BILL ANALYSIS Ó
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Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
ACR 149
(Gipson) - As Introduced March 7, 2016
Majority vote. Non-fiscal.
SUBJECT: Taxation
SUMMARY: Encourages state entities to identify and utilize
existing and potential public or private partnerships to inform
citizens and employees about the availability of the federal
Earned Income Tax Credit (EITC) and Volunteer Income Tax
Assistance (VITA) programs, as specified. Specifically, this
resolution makes the following legislative findings:
1)Contains the following recitals:
a) Each year, Californians volunteer their time to
participate in the federal VITA program and are trained by
public and private partnerships with the Internal Revenue
Service to prepare tax returns;
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b) VITA is a free tax preparation program that helps low-
to moderate-income filers. During tax season, there are
free sites accessible across the nation;
c) Insufficient income contributes to many of the social
and human service needs in our state and increasing EITC
capture through the VITA program represents a highly
cost-effective economic development strategy;
d) Each year, as a result of the VITA program, the EITC
helps approximately 285,000 low-income households in
California and brings more than $347 million into
California's economy;
e) The IRS and other organizations collaborate with local
agencies to offer VITA to raise awareness of the EITC;
f) Local colleges throughout California serve as
instrumental partners of the VITA program and create ideal
and accessible locations for surrounding community
residents to receive free tax assistance and family
resource services;
g) Those colleges generously provide the use of their
campus facilities, equipment, and student volunteers - who
make up a significant portion of trained and certified tax
preparers for VITA events - to enable the success of the
VITA program.
2)Resolves that the Legislature does both of the following:
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a) Joins the Controller's office, the State Board of
Equalization, the Franchise Tax Board, and the IRS in
promoting the EITC and VITA programs to qualified families
and individuals.
b) Encourages each state entity to identify and utilize
existing and potential public or private partnerships to
inform citizens about the availability of the federal and
state EITC and VITA programs.
3)Directs the Chief Clerk of the Assembly to transmit copies of
this resolution to the author for appropriate distribution.
EXISTING FEDERAL LAW:
1)Allows a refundable EITC to certain eligible individuals. A
refundable credit allows for the excess of the credit over the
taxpayer's tax liability to be refunded to the taxpayer. The
federal EITC amount is based on a percentage of the taxpayer's
earned income and is phased out as income increases. The
percentage varies depending on whether the taxpayer has
qualifying children. Married individuals are eligible for
only one credit on their combined earned income and must file
a joint return to claim the credit.
2)Requires employers to notify their employees that the
employees may be eligible for the federal EITC.
EXISTING STATE LAW:
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1)Allows, in modified conformity with the federal EITC, a
refundable EITC for the lowest income Californians for taxable
years beginning on or after January 1, 2015.
2)Provides that the EITC is only available for taxable years for
which resources are authorized in the annual Budget Act for
the FTB to oversee and audit returns associated with the
credit.
3)Requires California employers, state departments, and certain
state agencies to provide formal notification of possible
eligibility for the federal EITC.
FISCAL EFFECT: None
COMMENTS:
1)The Author's Statement. The author has provided the following
statement in support of this bill:
"ACR 149 is intended to raise awareness of an important program
that is offered to low-income taxpayers, with the goal of
supporting them in gaining the most out of their income tax
returns.
"This program is promoted by a number of state and local
governments, non-profits, and higher education institutions
across the nation. With the broad range of stakeholders
involved, both providing and receiving service, this is a
community program that deserves recognition and commendation."
2)Federal EITC . The federal EITC is an income tax credit for
low- to moderate-income individuals and families. Congress
originally approved the tax credit legislation in 1975, in
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part to offset the burden of Social Security taxes and to
provide an incentive to work. To qualify for the EITC an
individual must be employed. When EITC exceeds the amount of
taxes owed, it results in a tax refund to those who claim and
qualify for the credit. The EITC is a percentage of the
taxpayer's earned income and is phased out as income
increases. The EITC percentage varies depending on whether
the taxpayer has qualifying children.
In order for a taxpayer to qualify for the federal EITC in 2016,
an individual's adjusted gross income must be less than
$47,955 ($53,505 filing jointly) with three or more qualifying
children; $44,648 ($50,198 filing jointly) with two qualifying
children; $39,296 ($44,846 filing jointly) with one qualifying
child; or $14,880 ($20,430 filing jointly) without a
qualifying child. The current maximum credit amount for
taxpayers with three or more qualifying children is $6,269;
for taxpayers with two qualifying children, the maximum is
$5,572. For taxpayers with one qualifying child, the maximum
credit amount is $3,373; for taxpayers with no qualifying
children, the maximum amount is currently $506.
3)California EITC . The state EITC was enacted into law in 2015
and is intended to complement the federal EITC to allow a
greater benefit per household. Similar to the federal EITC,
the California EITC is established as a refundable credit
against personal income taxes owed based on earned wage
income. However, unlike the Federal Government, California
excludes self-employment income from the definition of "earned
income" and only workers with earnings subject to wage
withholding qualify for the credit.
The California EITC is available for tax returns filed for wages
earned in 2015. A credit amount is calculated according to
specified percentages of the earned income based on the number
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of qualifying children. The credit percentage for 2015 tax
year is 7.65% for individuals without qualifying children, 34%
for individuals with one qualifying child, 40% for individuals
with two or more qualifying children, and 45% for individuals
with three or more qualifying children. The maximum 2015
income limitation for both the adjusted gross income and
earned income may not be more than $6,580 for individuals with
no qualifying children, $9,880 for individuals with one
qualifying child, and $13,870 for individuals with two or more
qualifying children. Finally, the amount of investment
income, such as interest, dividends, royalties, and capital
gains, cannot exceed $3,400 for the entire tax year. Thus,
unlike most other state EITCs, California's credit only
reaches a portion of workers who are eligible for the federal
EITC.
The California EITC is expected to benefit approximately 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.
This program, however, is operative only for taxable years for
which resources are authorized in the annual Budget Act for
the FTB to oversee and audit returns associated with the
credit.
4)The Notification Requirement Regarding the Federal EITC .
According to the IRS, California's federal EITC participation
rate in 2014 was 74.3%, which was lower than the estimated
national rate of 80%. Both federal and state laws require
employers to notify all employees that they may be eligible
for the federal EITC. Under federal law, an employer must
provide an employee with Form W-2, a substitute of W-2, Notice
797, or a written statement with the same wording as Notice
797.
Under California's law - the Earned Income Tax Credit
Information Act (EITC Act), an employer must also notify
employees about the federal EITC within one week before or
after the employer provides the employees with their annual
wage summary (e.g., a Form W-2 or a Form 1099). Employers are
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required to either hand the notice directly to each employee
or mail it to the employee's last known address. Furthermore,
all California employers must post a statement about the EITC
in the workplace. In addition, state law requires certain
specified state departments, agencies and programs serving
individuals who may qualify for the federal EITC to notify
these individuals of the availability of this credit and the
ways to claim it. The current state law encourages
departments, agencies, and programs to develop the least
costly, as well as the most effective, methods to provide
notice.
5)Increasing Awareness . Under current state law, employers and
certain state agencies are required to notify all of their
employees and recipients of state programs, whichever is
applicable, of possible eligibility for the federal EITC only.
With the passage of the California EITC program, many
individuals in California are now entitled to claim the state
EITC. As such, sufficient outreach is critical in ensuring
that many eligible individuals will benefit from the state
EITC as well. This resolution urges state entities to
identify public and private partnerships that would inform
citizens and employees about the availability of the federal
EITC and VITA programs. The Committee may wish to consider
amending the resolution to include a reference to the
California EITC.
6)Volunteer Income Tax Assistance (VITA) Programs . The VITA
program offers free tax help to people who earn $54,000 or
less, and persons with disabilities and limited English
speaking taxpayers who need assistance in preparing their own
tax returns. IRS-certified volunteers provide free basic
income tax return preparation with electronic filing to
qualified individuals. In addition to VITA, the Tax
Counseling for the Elderly program offers free tax help for
all taxpayers, particularly those who are 60 years of age and
older, specializing in questions about pensions and
retirement-related issues unique to seniors. The
IRS-certified volunteers who provide tax counseling are often
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retired individuals associated with non-profit organizations
that receive grants from the IRS.
7)Related Legislation . AB 1847 (Mark Stone) would expand the
employee notification requirement relating to the federal
Earned Income Tax Credit to include a reference to the EITC.
AB 1847 is pending hearing by the Assembly Committee on
Appropriations.
8)Prior Legislation . SB 80 (Committee on Budget and Fiscal
Review), Chapter 21, Statutes of 2015, established the
refundable California EITC for taxable years beginning on or
after January 1, 2015. AB 1847 is pending hearing by the
Assembly Appropriations Committee.
AB 509 (Skinner), Chapter 542, Statutes of 2011, amended the
EITC Information Act by requiring specified state departments
and agencies to notify benefit recipients of their eligibility
for the federal EITC.
SCR 12 (Liu), Chapter 38, Statutes of 2011) urged state and
local governments and community organizations to promote
education and awareness of the federal Earned Income Tax
Credit and other tax credits that help working families
persevere through difficult economic times.
AB 650 (Lieu and Jones), Chapter 606, Statutes of 2007,
established the EITC Information Act that requires employers
to notify their employees that they may be eligible to claim
the federal EITC.
REGISTERED SUPPORT / OPPOSITION:
ACR 149
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Support
None on file
Opposition
None on file
Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098