BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1847


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          Date of Hearing:   April 20, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          1847 (Mark Stone) - As Amended April 7, 2016


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          Urgency:  No  State Mandated Local Program:  NoReimbursable:  No


          SUMMARY:


          This bill expands the employee notification requirement for the  
          federal Earned Income Tax Credit (EITC) to include a reference  
          to the California EITC. In summary, this bill: 


          1)Modifies existing findings and declarations related to the  
            federal EITC to include findings and declarations related to  
            the California EITC. 








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          2)Requires employers to notify its employees about their  
            possible eligibility for the California EITC, in addition to  
            the federal EITC.    


          3)Revises the language of the EITC notice, which must be  
            furnished to employees, to include the notification about the  
            California EITC and the FTB web address. 


          4)Modifies the notification requirements applicable to state  
            departments and agencies that serve those who may qualify for  
            the federal EITC to include a reference to those persons who  
            may also qualify for the California EITC. 


          5)Provides that the amended EITC notification provisions will  
            apply to notices furnished on or after January 1, 2017. 


          FISCAL EFFECT:


          1)Minor and absorbable costs to the Franchise Tax Board (FTB) to  
            update guidance on notifying employees of the California EITC.


          2)Possible GF revenue loss due to an increase in the number of  
            taxpayers claiming the California EITC as a result of this new  
            notification. However, the impact of this notification on EITC  
            participation is unknown. If this new employer notification  
            were to result in 500 additional households receiving the  
            California EITC who otherwise would not have received it, then  
            this would result in a GF revenue loss of approximately  
            $300,000. 










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          COMMENTS:


          1)Purpose. According to the author, this bill is intended to  
            spread awareness of the newly implemented California EITC.  
            Under existing state law, employers are required to notify all  
            of their employees of possible eligibility for the federal  
            EITC. This bill will expand that federal EITC notification  
            requirement to include the California EITC to help ensure that  
            those who are eligible for the credit are aware of the need to  
            file taxes to claim it. 


          2)Background. The California EITC was enacted into law in 2015  
            and is intended to complement the federal EITC to allow a  
            greater tax benefit per household. Similar to the federal  
            EITC, the California EITC is a refundable credit against  
            personal income taxes owed. Unlike the federal EITC, the  
            California EITC is based on earned wage income only and  
            excludes self-employment income. Moreover, the California EITC  
            is designed to reach taxpayers with very low wage earnings. 


            Another unique aspect to the California EITC is that its value  
            to households may change as part of the annual budget process.  
            The final budget agreement establishes an "adjustment factor"  
            that sets the California EITC as a percentage of the federal  
            EITC. The FY 2015-16 budget agreement set the adjustment  
            factor at 85%.  This adjustment factor changes the size of the  
            credit each household gets, but it does not change eligibility  
            thresholds or the number of households that claim the credit. 


            As of February 29, 2016, 157,603 tax returns claimed the  
            California EITC, resulting in an estimated $92.9 million loss  
            in GF revenue. The average credit claimed was $599. Those  
            numbers are expected in increase throughout the tax filing  
            season. Prior projections of the California EITC estimated the  
            credit to reach approximately 600,000 households per year.








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          3)EITC Participation. It is unlikely that all eligible  
            households will claim the state credit. The federal EITC,  
            which has been in effect since 1975, is only claimed by around  
            75 percent of all eligible California households. After the  
            California EITC was established in 2015, a coalition of  
            stakeholder groups and state agencies began an education  
            campaign to spread awareness of this new credit, with the goal  
            of boosting participation in both this new state program and  
            the federal credit program. 


          Analysis Prepared by:Luke Reidenbach / APPR. / (916)  
          319-2081