BILL ANALYSIS Ó
AB 509
Page 1
ASSEMBLY THIRD READING
AB 509 (Skinner)
As Amended May 27, 2011
Majority vote
REVENUE & TAXATION 6-2 APPROPRIATIONS 12-5
-----------------------------------------------------------------
|Ayes:|Perea, Beall, Charles |Ayes:|Fuentes, Blumenfield, |
| |Calderon, Cedillo, Alejo, | |Bradford, Charles |
| |Gordon | |Calderon, Campos, Davis, |
| | | |Gatto, Hall, Hill, Lara, |
| | | |Mitchell, Solorio |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Nestande |Nays:|Harkey, Donnelly, |
| | | |Nielsen, Norby, Wagner |
| | | | |
-----------------------------------------------------------------
SUMMARY : Requires state departments and agencies to notify
certain program recipients that they may qualify for the federal
earned income tax credit (EITC). Specifically, this bill :
1)Requires state departments and agencies that serve those who
may qualify for the EITC to notify program participants that
they may be eligible for the EITC.
2)Defines "state departments and agencies that serve those who
may qualify for the EITC" as departments and agencies that
operate state or federally-funded programs primarily engaged
in providing services to low-income individuals and families,
as provided.
3)Specifies that said notification shall be provided at least
once a year during the months of January through April, or
alternatively, during a regularly scheduled contact with a
recipient.
4)States that notification may be provided by telephone, mail,
electronic communication, or by an in-person communication.
AB 509
Page 2
5)Provides that departments that do not directly communicate
with persons who may qualify for the EITC may communicate
indirectly through agencies or districts that serve eligible
persons or households with eligible persons.
6)Encourages departments, agencies, and programs to develop the
least costly and the most effective method to provide notice.
EXISTING FEDERAL LAW allows a refundable EITC to qualifying
individuals. The amount of the credit is based on the
taxpayer's income and is phased out as income increases. The
amount of the credit also varies based on the number of
qualifying children the taxpayer claims. Currently, to qualify
for the credit, an individual's adjusted gross income must be
less than $43,352 ($48,362 filing jointly) with more than two
qualifying children, $40,363 ($45,373 filing jointly) with two
qualifying children, $35,535 ($40,545 filing jointly) with one
qualifying child, or $13,460 (18,470 filing jointly) without a
qualifying child. The current maximum credit for taxpayers with
more than two qualifying children is $5,666, and for taxpayers
with two qualifying children the maximum is $5,036. For
taxpayers with one qualifying child, the maximum credit amount
is $3,050, and for taxpayers with no qualifying children, the
maximum amount is currently $457.
EXISTING STATE LAW requires employers to notify employees that
they may be eligible for the EITC. Specifies that this notice
shall be provided within one week before or after an employer
provides his/her employees with their annual wage summary (e.g.,
a Form W-2 or a Form 1099). Employers are required to either
hand the notice directly to each employee or to mail the notice
to each employee's last known address.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, the costs of providing notice to low-income
individuals and families pursuant to this bill are approximately
$500,000. Costs will depend on the method of contact, the ease
of adding this requirement to existing communications, and the
ability of the agency to limit communication to those who would
most benefit from the notice.
AB 509
Page 3
If the required contacts are effective, and there is increased
filing for the EITC, then revenues could more than offset the
costs.
COMMENTS :
Author's statement . The author provided the following
statement: "AB 509 will expand existing legislation to require
state departments and agencies that serve low-income
Californians to notify their program recipients that they may be
eligible for the EITC. In recognizing the unique capacities of
each affected state department and agency, this bill allows the
departments and agencies to conduct the annual notification
during a regularly schedules contact with a recipient by
telephone, mail, electronic communication, or by an in-person
visit.
"The Earned Income Tax Credit (EITC) is a federal tax credit for
low to moderate income individuals and families that can put
anywhere from a few hundred dollars to $5,600 in their pockets.
Congress originally approved the tax credit legislation in 1975
in part to offset the burden of social security taxes and to
provide an incentive to work. When EITC exceeds the amount of
taxes owed, it results in a tax refund to those who claim and
qualify for the credit. President Ronal Reagan famously called
the tax credit, "the best anti-poverty, the best pro-family, the
best job creation measure to come out of Congress."
Assembly Revenue and Taxation Committee staff notes the
following :
1)Timing of notification . AB 509 (Skinner) specifies that this
notice shall be provided at least once a year during the
months of January through April, or alternatively, during a
regularly scheduled contact with a recipient. It is not clear
whether notification provided during a regularly scheduled
contact should be done between January and April. Notice
provided in the month of May or June may be of minimal
effectiveness if the individual has already filed their taxes.
The author may wish to specify when annual notification
should be provided to maximize utilization of the information.
AB 509
Page 4
2)Potential impact on the state's economy . In 2009, 800,000
Californians failed to claim over $1.2 billion worth of EITC
dollars. The author argues that if these refunds were
claimed, they would spur over $1.2 billion in business sales,
pay $311 million in wages, and add nearly 7,500 jobs to the
California economy, which would result in $88 million dollars
in taxes coming back to the state. This economic stimulation
could be a huge benefit to California, given the current
budget crisis.
3)Duplication of effort? To qualify for the EITC, an individual
must be employed. Current law requires employers to notify
all employees that they may be eligible for the EITC.
Individuals eligible for the EITC are informed of the credit
within a week of the time W-2s are issued. If all employees
receive notice of the EITC around the time they receive their
W-2s, would another notification simply be a duplication of
effort by the state department or agency?
4)Cost and effectiveness of notification . This bill encourages
departments, agencies, and programs to develop the least
costly, as well as the most effective, method to provide
notice. The time associated with notifying all participants
in state programs as well as the cost associated with
notification is unknown, but balancing effectiveness and cost
can become a daunting task for some state programs. For
example, it may be less effective and less costly to send an
email blast to all program participants, but more effective
and time consuming to call every participant.
Analysis Prepared by : Myriam Bouaziz and Oksana Jaffe / REV. &
TAX. / (916) 319-2098
FN: 0001051
AB 509
Page 5