BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 670 (Jackson) - Income taxes: credit: dependent care: child care ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: May 13, 2015 |Policy Vote: GOV. & F. 6 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 26, 2015 |Consultant: Robert Ingenito | | | | ----------------------------------------------------------------- SUSPENSE FILE. AS AMENDED. Bill Summary: SB 670 would (1) reestablish two employer tax credits related to providing childcare, and (2) increase the percentages for the Child & Dependent Care Expenses Credit. Fiscal Impact (as approved on May 28, 2015): The Franchise Tax Board (FTB) estimates that the bill's three changes to tax law would result in an aggregate General Fund revenue loss of $0.5 million in 2015-16, $4.3 million in 2016-17, and $4.8 million in 2017-18. FTB indicates that the bill's impact on department operations would be minor. SB 670 (Jackson) Page 1 of ? Background: Prior to 2012, state law allowed two tax credit programs for employers providing child care for employees. Both credits could be carried over until they were exhausted: 30 percent of startup costs of establishing a child care program or constructing a child care facility in California primarily used by (1) the children of the taxpayer's employees, (2) tenants leasing commercial or office space in the taxpayer's building, or (3) for contributions to California child care information and referral services. The credit was capped at $50,000 per taxable year. 30 percent 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. The federal Child and Dependent Care Credit is a nonrefundable credit (a dollar for dollar reduction in tax liability), equal to a portion of qualifying child or dependent care expenses paid for the purpose of allowing the taxpayer either to be gainfully employed or seek employment. 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 credit may be applied is $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals). The credit amount is equal to the applicable percentage (20 to 35 percent, depending on the taxpayer's AGI), multiplied by the qualified employment expenses paid. The applicable percentage varies inversely with AGI; the higher the AGI, the lower the percentage. Taxpayers with an AGI of $15,000 or less use the highest permissible percentage of 35 percent. Current California law provides a tax credit similar to the federal version. 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 SB 670 (Jackson) Page 2 of ? 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. 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: This bill would reestablish the aforementioned two employer tax credits for providing childcare to employees. Any credits in excess of tax liability may be carried over for 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. Additionally, the bill would increase the credit percentages for the Child and Dependent Care Credit as follows: If AGI is: Credit Percentage: SB 670 (Jackson) Page 3 of ? $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% Related Legislation: SB 268 (Nguyen) would increase the maximum adjusted gross income and the maximum amount of employment-related expenses to which the credit may be applied. The bill is current on this Committee's Suspense File. Staff Comments: With respect to each of the three individual tax law changes proposed by the bill, FTB estimates the following revenue impacts: The Employer Child Care Program Credit would result in General Fund revenue losses of $0.1 million in 2015-16, $0.6 million in 2016-17, and $0.7 million in 2017-18. The Employer Child Care Contribution Credit would result in General Fund revenue losses of $0.4 million in 2015-16, $3.7 million in 2016-17 and $4.1 million in 2017-18. The Child and Dependent Care Credit would result in General Fund revenue losses of $3.6 million in both 2016-17 and 2017-18. SB 670 (Jackson) Page 4 of ? Author's Amendments (as adopted May 28, 2015): Amendments would remove the increases in the Child and Dependent Care Credit percentages. -- END --