BILL ANALYSIS Ó AB 509 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 509 (Skinner) As Amended August 30, 2011 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |52-24|(June 1, 2011) |SENATE: |25-15|(September 6, | | | | | | |2011) | ----------------------------------------------------------------- Original Committee Reference: REV. & TAX. SUMMARY : Requires state departments and agencies to notify annually certain program recipients that they may be eligible for the federal earned income tax credit (EITC). The Senate amendments delete the requirement for the Department of Social Services and the Public Utilities Commission to send out EITC notifications and make clarifying changes relating to the language of the EITC notice required to be provided by specified state departments and agencies to certain program recipients. 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 AB 509 Page 2 hand the notice directly to each employee or to mail the notice to each employee's last known address. AS PASSED BY THE ASSEMBLY , this bill: 1)Required 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)Defined "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)Specified 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)Stated that notification may be provided by telephone, mail, electronic communication, or by an in-person communication. 5)Provided that departments that did 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)Encouraged departments, agencies, and programs to develop the least costly and the most effective method to provide notice. FISCAL EFFECT : According to the Senate Appropriations Committee, the costs of providing notice to low-income individuals and families pursuant to this bill are approximately $200,000. 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. 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 AB 509 Page 3 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 Ronald Reagan famously called the tax credit, 'the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.'" 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. 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? Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN: 0002379