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