BILL ANALYSIS AB 17 X4 Page 1 (Without Reference to File) CONCURRENCE IN SENATE AMENDMENTS AB 17 X4 (Budget Committee) As Amended July 23, 2009 Majority vote ----------------------------------------------------------------- |ASSEMBLY: | |(July 9, 2009) |SENATE: | |(July 23, | | | | | | |2009) | ----------------------------------------------------------------- (vote not relevant) (vote not available) Original Committee Reference: RLS. SUMMARY: Contains two provisions aimed at accelerating revenues to the General Fund (GF). The Senate amendments delete the Assembly version of this bill, and instead: 1)Implement the Governor's May Revise proposals which: a) Increase tax withholding schedules by 10%. Currently, many taxpayers owe tax in excess of that withheld by their employer, and for these taxpayers, the increase would result in withholding more closely matching their final tax liabilities. The final tax owed by the taxpayer is unchanged, and, as under existing law, taxpayers may modify their withholding to reflect their individual circumstances if they wish; and, b) Require individual and corporate taxpayers to accelerate estimated payments by remitting 30% of their estimated annual income or corporate tax liabilities in April, 40% in June (compared to existing law requirements of 30% each and April and June. FISCAL EFFECT : As shown in the accompanying table, the revenue acceleration measures would raise GF collections by $2.3 billion in 2009-10 and $193 million in 2010-11. Revenue Impact of Compliance and Acceleration Provisions (In millions) AB 17 X4 Page 2 ----------------------------------------- | |2009-1|2010-1| | |0 |1 | |---------------------------+------+------| |Governor's proposal - |$1,700| $98| |withholding | | | |---------------------------+------+------| |Governor's proposal - | 610| 95| |estimated pmts. | | | |---------------------------+------+------| |Total: |$2,310|$193 | | | | | ----------------------------------------- AS PASSED BY THE ASSEMBLY , this was a vehicle for the budget trailer bill. COMMENTS: 1)Increased withholding . Existing law requires that employers withhold a portion of employees' wages and remit them to the Employment Development Department (EDD). The amounts withheld are based on tables provided by the FTB to EDD. By law, these tables are designed so that withholding of wage payment cover the taxpayer's full liability arising from the wage payments. However, in many instances, taxpayers with significant income from non-wage sources, or with wage income from a spouse, owe significant taxes on their final returns. This measure raises the required amount of withholding by 10%, and makes conforming changes for payments related to stock options and bonuses. Taxpayers are permitted to modify their withholding if they wish. 2)Accelerated estimated taxes. Individuals with non-wage income and corporations are required to remit quarterly estimated tax payments toward their annual liabilities. Through last year, the majority of taxpayers - those using the regular installment method - were required to remit four quarterly payments, each worth 25% of their estimated full-year tax liability. SB 28 X1 (Budget and Fiscal Review Committee), Chapter 1, Statutes of 2007-08 First Extraordinary Session, AB 17 X4 Page 3 accelerated the payment schedule beginning January 1, 2009, so that the April and June payments are now equal to 30% of estimated liabilities, and September and December are each equal to 20% of estimated liabilities. This measure further accelerates the schedules - requiring payments equal to 30% of estimated liabilities in April, 40% in June, zero in September, and 30% in December. It also makes conforming changes for taxpayers using the annualized income installment method and those making payments beginning after the first quarter of the year. Analysis Prepared by : Adam Dondro / BUDGET / (916) 319-2081 FN: 0002088