BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 1847 |Hearing |6/22/16 |
| | |Date: | |
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|Author: |Mark Stone |Tax Levy: |No |
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|Version: |4/7/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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Earned Income Tax Credit Information Act: California Earned
Income Tax Credit
Expands the current employee notification requirement relating
to the federal Earned Income Tax Credit to include a reference
to the California Earned Income Tax Credit.
Background
Federal law allows eligible individuals a refundable earned
income tax credit (EITC), which allows the taxpayer to obtain a
refund for the excess of the credit over the taxpayer's
liability. As the name implies, the credit is based on a
percentage of the taxpayer's earned income, and phases out as
income increases. The percentage varies depending on whether
the taxpayer has 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.
Federal law specifies that if the federal EITC is denied, and
the Internal Revenue Service (IRS) determined that the
taxpayer's error was due to reckless or intentional disregard of
EITC rules, the EITC would be denied for the next two years. If
the error was due to fraud, the denial period would be ten
years.
On June 23, 2015, Governor Brown signed SB 80 (Committee on
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Budget and Fiscal Review), which established a state EITC. The
state EITC is a refundable credit, available to individuals
earning less than $6,580, and households with children earning
less than $13,870. The state EITC is available to taxpayers
beginning January 1, 2015. The maximum credit is $214 for a
taxpayer without a qualifying child, $1,428 for a taxpayer with
one qualifying child, $2,358 for a taxpayer with two qualifying
children, and $2,653 for a taxpayer with three or more
qualifying children. The state EITC excludes self-employment
income.
Federal law requires employers to notify their employees that
the employees may be eligible for the federal EITC. California
law requires California employers, state departments, and
certain state agencies to provide formal notification of
possible eligibility for the federal EITC.
Proposed Law
Assembly Bill 1847 expands the employee notification requirement
relating to the federal Earned Income Tax Credit to include a
reference to the California Earned Income Tax Credit.
State Revenue Impact
According to the Franchise Tax Board, AB 1847 would not impact
the state's income tax revenue.
Comments
1. Purpose of the bill. According to the author, "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
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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 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 must
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.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 20-0
Assembly Floor 79-0
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Support and
Opposition (6/15/16)
Support : Abrazar, Inc.; California Asset Building Association;
California Association of Public Authorities; California
Catholic Conference; California Family Resource Association;
California Tax Reform Association; California Welfare Directors
Association; Children's Defense Fund; Common Sense Kids Action;
County Welfare Directors Association of California; First 5
Association of California; Good Hands Foundation; Inland Empire
United Way; National Association of Social Workers, California
Chapter; Small Business California; United Ways of California;
United Ways of the Bay Area, Fresno and Madera Counties,
Monterey County, Orange County, San Diego County, and Stanislaus
County.
Opposition : Unknown.
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