BILL ANALYSIS Ó
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CONCURRENCE IN SENATE AMENDMENTS
ACR
149 (Gipson)
As Amended June 29, 2016
Majority vote
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|ASSEMBLY: |76-0 |(April 28, |SENATE: | 37-0 |(August 11, |
| | |2016) | | |2016) |
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Original Committee Reference: REV. & TAX.
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 and
state Earned Income Tax Credit (EITC) and Volunteer Income Tax
Assistance (VITA) programs, as specified.
The Senate amendments resolve that state entities promoting the
federal and state EITC and VITA programs do so cost-effectively.
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
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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:
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 Franchise Tax Board (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.
AS PASSED BY THE ASSEMBLY, this resolution made the following
legislative findings:
1)Contained 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 (IRS) 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 federal
and state EITC capture through the VITA program represents
a highly cost-effective economic development strategy;
d) The IRS and other organizations collaborate with local
agencies to offer VITA to raise awareness of the federal
and state EITC;
e) 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;
f) 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)Resolved that the Legislature does both of the following:
a) Joins the Controller's office, the State Board of
Equalization, the Franchise Tax Board, and the IRS in
promoting the federal and state 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
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inform citizens about the availability of the federal and
state EITC and VITA programs.
3)Directed the Chief Clerk of the Assembly to transmit copies of
this resolution to the author for appropriate distribution.
FISCAL EFFECT: None
COMMENTS:
1)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
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.
2)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,
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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.
3)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 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.
4)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.
5)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
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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
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.
6)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
and state EITC and VITA programs.
7)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
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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.
Analysis Prepared by:
Irene Ho / REV. & TAX. / (916) 319-2098 FN:
0003630