BILL ANALYSIS Ó
AB 1847
Page 1
ASSEMBLY THIRD READING
AB
1847 (Mark Stone)
As Amended April 7, 2016
Majority vote
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|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 | |
| | |Hernández, Holden, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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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
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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
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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
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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
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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
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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