BILL ANALYSIS                                                                                                                                                                                                    



          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:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |Mark Stone                       |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |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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