BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 670 |Hearing |5/6/15 |
| | |Date: | |
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|Author: |Jackson |Tax Levy: |Yes |
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|Version: |4/23/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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INCOME TAXES: CREDIT: DEPENDENT CARE: CHILD CARE
Reestablishes two employer tax credits for providing childcare
to employees and increases the credit percentages for the Child
& Dependent Care Expenses Credit.
Background and Existing Law
State law allows taxpayers to claim tax credits designed as
incentives for taxpayers to incur certain expenses, such as
child adoption, or to influence behavior, including business
practices and decisions, such as research and development
credits and Geographically Targeted Economic Development Area
(GTEDA) credits. The Legislature typically enacts such tax
incentives to encourage taxpayers to do something but for the
tax credit, they would otherwise not do.
I. Employer Child Care Credits. Prior to 2012, state law
allowed two tax credit programs for employers providing child
care for employees:
30% of the costs paid for the startup expenses of
establishing a child care program or constructing a child
care facility in California that will primarily be used by
the children of the taxpayer's employees, tenants leasing
commercial or office space in the taxpayer's building, or
for contributions to California child care information and
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referral services, capped at $50,000 per taxable year.
30% of the costs paid for contributions to a qualified
care plan made on behalf of any qualified dependent, not to
exceed $360 for each qualified dependent. Contributions
must be direct payments to child care providers, and not
pursuant to a salary reduction agreement.
Both credits could be carried over until exhausted.
II. Child and Dependent Care Expenses Credit. 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 that
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
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 an AGI of $100,000 or less.
If AGI is: Credit Percentage:
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$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 670 reestablishes two employer tax credits for
providing childcare to employees and increases the credit
percentage for the Child & Dependent Care Expenses Credit.
As a tax levy, this bill would take effect immediately, and
applies to taxable years beginning on or after January 1, 2016
and before January 1, 2021.
SB 670 provides that this credit is allowed notwithstanding
Revenue and Taxation Code (R&TC) Section 41.
I. Employer Child Care Credits. SB 670 reestablishes two tax
credit programs for employers providing child care for
employees:
The first credit allows a credit of 30% of the costs
paid for the startup expenses of establishing a child care
program or constructing a child care facility in
California, that will primarily be used by the children of
the taxpayer's employees, tenants leasing commercial or
office space in the taxpayer's building, or for
contributions to California child care information and
referral services, capped at $50,000 per taxable year.
The second credit allows a credit of 30% of the costs
paid for contributions to a qualified care plan made on
behalf of any qualified dependent, not to exceed $360 for
each qualified dependent. Contributions must be direct
payments to child care providers and not pursuant to a
salary reduction agreement.
Any credits in excess of tax liability may be carried over for
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use in succeeding years, though the amount of the credit that
may be claimed by any taxpayer in any one year cannot exceed
$50,000. This credit is available through the 2021 tax year,
although unused credits may be carried forward beyond the sunset
date.
II. Child and Dependent Care Expenses Credit. SB 670
increases the credit percentages for the child care credit as
follows:
If AGI is: Credit Percentage:
$40,000 or less 63%
Over $40,000 but not over $70,000 53%
Over $70,000 but not over $100,000 42%
Over $100,000 0%
State Revenue Impact
Pending.
Comments
1. Purpose of the bill. According to the author, "Access to
affordable and quality child care has long been a challenge for
working families, where demand has consistently outpaced supply.
In California, the numbers are stark. 57 percent of women are
in the workforce, 64 percent have children under the age of six.
Many working single mothers also spend nearly half of their
income (44%) on child care. Yet, the state only has the
licensed child care capacity to serve 16 percent of children
under the age of 12, this creates dire situations for working
families, where oftentimes it is the mother who is forced to
choose between remaining at home to care for her child or
leaving her child unattended or with a caretaker with whom she
may or may not be familiar so that she can work.
When the Employer Child Care Tax Credit expired, we lost a tool
that not only helped to alleviate the challenges working
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families face when trying to balance family and work, but also,
the ability of California companies and businesses to provide
supported child care programs. By re-establishing the ECTC, we
can uphold the state's commitment to provide a supportive
business environment while also helping to provide working
mothers access to child care so that they can continue to pursue
their careers and strengthen California's economy."
2. Utilization of the Employer Child Care Credits . In 2011, the
final tax year the credits were available, $1,826,400 in credits
were claimed by 4,353 taxpayers. In 2010, $2,004,500 in credits
was claimed by 5,159 taxpayers. On average, over 10,000
children benefited from the credits each year.
3. History. The Employer Child Care Contribution Credit was
established in 1988. AB 3144 (Hannigan, 1994), reduced the
credit percentage to its current 30% level, reduced the maximum
allowable credit per dependent from $600 to $360, lowered the
age of qualified dependents from under 15 years to under 12
years, and repealed the option for employer to reimburse
employees for their child care expenses. Under AB 3144,
employers were required to contribute directly to qualified care
plans on behalf of their employees in order to qualify for the
credit. AB 866 (Diaz, 2001) extended the sunset date for the
credit to January 1, 2007 and changed the definition of
qualified contributions that may qualify for the Employer Child
Care Contribution Credit. AB 1282 (Mullin, 2006) extended the
sunset date for the credit to January 1, 2012. Because no
subsequent legislation extended the credit, it has been defunct
from tax year 2012-2014.
4. Section 41 shall not apply: On September 29, 2014, Governor
Brown signed SB 1335 (Leno, 2014), which added R&TC Section 41.
SB 1335 recognized that the Legislature should apply the same
level of review used for government spending programs to tax
preference programs, including tax credits. Thus, Section 41
requires any bill introduced on or after January 1, 2015 that
allows a new income tax credit to contain specific goals,
purposes, and objectives that the tax credit will achieve. In
addition, Section 41 requires detailed performance indicators
for the Legislature to use when measuring whether the tax credit
meets the goals, purposes, and objectives. This bill provides
that R&TC Section 41 shall not apply to this credit. The
Committee may wish to consider the appropriateness of this
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Section 41 exemption.
5. 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 likely has minimal impact if any.
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.
7. Related legislation. SB 268 (Nguyen) increases the maximum
adjusted gross income and the maximum amount of
employment-related expenses to which the credit may be applied.
The bill was approved by the Committee on April 29, 2015.
8. Technical amendments. Committee staff suggests the following
technical amendments to correct an incorrect cross reference:
On page 3, line 38, replace "152(c)(3)" with "152(f)(1)"
On page 4, line 8, replace "qualified individual" with
"child defined"
Support and
Opposition (4/30/15)
Support : Unknown.
Opposition : Unknown.
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