BILL ANALYSIS                                                                                                                                                                                                    



          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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