BILL ANALYSIS Ó AB 2676 Page 1 Date of Hearing: May 25, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2676 (Chávez) - As Amended May 16, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- 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 Page 2 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 AB 2676 Page 3 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