BILL ANALYSIS �
AB 509
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Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 509 (Skinner) - As Amended: March 25, 2011
Majority vote. Fiscal committee.
SUBJECT : Federal earned income tax credit: notification:
state departments and agencies
SUMMARY : Requires state departments and agencies to notify
certain program recipients that they may qualify for the federal
earned income tax credit (EITC). Specifically, this bill :
1)Requires "state departments and agencies that serve those
qualified for the EITC" to notify program participants that
they may be eligible for the EITC.
2)Defines "state departments and agencies that serve those
qualified for the EITC" as departments that operate state or
federally funded programs primarily engaged in providing
services to low-income individuals and families.
3)Specifies that this notice shall be provided at least once a
year during the months of January through April, or
alternatively, during a regularly scheduled contact with a
recipient.
4)States that notification may be provided by telephone, mail,
electronic communication, or by an in-person communication.
5)Encourages departments, agencies, and programs to develop the
least costly and the most effective method to provide notice.
EXISTING FEDERAL LAW allows a refundable EITC to qualifying
individuals. The amount of the credit is based on the
taxpayer's income and is phased out as income increases. The
amount of the credit also varies based on the number of
qualifying children the taxpayer claims. Currently, to qualify
for the credit, an individual's adjusted gross income must be
less than $43,352 ($48,362 filing jointly) with more than two
qualifying children, $40,363 ($45,373 filing jointly) with two
qualifying children, $35,535 ($40,545 filing jointly) with one
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qualifying child, or $13,460 (18,470 filing jointly) without a
qualifying child. The current maximum credit for taxpayers with
more than two qualifying children is $5,666, and for taxpayers
with two qualifying children the maximum is $5,036. For
taxpayers with one qualifying child, the maximum credit amount
is $3,050, and for taxpayers with no qualifying children, the
maximum amount is currently $457.
EXISTING STATE LAW requires employers to notify employees that
they may be eligible for the EITC. Specifies that this notice
shall be provided within one week before or after an employer
provides his/her employees with their annual wage summary (e.g.
a Form W-2 or a Form 1099). Employers are required to either
hand the notice directly to each employee or to mail the notice
to each employee's last known address.
FISCAL EFFECT : Unknown.
COMMENTS :
1)Author's Statement. The author provided the following
statement:
"AB 509 will expand existing legislation to require state
departments and agencies that serve low-income Californians to
notify their program recipients that they may be eligible for
the EITC. In recognizing the unique capacities of each
affected state department and agency, this bill allows the
departments and agencies to conduct the annual notification
during a regularly schedules contact with a recipient by
telephone, mail, electronic communication, or by an in-person
visit.
"The Earned Income Tax Credit (EITC) is a federal tax credit
for low to moderate income individuals and families that can
put anywhere from a few hundred dollars to $5,600 in their
pockets. Congress originally approved the tax credit
legislation in 1975 in part to offset the burden of social
security taxes and to provide an incentive to work. When EITC
exceeds the amount of taxes owed, it results in a tax refund
to those who claim and qualify for the credit. President
Ronal Reagan famously called the tax credit, "the best
anti-poverty, the best pro-family, the best job creation
measure to come out of Congress."
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2)Committee staff notes the following:
a) Timing of notification. AB 509 specifies that this
notice shall be provided at least once a year during the
months of January through April, or alternatively, during a
regularly scheduled contact with a recipient. It is not
clear whether notification provided during a regularly
scheduled contact should be done between January and April.
Notice provided in the month of May or June may be of
minimal effectiveness if the individual has already filed
their taxes. The author may wish to specify when annual
notification should be provided to maximize utilization of
the information.
b) Potential impact on the State's economy. In 2009,
800,000 Californians failed to claim over $1.2 billion
worth of EITC dollars. The author argues that if these
refunds were claimed, they would spur over $1.2 billion in
business sales, pay $311 million in wages, and add nearly
7,500 jobs to the California economy, which would result in
$88 million dollars in taxes coming back to the state.
This economic stimulation could be a huge benefit to
California, given the current budget crisis.
c) Duplication of effort? To qualify for the EITC, an
individual must be employed. Current law requires
employers to notify all employees that they may be eligible
for the EITC. Individuals eligible for the EITC are
informed of the credit within a week of the time W-2s are
issued. If all employees receive notice of the EITC around
the time they receive their W-2s, would another
notification simply be a duplication of effort by the state
department or agency?
d) Cost and effectiveness of notification. This bill
encourages departments, agencies, and programs to develop
the least costly, as well as the most effective, method to
provide notice. The time associated with notifying all
participants in state programs as well as the cost
associated with notification is unknown, but balancing
effectiveness and cost can become a daunting task for some
state programs. For example, it may be less effective and
less costly to send an email blast to all program
participants, but more effective and time consuming to call
every participant.
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REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Myriam Bouaziz and Oksana Jaffe / REV. &
TAX. / (916) 319-2098