BILL ANALYSIS
AB 1959
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Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 1959 (Logue) - As Introduced: February 17, 2010
VOTE ONLY
Majority vote. Fiscal committee.
SUBJECT : Personal income taxes: withholding
SUMMARY : Limits the 10% withholding increase on wages,
supplemental wages, stock options, and bonus payments to amounts
paid on and after November 1, 2009, and before January 1, 2011.
Specifically, this bill :
1)Amends, repeals, and adds back sections to the Revenue and
Taxation Code and the Unemployment Insurance Code that would
result in limiting the 10% withholding increase on wages,
supplemental wages, stock options, and bonus payments to
amounts paid on or after November 1, 2009, and before January
1, 2011. As a result, withholding on wages, supplemental
wages, stock options, and bonus payments paid on or after
January 1, 2011, would no longer be increased by 10%.
2)Restores the fixed rate of withholding on supplemental wages,
other than stock options and bonus payments, to 6%.
3)Restores the fixed rate of withholding on stock options and
bonus payments to 9.3%.
EXISTING LAW :
1)Requires the Franchise Tax Board (FTB) to provide the
Employment Development Department (EDD) wage withholding
tables for employers to use in withholding taxes on wages
paid.
2)Requires, for wages paid on or after November 1, 2009, the
wage withholding tables to produce a sum equal to 10% more
than the sum specified for purposes of the former withholding
tables.
AB 1959
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3)Allows, in lieu of the withholding tables, withholding at a
rate of 6.6% for supplemental wages and at a rate of 10.23%
for stock options and bonus payments paid on or after November
1, 2009.
FISCAL EFFECT : The FTB estimates that this bill would reduce
General Fund (GF) revenues by $1.4 billion in fiscal year (FY)
2010-11, by $170 million in FY 2011-12, and by $75 million in FY
2012-13.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
This bill would reverse the harmful effects of [AB 17 X4]
by reversing the percentage of withholding back to its
original level. [. . .] While it is easily recognizable
that our state is facing a serious cash problem due to
overspending, our budget should not have been balanced on
the backs of the people. California's economy is facing
one of its worst crises since the Great Depression. Our
citizens are facing their own economic crises, and we
should not be taking their money to subsidize our out of
control spending. This bill aims to reduce the PIT to a
manageable level, allowing more people to keep the funds
they so desperately need.
2)Proponents of this measure state:
Californians are already burdened with some of the highest
taxes in the country. We have [the] highest sales and car
taxes, and the fourth highest income tax rates. Increasing
withholding amounts to a forced interest-free loan and
would take more money out of the pockets of people
struggling to keep their jobs.
3)Committee Staff Comments
a) A Brief History of Over-Withholding : Before the passage
of AB 17 X4 (Committee on Budget), Chapter 15, Statues of
2009, the wage withholding tables were based on the
estimated amount of tax due on the wages paid by the
AB 1959
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employer. For wages paid on or after November 1, 2009,
however, AB 17 X4 requires the amount determined for the
wage withholding tables to be increased by 10%. AB 17 X4
also increased the withholding rate on supplemental wages,
other than stock options and bonus payments, from 6% to
6.6%. The withholding rate for stock options and bonus
payments was increased from 9.3% to 10.23%.
b) Arguments in Favor of Over-Withholding : The Assembly
Budget Committee's analysis of AB 17 X4, which was never
heard in this Committee, candidly noted that the bill's
provisions were aimed at accelerating revenues to the GF.
The analysis also noted that, in many instances, taxpayers
with significant income from non-wage sources ended up
owing significant taxes under the prior withholding regime.
Finally, the analysis noted that taxpayers could always
elect to modify their withholding amount.
c) Arguments in Opposition to Over-Withholding : While it
is true that taxpayers can elect to modify their
withholding amount to more closely match their anticipated
tax liability, many unsophisticated taxpayers are likely
unaware of this option. As a result, many of these
taxpayers are being subjected to over-withholding, which
essentially means they are providing an interest free loan
to the state that is "repaid" when they file their returns
and receive a refund. While Committee staff is fully aware
that AB 17 X4 was enacted to address budgetary issues, it
is difficult to support intentional over-withholding on tax
policy grounds.
d) Related Legislation : The following related bills have
been introduced in the current legislative session:
i) AB 2225 (Gaines) contains provisions similar to this
bill. AB 2225 is scheduled to be heard in this Committee
on May 3, 2010.
ii) SB 952 (Wyland) contains provisions similar to this
bill. SB 952 has been referred to the Senate Committee
on Revenue and Taxation.
iii) SB 1337 (Wyland) contains provisions similar to this
bill. SB 1337 has been referred to the Senate Committee
on Revenue and Taxation.
AB 1959
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REGISTERED SUPPORT / OPPOSITION :
Support
Howard Jarvis Taxpayers Association
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098