BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |ACR 149 |Hearing |6/22/16 |
| | |Date: | |
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|Author: |Gipson |Tax Levy: | |
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|Version: |4/26/16 |Fiscal: |No |
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|Consultant|Bouaziz |
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Taxation
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 and state Earned
Income Tax Credits, and Volunteer Income Tax Assistance
programs.
Background
Federal law allows eligible individuals a refundable earned
income tax credit (EITC), which allows the taxpayer to obtain a
refund for the excess of the credit over the taxpayer's
liability. As the name implies, the credit is based on a
percentage of the taxpayer's earned income, and phases 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.
Federal law specifies that if the federal EITC is denied, and
the Internal Revenue Service (IRS) determined that the
taxpayer's error was due to reckless or intentional disregard of
EITC rules, the EITC would be denied for the next two years. If
the error was due to fraud, the denial period would be ten
years.
ACR 149 (Gipson) 4/26/16 Page 2
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On June 23, 2015, Governor Brown signed SB 80 (Committee on
Budget and Fiscal Review), which established a state EITC. The
state EITC is a refundable credit, available to individuals
earning less than $6,580, and households with children earning
less than $13,870. The state EITC is available to taxpayers
beginning January 1, 2015. The maximum credit is $214 for a
taxpayer without a qualifying child, $1,428 for a taxpayer with
one qualifying child, $2,358 for a taxpayer with two qualifying
children, and $2,653 for a taxpayer with three or more
qualifying children. The state EITC excludes self-employment
income.
Federal law requires employers to notify their employees that
the employees may be eligible for the federal EITC. California
law requires California employers, state departments, and
certain state agencies to provide formal notification of
possible eligibility for the federal EITC.
Proposed Law
Assembly Concurrent Resolution 149 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 and state Earned Income Tax Credits,
and Volunteer Income Tax Assistance programs.
State Revenue Impact
Unknown.
Comments
1. Purpose of the bill. According to the author, "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."
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2. 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 Earned Income Tax Credit Information Act
(EITC Act), an employer must also notify employees about the
federal EITC within one week of providing an employee 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 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.
3. Increasing Awareness. Under current state law, employers
and certain state agencies are already required to notify all of
their employees and recipients of state programs, whichever is
applicable, of possible eligibility for the federal EITC. 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. But this
should be done in the most efficient manner possible. Current
state law encourages departments, agencies, and programs to
develop the least costly, as well as the most effective, methods
to provide notice. 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. To stay consistent with existing law,
the Committee may wish to consider amending the resolution to
ensure promotion of the federal and state EITC is carried out in
a cost-effective manner.
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4. 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 retired individuals associated
with non-profit organizations that receive grants from the IRS.
5. 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 state Earned
Income Tax Credit. AB 1847 will be heard in this Committee on
June 22, 2016.
6. Prior Legislation.
SB 80 (Committee on Budget and Fiscal Review, 2015),
established the refundable California EITC for taxable
years beginning on or after January 1, 2015.
AB 509 (Skinner, 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, 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, 2007), established the EITC
Information Act that requires employers to notify their
employees that they may be eligible to claim the federal
EITC.
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Assembly Actions
Assembly Revenue and Taxation9-0
Assembly Floor 76-0
Support and
Opposition (6/15/16)
Support : Jerome Horton, Board of Equalization Member.
Opposition : Unknown.
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