BILL ANALYSIS
AB 1990
Page 1
Date of Hearing: May 3, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 1990 (Anderson) - As Amended: April 5, 2010
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Income taxes: credit: unemployed workers: child
care costs
SUMMARY : Allows a personal income tax (PIT) credit to
unemployed taxpayers for 100% of specified child care costs.
Specifically, this bill :
1)Provides a PIT credit for taxable years beginning on or after
January 1, 2011, for costs incurred by an unemployed taxpayer
for child care.
2)Provides that the amount of the tax credit allowed shall be
100% of the cost paid or incurred by the taxpayer for
contributions for child care costs made on behalf of a
qualified dependent.
3)Provides that the credit allowed in a taxable year may not
exceed $500 for each qualified dependent.
4)Provides that if the tax credit exceeds the "net tax," the
excess may be carried over to reduce the "net tax" in the
following year, and succeeding years, until the credit has
been exhausted.
5)Defines "contributions" to include direct payments to child
care programs or providers.
6)Defines "qualified child care" to include center-based
service, in-home care, or home-provider care.
7)Defines a "qualified dependent" as a dependent of a taxpayer
who is under 12 years of age.
8)Defines a "taxpayer" as an individual who is unemployed and
who received unemployment insurance compensation benefits.
AB 1990
Page 2
9)Takes immediate effect as a tax levy.
EXISTING LAW:
1)Child and Dependent Care Credit. Under federal law, a
nonrefundable credit is allowed for a portion of qualifying
child or dependent care expenses paid for the purpose of
allowing the taxpayer to be gainfully employed. To obtain the
child care credit, the taxpayer must incur employment-related
expenses in providing 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, 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 for a tax
credit similar to the federal child care credit. State law
provides for a percentage of the federal tax credit, depending
on the taxpayer's AGI. However, unlike the federal tax
credit, the California child care credit is refundable.
2)Dependent Care Flexible Spending Account. A dependent care
flexible spending account allows a taxpayer to exclude up to
$5,000 from gross income for child care or adult dependent
care expenses that are necessary to allow a taxpayer or a
taxpayer's spouse to work or attend school full time. The
taxpayer must be earning an income to take advantage of the
benefit.
FISCAL EFFECT : The Franchise Tax Board (FTB) estimates revenue
losses of $44 million in fiscal year (FY) 2011-12, $50 million
in FY 2012-13, and $55 million in FY 2013-14.
COMMENTS :
1)Author's statement. The author states, "At a time when we
need to promote jobs and economic growth, legislation to
promote relief and initiative are more necessary than ever
before. The purpose of this economic relief measure, Assembly
Bill 1990, is to remove an impediment to unemployed family
providers feeling able to resume working. Economic relief for
those who struggle under the burden of paying for childcare
AB 1990
Page 3
while looking for a job is a simple way to assist those who
seek to return to employment."
2)Arguments in Opposition. Opponents state that this bill would
allow a tax credit equal to 100% of the costs paid or incurred
for specified contributions made toward child care. In doing
so, the state would lose revenue that could ultimately impact
revenues made available to emergency services.
3)Committee Staff Comments:
a) Recipients of the tax credit. This bill provides a tax
credit to unemployed taxpayers who have incurred child care
costs. However, it is unclear if a taxpayer is required to
pay a third party for child care services to be eligible
for the credit. Arguably, a tax credit may be allowed
under this bill even if the taxpayer provides the care
directly, so long as costs are incurred while caring for a
qualified dependent. Assuming that the author wants to
limit the tax credit to individuals attempting to find
work, the author may want to amend this bill and make clear
that a "taxpayer" may not obtain a credit for costs
incurred providing direct care.
b) Taxable income. This bill provides a credit against a
taxpayer's PIT liability. Because a taxpayer must be
unemployed to receive a credit under this bill, one would
assume many qualified taxpayers will have little or no tax
liability to offset. This bill attempts to address this
issue by allowing the tax credit to be carried over to
subsequent years. However, the benefit will probably not
be realized until after a taxable year in which the
taxpayer has obtained employment. This creates a large gap
between the time the child care costs are incurred and the
time when the taxpayer receives the tax benefit.
c) Sunset Date. Committee staff notes that this bill does
not contain a sunset date. Arguments in favor of a sunset
date include providing the Legislature the ability to
review the tax credit's effectiveness in the future. Also,
absent a sunset provision, correcting an ineffective tax
credit requires a two-thirds vote. Committee staff
suggests that this bill be amended to include a sunset
date.
AB 1990
Page 4
4)FTB comments:
a) Undefined Terms. This bill does not define the terms
"child care costs," "center-based service," "child care
programs," and "providers." Not defining these terms may
lead to disputes and administrative difficulty.
b) Unemployed Taxpayer. It is unclear if this bill only
applies to taxpayers who are unemployed and currently
receiving unemployment insurance benefits or also to
taxpayers whose unemployment insurance benefits have run
out. Because the timing of when a taxpayer receives
unemployment insurance benefits is unclear, it is suggested
that this bill be amended to add a requirement that the
taxpayer be unemployed and have received unemployment
insurance benefits during the taxable year in which the
costs are incurred.
c) Contributions. The term "contributions" includes direct
payments to child care programs or providers but it is
unclear if the term includes costs paid or incurred for
child care costs. It is recommended that the author amend
this bill and use another term, such as "child care costs."
Also, using the term "include" in the definition of
"contributions" makes this limitation misleading. To
clarify, it is recommended that the author amend this bill
and use "costs paid or incurred for qualifying child care."
d) Multiple Tax Credits. Because of existing law, a
married couple may be able to take advantage of the
existing and proposed tax credit. These two tax credits
provide a benefit for the exact same expense. In order to
eliminate multiple tax benefits for the same expense, it is
recommended that this bill be amended so that only one tax
credit may be used for the same expense.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Professional Firefighters
AB 1990
Page 5
California Tax Reform Association
Analysis Prepared by : Carlos Anguiano / M. David. Ruff / REV. &
TAX. / (916) 319-2098