AB 132, as amended, Holden. Personal income taxes: retirement plans: early distributions.
The Personal Income Tax Law, in modified conformity to federal income tax laws, imposes an additional tax upon early distributions from specified retirement plans, as provided.
This bill would, for taxable years, beginning on or after January 1, 2014, and before January 1, 2017, exclude from that additional tax the first $6,000 distributed to an individual for the purpose of paying qualified costs, as defined, with respect to acquisition indebtedness for a principal residence, as provided.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 17085 of the Revenue and Taxation Code is amended to read:
Section 72 of the Internal Revenue Code, relating to annuities, certain proceeds of endowment and life insurance contracts, is modified as follows:
(a) The amendments and transitional rules made by Public Law 99-514 shall be applicable to this part for the same transactions and the same years as they are applicable for federal purposes, except that the repeal of Section 72(d) of the Internal Revenue Code, relating to repeal of special rule for employees’ annuities, shall apply only to the following:
(1) Any individual whose annuity starting date is after December 31, 1986.
(2) At the election of the taxpayer, any individual whose annuity starting date is after July 1, 1986, and before January 1, 1987.
(b) The amount of a distribution from an individual retirement account or annuity or employee trust or employee annuity that is includable in gross income for federal purposes shall be reduced for purposes of this part by the lesser of either of the following:
(1) An amount equal to the amount includable in federal gross income for the taxable year.
(2) An amount equal to the basis in the account or annuity allowed by Section 17507 (relating to individual retirement accounts and simplified employee pensions), the increased basis allowed by Sections 17504 and 17506 (relating to plans of self-employed individuals), the increased basis allowed by Section 17501, or the increased basis allowed by Section 17551 that is remaining after adjustment for reductions in gross income under this provision in prior taxable years.
(c) (1) Except as provided in paragraph (2), the amount of the additional tax imposed under this part shall be computed in accordance with Sections 72(m), (q), (t), and (v) of the Internal Revenue Code, as applicable for federal income tax purposes for the same taxable year, using a rate of 21⁄2 percent, in lieu of the rate provided in those sections.
(2) In the case where Section 72(t)(6) of the Internal Revenue Code, relating to special rules for simple retirement accounts, as applicable for federal income tax purposes for the same taxable year, applies, the rate in paragraph (1) shall be 6 percent in lieu of the 21⁄2-percent rate specified therein.
(3) (A) Notwithstanding paragraphs (1) and (2), for taxable years beginning on or after January 1, 2014, and before January 1, 2017, an individual shall not pay the additional tax described in paragraph (1) for early withdrawal of a qualified principal residence payment distribution from his or her retirement account when the moneys are used to reduce qualified costs.
end delete(3) (A) For taxable years beginning on or after January 1, 2014, and before January 1, 2017, Section 72(t)(2) of the Internal Revenue Code, relating to subsection not to apply to certain distributions, is modified to additionally provide that Section 72(t)(1) of the Internal Revenue Code, relating to imposition of additional tax, shall not apply to distributions made to an individual from a qualified retirement plan to the extent such distributions do not exceed the aggregate amount of qualified principal residence payment distributions.
end insert(B) For the purposes of this paragraph:
(i) “Acquisition indebtedness” shall have the same meaning as in Section 163(h)(3)(B) of the Internal Revenue Code, except that the dollar limitation in Section 163(h)(3)(B)(ii) of the Internal Revenue Code shall not apply.
(ii) “Qualified costs” means either of the following:
(I) Amounts paid as principal or interest on acquisition indebtedness.
(II) Amounts paid as part of a loan modification that either reduces the principal or interest of acquisition indebtedness.
(iii) “Qualified principal residence payment distribution” means any payment or distribution received by an individual to the extent that the payment or distribution is used by the individual before the close of the 60th day after the day on which that payment or distribution is received to pay qualified costs with respect to a principal residence of the individual or spouse of the individual.
(C) This paragraph shall only apply to an individual that meets both of the following requirements:
end delete(i) The individual only owns one home, occupied by the individual as his or her principal residence, that has a market value that is less than the amount the individual owes on his or her acquisition indebtedness on that home.
end delete(ii) The individual receives, and provides certification of, counseling from a counseling agency approved by the United States Department of Housing and Urban Development, as provided in Subpart B of Part 214 of Title 24 of the Code of Federal Regulations. The certification shall be signed by the individual and the agency counselor, and shall include the date of the counseling and the name, address, and telephone number of both the counselor and the individual.
end delete(iii) The counseling agency shall not receive any compensation, either directly or indirectly, from the lender or from any other person involved in originating or servicing the acquisition indebtedness.
end delete(D) The aggregate amount of qualified principal residence payment distributions received by an individual for all taxable years shall not exceed six thousand dollars ($6,000).
end delete(C) This paragraph shall apply only if:
end insertbegin insert(i) The individual and, if married, the spouse of the individual, collectively own no more than one residence that is used by either the individual or the spouse of the individual, or by both, as a principal residence (within the meaning of Section 121 of the Internal Revenue Code, relating to exclusion of gain or sale of principal residence) and neither the individual nor, if married, the spouse of the individual, own any other residence that is used by either the individual or spouse of the individual, or by both, as a residence that is not a principal residence within the meaning of Section 280A(d)(1) of the Internal Revenue Code, relating to use as a residence.
end insertbegin insert(ii) The principal residence has a market value that is less than the unpaid balance of acquisition indebtedness on that residence.
end insertbegin insert(D) The aggregate amount of distributions received by an individual that may be treated as qualified principal residence payment distributions under this paragraph shall not exceed a total of six thousand dollars ($6,000) for all taxable years.
end insert(E) The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this paragraph.
(d) Section 72(f)(2) of the Internal Revenue Code shall be applicable without applying the exceptions which immediately follow that paragraph.
(e) Section 72(e)(II) of the Internet Revenue Code shall not apply.
This act provides for a tax levy within the meaning of
37Article IV of the Constitution and shall go into immediate effect.
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