way movies are made, and it’s also reshaping how we fund, regulate, and incentivize their production. As AI-tools become more integrated into creative and logistical workflows, the industry must adapt to ensure that innovation doesn’t come at the expense of transparency, labor standards, or economic growth.
For producers, the path forward involves balancing cutting-edge technology with the proven principles of local engagement and responsible spending. For regulators, the challenge will be building frameworks that both support creativity and ensure accountability.
Wrapbook will continue to follow these developments closely. If you're looking to stay on top of the latest rules around production incentives—and how AI may affect them—visit our Production Incentive Center to get started.
