BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1847 (Mark Stone) - Earned Income Tax Credit Information Act:
California Earned Income Tax Credit
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|Version: April 7, 2016 |Policy Vote: GOV. & F. 5 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1847 would expand the current employee notification
requirement relating to the federal Earned Income Tax Credit to
include a reference to the California Earned Income Tax Credit
(EITC).
Fiscal
Impact:
The bill would result in an annual General Fund revenue loss
of unknown magnitude, likely in excess of $50,000 (See Staff
Comments).
The Franchise Tax Board would incur minor and absorbable costs
to update guidance related to notifying employees of the
California EITC.
AB 1847 (Mark Stone) Page 1 of
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Background: Federal law allows eligible individuals a refundable EITC,
which allows the taxpayer to obtain a refund for the excess of
the credit over the taxpayer's liability. 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.
In June 2015, California established a state EITC, beginning in
taxable year 2015. 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 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
they may be eligible for the federal EITC. California law
requires state employers, state departments, and certain state
agencies to provide formal notification of possible eligibility
for the federal EITC.
Proposed Law:
This bill would expand the employee notification requirement
relating to the federal EITC to include a reference to the
AB 1847 (Mark Stone) Page 2 of
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California EITC. Amended EITC modification provisions would
apply to notices furnished beginning on January 1, 2017.
Staff
Comments: As of June, 2016, 379,000 tax returns from 2015
claimed the California EITC, resulting in an estimated $187
million reduction in General Fund revenue. The average credit
claimed was $493. Previously, the budget assumed that 600,000
households would claim the credit annually. This bill is
designed to increase the usage of the EITC. The amount of
additional household claiming the EITC as a result of this bill
is unknown; however, if this bill were to lead to an additional
200 households claiming the credit, the annual General Fund
revenue loss would be about $100,000.
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