BILL ANALYSIS �
AB 509
Page 1
Date of Hearing: May 11, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 509 (Skinner) - As Amended: March 25, 2011
Policy Committee: Revenue and
Taxation Vote: 6-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill 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)Specifies 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. States
that notification may be provided by telephone, mail,
electronic communication, or by an in-person communication.
2)Encourages departments, agencies and programs to develop the
least costly and the most effective method to provide notice.
FISCAL EFFECT
Estimated costs to provide notice to low-income individuals and
families of approximately $5 million. Costs could be
significantly higher and will depend on the method of contact,
the ease of adding this requirement to existing communications,
and the ability of the agency to limit communication to those
who would most benefit from the notice. Many low-income
individuals and families do not work because they are disabled
or have left the labor force because of their age. Costs could
also be less if agencies have a data base that allows easy
effective contact, but this is unlikely.
If the required contacts are effective, then revenues could
offset the costs. If $5 million is spent on communication and
20 % more EITC is claimed, state and local revenues could
increase by $20 million, more than offsetting the costs.
AB 509
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COMMENTS
1)Purpose. According to the author, 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 regularly
scheduled contacts with a recipient, by telephone, mail,
electronic communication or by an in-person visit.
2)Background. 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 with two children must
have an adjusted gross income of less than $40,363 ($45,373
filing jointly). Existing state law requires employers to
notify employees they may be eligible for the EITC and
specifies 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.
3)Potential impact on the state's economy. A 2010 report
published by the New America Foundation, estimates that in
2009, 800,000 Californians failed to claim over $1.3 billion
worth of EITC credit. The report also estimates that if these
refunds were claimed, they would spur $1.4 billion in business
sales, pay $340 million in wages, and add 8,200 jobs to the
California economy. Using the report's assumptions and
estimates, increased state and local taxes would approach $100
million annually.
4)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
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W-2s, would another notification simply be a duplication of
effort by the state department or agency or would it be that
important second reminder which results in expanded claiming
of federal funds?
There will also be duplications because the various programs
have many of the same individuals enrolled. For example, a
CalWorks recipient is also enrolled in Medi-Cal.
5)Pilot project. Because of the uncertainties in the cost and
method of making the contacts and the unknown effectiveness, a
pilot project might provide useful information that would help
in expanding the project to more agencies and programs.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081