BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 107|
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THIRD READING
Bill No: AB 107
Author: Committee on Budget
Amended: 6/16/15 in Senate
Vote: 21
SENATE BUDGET & FISCAL REVIEW COMMITTEE: 15-1, 6/18/15
AYES: Leno, Nielsen, Allen, Anderson, Beall, Block, Hancock,
Mitchell, Monning, Nguyen, Pan, Pavley, Roth, Stone, Wolk
NOES: Moorlach
ASSEMBLY FLOOR: Not relevant
SUBJECT: Personal income taxes: earned income credit
SOURCE: Author
DIGEST: This bill is necessary for the enactment of the 2015
Budget Act and establishes a refundable tax credit for eligible
individuals based on a certain percentage of earned income up to
a specified amount.
ANALYSIS: This bill creates a state Earned Income Tax Credit
(EITC), providing a refundable tax credit for wage income. It
focuses on households with incomes less than $6,580 if there are
no dependents and up to $13,870 if there are three or more
dependents. The proposed state program dovetails with the
existing federal EITC and matches 85 percent of the federal
credits, up to half of the federal phase-in range, and then
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begins to taper off relative to these maximum wage amounts. The
credit would be available beginning with tax returns filed for
wages earned in 2015, and is expected to reduce revenues by $380
million annually beginning in 2015-16. It will benefit an
estimated 825,000 families and two million individuals. The
estimated mean household benefit is $460 per year, with a
maximum credit for a household with three or more dependents of
over $2,600. The proposed state EITC is intended to complement
the federal EITC. The Franchise Tax Board (FTB) is assigned
responsibility for administering the proposed EITC program.
This bill establishes an EITC credit, specifically:
1) Establishes a refundable credit for tax years beginning on
or after January 1, 2015 against personal income taxes owed
based on earned wage income, which does not include
self-employment income.
2) Provides for the calculation of a credit amount during a
phase-in range of earned wage income according to specified
percentages based on the number of qualifying children.
a) The credit percentage is 7.65 percent for individuals
without qualifying children, 34 percent for individuals
with one qualifying child, 40 percent for individuals with
two or more qualifying children, and 45 percent for
individuals with three or more qualifying children.
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b) The phase-in range is for earned wage income of up to
$3,290 for individuals without qualifying children, $4,940
for individuals with one qualifying child, and $6,935 for
individuals with two or more qualifying children.
1) Provides for the calculation a phase-out of the credit when
earned wage income reaches a certain threshold amount. The
credit is phased out by an amount determined by multiplying
the applicable phase-out percentage by the excess of the
amount of the individual's adjusted gross income (earned wage
income plus certain other income) over the phase-out amount.
The inclusion of additional income during the phase-out
period results in a more rapid loss of the credit amount than
there was again in the credit during the credit phase-in
period.
a) The phase-out percentage is 7.65 percent for
individuals without qualifying children, 34 percent for
individuals with one qualifying child, 40 percent for
individuals with two or more qualifying children, and 45
percent for individuals with three or more qualifying
children.
b) The phase-out amount is $3,290 for individuals without
qualifying children, $4,940 for individuals with one
qualifying child, and $6,935 for individuals with two or
more qualifying children.
4) Establishes that the credit amount is to be multiplied by
the adjustment factor to determine the amount of the actual
credit, with the adjustment factor specified in the annual
Budget Act. Unless otherwise specified, the adjustment factor
would be zero percent. The Administration has proposed 85
percent as the adjustment factor in 2015-16.
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5) Specifies that the tax credit would be operative only for
taxable years for which resources are authorized in the
annual Budget Act for the Franchise Tax Board to administer
the program.
6) Sets forth that if the amount of allowable credit exceeds an
individual's tax liability, the balance shall be paid to that
individual from the Tax Relief and Refund Account, which is
continuously appropriated.
7) Provides for a re-computation of the earned wage income
amount and the phase-out amount based on inflation, in the
same manner as the re-computation of income tax brackets
under the personal income tax law.
8) Provides that disqualified income from interest and
dividends, royalties and other similar sources in excess of
$3,400 shall make an individual ineligible for the EITC, with
this amount adjusted in the same manner as indicated in (g)
above.
9) Specifies the failure to be diligent in determining
eligibility for the EITC can result in a penalty of $500 for
false claims for refund.
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10) Includes annual reporting requirements of the
Franchise Tax Board relating to the usage of the credit,
average credit, distribution of the credit by income and
number of dependents, and estimate of the impact on poverty.
11) Includes uncodified language expressing the
Legislature's intent to expand the EITC, as the state's
fiscal situation allows.
12) Continuously appropriates funds for the refundable tax
credit.
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.:YesLocal: No
According to the Senate Budget and Fiscal Review Committee,
refundable amounts would be continuously appropriated from the
Tax Relief and Refund Account, and are expected to total $380
million during 2015-16 based on an adjustment factor of 85
percent incorporated in the 2015 Budget Act.
SUPPORT: (Verified6/18/15)
None received
OPPOSITION: (Verified6/18/15)
None received
Prepared by:Mark Ibele / B. & F.R. / (916) 651-4103
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6/18/15 18:55:40
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