BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 268 |Hearing | 4/29/15 |
| | |Date: | |
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|Author: |Nguyen |Tax Levy: |Yes |
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|Version: |4/20/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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INCOME TAXES: CREDIT: DEPENDENT CARE
Increases the maximum adjusted gross income and the maximum
amount of employment-related expenses to which the credit may be
applied.
Background and Existing Law
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
gainfully employed. To obtain the credit, the taxpayer must
incur employment-related expenses to provide care for a
dependent who has not attained the age of 13. The maximum
amount of employment-related expenses to which the 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
percent), as determined by the taxpayer's adjusted gross income
(AGI), times the qualified employment expenses paid. Taxpayers
with an AGI of $15,000 or 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
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amount. However, state law limits expenses to care provided in
California, and income earned from California sources. The
state credit is computed by first applying the federal credit
percentage (20 to 35 percent) to the smallest of three amounts:
the expense cap, California expenses, or California earned
income. The state credit percentage is then applied. Prior to
2012, the credit was refundable, but was made nonrefundable due
to budget constraints by SB 86, (Senate Committee on Budget and
Fiscal Review, 2011).
The state credit percentage varies based on the taxpayer's AGI,
and is limited to taxpayers with AGI of $100,000 or less.
If AGI is: Credit Percentage:
$40,000 or less 50%
Over $40,000 but not over $70,000 43%
Over $70,000 but not over $100,000 34%
Over $100,000 0%
Proposed Law
Senate Bill 268 increases the maximum AGI eligible for the child
care credit as follows:
If AGI is: Credit Percentage:
$100,000 or less 50%
Over $100,000 but not over $175,000 43%
Over $175,000 but not over $250,000 34%
Over $250,000 0%
SB 268 also increases the maximum amount of employment-related
expenses to which the credit may be applied from $3,000 to
$4,000 for one child and from $6,000 to $12,000 for 2 or more
children.
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SB 268 takes effect immediately as a tax levy.
State Revenue Impact
The Franchise Tax Board (FTB) estimates revenue losses of $7.8
million in fiscal year 2015-16, $8.1 million in 2016-17, and
$8.3 million in 2017-18. The estimate does not take into
account the April 20, 2015 amendments raising the maximum AGI.
Comments
1. Purpose of the bill. According to the author, "SB 268 will
help parents manage the high cost of child care in California.
Currently, the federal government limits the qualifying expenses
for dependent care. Child care has become so expensive, that
the average statewide cost for one infant to attend a day care
is $12,068 a year. SB 268 provides a tax credit that will raise
the qualifying expenses from a $3,000 credit per child to a
$4,000 credit per child, and from a $6,000 credit to a $12,000
credit for 2 or more children when placed in child care. SB 268
will also raise the adjusted gross income amount that qualifies
parents for a child care tax credit from $100,000 to $250,000.
These numbers need adjusting to help parents provide their
children quality care without sacrificing their career because
of limits on income to receive assistance for the growing cost
of these services."
2. Out of sync. By raising the maximum amount of
employment-related expenses to exceed what is allowed under
federal law, SB 268 takes California law out of conformity with
federal law. While California does not always conform to
federal tax law, conformity does ease compliance and makes
filing less burdensome on taxpayers.
3. Beneficiaries. SB 268 allows high income working families to
take advantage of the tax credit by raising the maximum AGI.
According to a 2012 report by Child Care Aware of America, the
average yearly cost of childcare in California for an infant is
$12,068, $8,407 for a 4 year old, and $2,792 for a school age
child. Under current law, a family with an infant and a toddler
could be spending 20% of their income on childcare and not
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qualify for the childcare credit. This bill would help to
alleviate the high cost of childcare.
4. Low income families. Prior to 2012, the Child and Dependent
Care Expenses Credit was refundable, but was made nonrefundable
due to budget constraints by SB 86, (Senate Committee on Budget
and Fiscal Review, 2011). Unfortunately, for California's
poorest working families with little or no tax liability, the
current credit has minimal impact if any.
5. Example family. A family with an AGI of $115,000, 2
children, and have a yearly childcare cost of $25,000, would not
receive a credit under current law. Under SB 268, this family
would receive a credit of $1032. This is calculated by taking
the smaller of the expense cap, California expenses, or
California earned income. In this example the expense cap is
$12,000, the California expenses are $25,000, and the California
earned income is $115,000. The smallest of the three is the
expense cap. Next, the number is multiplied by the federal
credit percentage, which in this case is 20%. 20% multiplied by
$12,000 equals $2,400. The final step is to multiply $2,400 by
the California percentage rate, which is 43%. $2,400 multiplied
by 43% equals $1032.
6. Another way? The rising cost of childcare is a real issue
for working parents, but there may be other ways to help
alleviate the high cost of childcare. The state can expand
CalWORKs Stage II and III eligibility for low income families,
fund preschool programs, before and after school programs, or
expand the California Department of Education's voucher program.
Support and
Opposition (4/21/15)
Support : Child Care Law Center; First 5 Association of
California.
Opposition : Unknown.
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