BILL ANALYSIS                                                                                                                                                                                                    ”



                                                                    AB 1847


                                                                    Page  1





          ASSEMBLY THIRD READING


          AB  
          1847 (Mark Stone)


          As Amended  April 7, 2016


          Majority vote


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Revenue &       |9-0  |Ridley-Thomas,        |                    |
          |Taxation        |     |Brough, Dababneh,     |                    |
          |                |     |Gipson, Mullin,       |                    |
          |                |     |O'Donnell, Patterson, |                    |
          |                |     |Quirk, Wagner         |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |20-0 |Gonzalez, Bigelow,    |                    |
          |                |     |Bloom, Bonilla,       |                    |
          |                |     |Bonta, Calderon,      |                    |
          |                |     |Chang, Daly, Eggman,  |                    |
          |                |     |Gallagher, Eduardo    |                    |
          |                |     |Garcia, Roger         |                    |
          |                |     |HernŠndez, Holden,    |                    |
          |                |     |Jones, Obernolte,     |                    |
          |                |     |Quirk, Santiago,      |                    |
          |                |     |Wagner, Weber, Wood   |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 








                                                                    AB 1847


                                                                    Page  2







          SUMMARY:  Expands the employee notification requirement relating  
          to the federal Earned Income Tax Credit to include a reference  
          to the California Earned Income Tax Credit (EITC).   
          Specifically, this bill:  


          1)Modifies the existing findings and declarations relating to  
            the federal EITC to provide that:


             a)   In 2015, the State of California authorized a state EITC  
               to amplify the poverty-reducing efforts of the federal EITC  
               for the poorest working Californians. 


             b)   The state shall facilitate the furnishing of information  
               to working poor persons and families regarding the  
               availability of state EITC to ensure that they claim it on  
               their state income tax returns. 


             c)   Legislative intent is to offer the most cost-effective  
               assistance to eligible taxpayers to ensure that eligible  
               Californians claim both the federal and state EITC. 


          2)Requires an employer to notify its employees about their  
            possible eligibility for the California EITC, in addition to  
            the federal EITC.  Specifically:
             a)   Requires an employer to notify all employees that they  
               may be eligible for the California EITC within one week  
               before, after, or at the same time, the employer provides  
               an annual wage summary, including a Form W-2 or a Form  
               1099, to any employee. 


             b)   Specifies that the employer shall hand directly to the  








                                                                    AB 1847


                                                                    Page  3





               employee or mail to the employee's last known address  
               either a specified notice created by the employer or  
               instructions on how to obtain notices from the Franchise  
               Tax Board (FTB), including the information on the  
               California EITC at the FTB Web site. 


          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 the 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)Removes the Managed Risk Medical Insurance Board (MRMIB) from  
            the list of state departments and agencies that are subject to  
            the EITC notification requirements.   


          6)Makes several technical, conforming changes. 


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


          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  
            earned income and is phased out as income increases.  The  
            percentage varies depending on whether the taxpayer has  








                                                                    AB 1847


                                                                    Page  4





            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 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. 


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee:


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


          2)Possible General Fund (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  








                                                                    AB 1847


                                                                    Page  5





            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. 


          COMMENTS:  


          1)Author's Statement.  The author has provided the following  
            statement in support of this bill:


               AB 1847 builds upon the 2015 creation of the statewide  
               California Earned Income Tax Credit (EITC), which  
               provides a new tax credit to the state's poorest working  
               families.  The creation of the California EITC represents  
               a necessary step to reduce the poverty rate of working  
               families and improve the economic outlook on the state's  
               impoverished communities.  However, the only way that  
               families can benefit from these credits is by filing for  
               taxes, even though most families for the state EITC are  
               not required to file.


               This simple measure requires employers to notify their  
               employees of possible eligibility for the State EITC in  
               order to increase the number of families who file taxes  
               and receive benefits, just as employers are already  
               required to notify their employees about possible  
               eligibility for the federal EITC.


          2)The Purpose of This Bill.  Under current state law, employers  
            are required to notify all of their employees of possible  
            eligibility for the federal EITC.  This bill proposes to  
            expand the EITC notification requirement to include  
            notification of the California EITC.  The author states that  








                                                                    AB 1847


                                                                    Page  6





            this bill is necessary to ensure that more working families  
            receive the intended benefits of the state EITC, which in turn  
            will lead to a reduction in the poverty rate.  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%.  The author argues that without sufficient outreach many  
            eligible individuals will not claim state tax EITC to which  
            they are entitled.  Many eligible individuals are not required  
            to file tax returns.  


          3)The Current EITC Notification Requirement.  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 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  
            law encourages departments, agencies, and programs to develop  
            the least costly, as well as the most effective, methods to  
            provide notice.  


          4)What Does This Bill Do?  This bill proposes to amend the EITC  
            Information Act to require California employers and some state  
            departments to provide formal notification of possible  








                                                                    AB 1847


                                                                    Page  7





            eligibility for the new California EITC, in addition to the  
            federal EITC.  In this regard, this bill would also implement  
            several technical changes to the existing law, including  
            deleting the existing references to the federal Form W-5,  
            which was eliminated by the federal government starting with  
            the 2011 taxable year, and to the Managed Risk Medical  
            Insurance Board, which was abolished.  This bill would also  
            update the sample EITC notice by deleting obsolete information  
            and including a reference to the California EITC.  




          Analysis Prepared by:                                             
                          Oksana Jaffe / REV. & TAX. / (916) 319-2098  FN:  
          0003097