BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 324 (Pavley) - Income taxation: savings plans: Qualified
ABLE Program
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|Version: April 15, 2015 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: April 27, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 324 would (1) establish a California Achieving a
Better Life Experience (ABLE) program and (2) modify state
income tax law to generally conform to the federal income tax
treatment of ABLE accounts.
Fiscal
Impact:
The Franchise Tax Board (FTB) indicates that this bill would
lead to a revenue loss (General Fund) of $100,000 in 2015-16,
$400,000 in 2016-17, and $900,000 in 2017-18. Additional, FTB
would incur minor costs to implement its provisions of the
bill.
SB 324 (Pavley) Page 1 of
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The State Treasurer's Office (STO), the entity that would
administer ABLE accounts on behalf of qualified Californians,
would incur annual costs in the hundreds of thousands of
dollars minimally. The precise amount would depend on how the
bill is implemented.
Background: The federal ABLE Act of 2014 created a new type of tax-favored
savings program beginning in taxable year 2015 for individuals
who become blind or disabled before reaching age 26. ABLE
accounts generally follow the same rules as education savings
accounts allowed by Section 529 of the Internal Revenue Code
(529s). Specifically, individuals can make nondeductible cash
contributions to an ABLE account in the name of a specified
beneficiary, and account's earnings grow tax free. ABLE account
distributions are also not included in the beneficiary's income
so long as they're used for qualified services, and
distributions don't exceed the cost of the qualified services.
The ABLE Act imposes a federal 10 percent tax on distributions
that exceed those costs. Congress created ABLE accounts to
offer an alternative to Special Needs and Supplement Needs
Trusts.
The ABLE Act directed states to establish one ABLE account for
each resident beneficiary. SB 324 implements the ABLE Act in
California, and directs the State Treasurer to administer ABLE
accounts on behalf of qualified Californians.
Proposed Law:
This bill would establish a California ABLE program, and would
generally conform to the federal income tax treatment of ABLE
accounts; STO would administer the program in compliance with
federal law. Neither federal nor state taxes would apply to ABLE
account earnings or distributions used for qualified services.
The additional federal contribution, rollover, and distribution
rules would apply-meaning the portion of any ABLE distribution
that is includible in income generally would be subject to a 2.5
percent tax for state purposes (in addition to the 10-percent
additional tax imposed for federal purposes).
SB 324 (Pavley) Page 2 of
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Related
Legislation: AB 449 (Irwin) is substantially similar to this
bill, except that it would provide that ABLE account amounts
would be required to be disregarded for purposes of determining
eligibility for state and local means-tested programs that
provide assistance to disabled individuals. The bill is
currently in the Assembly Revenue and Taxation Committee.
Staff
Comments: The FTB revenue estimate for this bill is based on a
proration of the Joint Committee on Taxation's (JCT) estimate
for the federal ABLE Act. JCT's estimated losses, converted to
calendar years, for 2016 through 2019 are $5.5 million, $13.5
million, $30.3 million, and $57.3 million.
These estimated losses are attributable to projected earnings in
ABLE accounts that are exempt from taxation and distributions
that do not exceed qualified expenses that are excluded from
gross income. JCT estimated losses are reduced by approximately
88 percent based on Social Security Disability Insurance data to
reflect California's estimated share of the federal exclusion.
The results are then reduced an additional 70 percent to reflect
the difference between federal and state tax rates.
JCT estimates that revenue losses are projected to continue to
increase, and prorating the last year included in the JCT
estimate would result in an estimated state loss of
approximately $10 million in 2025-26.