BILL ANALYSIS Ó AB 1847 Page 1 Date of Hearing: April 20, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 1847 (Mark Stone) - As Amended April 7, 2016 ----------------------------------------------------------------- |Policy | Revenue and Taxation |Vote:| 9 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- 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. AB 1847 Page 2 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. AB 1847 Page 3 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. AB 1847 Page 4 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