BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2676


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          Date of Hearing:  May 25, 2016 


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2676 (Chávez) - As Amended May 16, 2016


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          Urgency:  Yes State Mandated Local Program:  NoReimbursable:  No


          SUMMARY:


          This bill expands the Child and Dependent Care Expenses tax  
          credit for tax years 2016 through 2018 by modifying the size of  
          the credit as follows: 


          1)For taxpayers with an adjusted gross income (AGI) of $40,000  
            or less, the applicable credit percentage is 65% instead of  
            50%.


          2)For taxpayers with AGI between $40,000 and $70,000, the  
            applicable credit percentage is 50%, instead of 43%.








                                                                    AB 2676


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          3)For taxpayers with AGI over $70,000 but not over $100,000, the  
            applicable credit percentage is unchanged at 34%, and those  
            with AGI over $100,000 remain ineligible for the credit.  


          FISCAL EFFECT:


          1)Minor and absorbable administrative costs to the Franchise Tax  
            Board (FTB) to update forms, processes, and software. 


          2)Annual GF revenue loss of approximately $2 million in FY  
            2016-17, FY 2017-18, and FY 2018-19. 


          COMMENTS:


          1)Purpose. AB 2676 is intended to strengthen the state Child and  
            Dependent Care Expenses Credit, which is insufficient to meet  
            the needs of hardworking families. The author argues that this  
            bill will help minimize the federal strains of child care and  
            dependent care by relieving the tax burden on these families.   

          2)Background. The federal Child and Dependent Care Credit is a  
            nonrefundable credit, equal to a portion of qualifying child  
            or dependent care expenses paid for the purpose of allowing  
            the taxpayer to be employed. To obtain the credit, the  
            taxpayer must incur employment-related expenses to provide  
            care for a dependent under the age of 13.  The maximum amount  
            of employment-related expenses to which the federal credit may  
            be applied is $3,000 if one qualifying individual is involved  
            or $6,000 if two or more qualifying individuals are involved.   
            The credit amount is equal to the applicable percentage (20 to  
            35%), as determined by the taxpayer's AGI times the qualified  
            employment expenses paid.  Taxpayers with an AGI of $15,000 or  








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            less use the highest applicable percentage of 35%.    


            Existing California law provides a tax credit similar to the  
            federal child care credit, the Child and Dependent Care  
            Expenses Credit.  State law conforms to the federal expenses  
            cap, and applies the federal credit percentage to calculate  
            the credit amount. The state credit is computed by first  
            applying the federal credit percentage (20 to 35%) to the  
            smallest of three amounts:  the expense cap, California  
            expenses, or California earned income.  The state credit  
            percentage is then applied. Unlike the federal credit, the  
            state credit has an income limit: taxpayers with AGI over  
            $100,000 cannot claim the state credit.


          3)Who claims the Child Care and Dependent Care Expenses Credit?   
            Data for 2012 shows that a large majority of Child Care and  
            Dependent Care Expenses Credit benefits are concentrated among  
            households with incomes between $50,000 to $99,999. Around 85%  
            of allocated credit amounts were given to households in this  
            income range. Until December 31, 2010, this credit was  
            refundable; thus, it was available to Californians with little  
            or no tax liability. Beginning with 2011, the refundable  
            portion of the credit was repealed.
          Analysis Prepared by:Luke Reidenbach / APPR. / (916)  
          319-2081