BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 509 HEARING: 6/29/11
AUTHOR: Skinner FISCAL: Yes
VERSION: 6/21/11 TAX LEVY: No
CONSULTANT: Lui
FEDERAL EARNED INCOME TAX CREDIT NOTIFICATION
Requires state departments and agencies to notify its
program recipients about the EITC.
Background and Existing Law
In 1975, Congress enacted the Earned Income Tax Credit
(EITC) to help alleviate the burden of Social Security
taxes and to encourage work among low- and moderate-income
taxpayers. The EITC is a federal income tax credit that
gives low-income individuals a credit equal to a percent of
their earned income. The EITC is targeted to low- to
moderate- income households. The federal government
refunds the credit when the EITC exceeds the amount of
taxes owed for those who claim and qualify for the credit.
In 2010, the federal Tax Relief and Job Creation Act
temporarily increased EITC amounts to $464 for a worker
with no qualifying children; $3,094 to a worker with one
qualifying child; $5,112 to a worker with 2 qualifying
children; and, $5,751 to a worker with 3 or more qualifying
children. These temporary increases apply only to 2009,
2010, 2011, and 2012 tax years.
To attract filers, existing federal and state laws require
that employers notify all employees of the EITC in one of
the following ways:
On the W-2 tax form.
A substitute W-2 form with the same EITC
information.
The Internal Revenue Service "Notice
797."
An employer's written statement as
"Notice 797."
Employers can use the notification template in existing law
or derive their own notification language, as long as it
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conveys the same information.
California employers must also visibly post a statement
about the EITC in the workplace. In November 2010, the
Internal Revenue Service sent notices to over 46,000
California taxpayers who appeared to be eligible for the
EITC. These notices included instructions, worksheets, and
information on where to get help filling out the forms.
Proposed Law
Assembly Bill 509 requires state departments and agencies
that serve individuals who may be qualified for the EITC,
to annually inform those recipients about the EITC.
AB 509 defines "state departments and agencies that serve
those who may qualify for the EITC" as departments and
agencies that operate state or federally funded programs
and are engaged in providing services to low-income
individuals and families. The bill requires the
following-- but not exclusive list of -- departments,
agencies, and programs to notify their program recipients
about possible EITC eligibility:
The State Department of Education,
The free or reduced-price meal program,
The National School Lunch program,
The State Department of Social Services,
CalWORKs program,
Foster families,
The Public Utilities Commission,
California Alternate Rates for Energy
The Energy Saving Assistance Program,
Family Electric Rate Assistance,
The California Weatherization Assistance Program,
The Low Income Home Energy Assistance Program,
The California LifeLine Telephone Program,
Link-Up,
Employment Development Department,
California Unemployment Insurance,
State Department of Health Care Services,
The Medi-Cal program,
The Managed Risk Medical Insurance Board (MRMIB),
and
The Healthy Families Program.
AB 509 clarifies that state departments' and agencies'
notice language may be different than existing law's
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template language, as long as the amended language contains
substantially the same information.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Despite federal and state
outreach, free Volunteer Income Tax Assistance programs,
and mailers, eligible filers still fail to file for EITC.
The New American Foundation study, "Left on the Table,"
reports that over 800,000 of eligible Californians fail to
claim the EITC because they are unaware of their
eligibility or were unaware of the program altogether. The
author wants state departments and agencies to notify
service recipients about the EITC. By reaching households
that aren't traditionally contacted through the
employer-outreach model or any other existing outreach
mechanism, the bill seeks to increase filer rates.
Moreover, by increasing awareness in different arenas, the
bill saturates the potential filer's environment and
presumably, that increased awareness will result in
increased filer rates. In an economic climate with slow
wage growth, the EITC provides low- to moderate-income
households a much-needed income boost.
2. Simple solution to a complex problem . Though raising
awareness is a noble goal, the sheer complexity of the EITC
system impedes the neediest populations from accessing
federal funds. There are Volunteer Income Tax Assistance
(VITA) programs located in community and neighborhood
centers, libraries, schools, or shopping malls that already
offer free tax assistance to low- to moderate-income
populations; but how many people know about and use VITA
centers? The bill fails to distinguish two key groups who
don't use the EITC: 1) people who file for federal tax
returns but don't claim the EITC; and 2) people who don't
file federal tax returns. When the IRS mailed 46,000 EITC
notices to Californians, those mailers only reached
individuals who filed for taxes, were deemed "eligible,"
and whose addresses were accurate on tax forms. How can
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outreach efforts be targeted without knowing who the target
is? If households don't file for federal returns, there is
no information on their eligibility. AB 509 does not
differentiate between the two groups but instead, focuses
EITC outreach on clients who use resources typically
accessed by low-income or in-need households.
3. Take 2: Simple solution to a complex problem . A second
consideration to the EITC's complexity is its complicated
forms. Some families may not receive any of the credit
because of simple paperwork mistakes, like mismatches on
Social Security numbers, duplicate claims, or math errors.
Because AB 509 merely requires the advertisement of the
EITC, it does not bind state agencies or departments to
handle inquiries about EITC applications. Departments and
agencies can develop their own EITC notice language,
opening up the opportunity for some integrated outreach
efforts with VITA center services; yet, some may opt to use
template language, pointing only to the IRS website. The
Committee may wish to consider how state clients can
benefit from integrating existing local outreach tools and
having information on-site about local VITA centers.
4. Take 3: Simple solution to a complex problem . Thirdly,
the bill does not entirely address socio-economic and
cultural barriers to filing for the EITC, like access to a
Volunteer Income Tax Assistance (VITA) center or an
individuals' time, language, or culture. While AB 509
utilizes existing state department and agency networks that
have established culturally sensitive practices and
multiple language offerings, AB 509 does not require the
EITC notice to be mailed or posted in multiple languages
nor does it address the time constraints low-income
households face when accessing for state department and
agency services. Without addressing some of these implicit
barriers of the EITC, the bill may fall short of its desire
to increase awareness, if it is not communicated in a
manner that is relevant and accessible for all
Californians.
5. Pay now and profit later ? AB 509 encourages agencies,
departments, and programs to develop the "least costly,
effective method" to notify its program recipients. Some
agency members point that the bill would not incur
substantial cost because EITC language could be placed in
existing communications. Other departments argue that if
text is too lengthy, or if a new additional insert must be
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created for mailers, then there will be additional cost.
Moreover, if a caseworker has in-person interactions with
possibly eligible clients, additional training for the
caseworker on the EITC may occur. Without an established
funding pool, some department and state agencies have
determined to use collected user fees and administrative
block grants to fund the outreach. The Committee may wish
to ask if using state department and agency resources to
finance outreach for a federal tax program is the
appropriate use of limited state and local dollars.
6. Go tell it on the mountain . Individuals who file for
federal returns or receive help at VITA centers are reached
through existing outreach endeavors. However, AB 509 aptly
points out that the state already contacts a population of
potential EITC filers -- those who receive low-income or
need-based services from departments or agencies. AB 509
utilizes existing networks to help Californians meet their
needs, which in turn may offset the future demand for local
and state assistance.
7. Impacts of unclaimed EITC . Researchers worry that not
enough low- or moderate-income people file for the EITC
because they are unaware of the program or unaware of their
eligibility. The "Left on the Table" study cites that
nearly 800,000 working Californians do not claim $1.2
billion in EITC refunds. This translates to:
Los Angeles County missing $370 million,
San Bernardino County missing $84.9 million,
San Diego County missing $77.7 million,
Riverside County missing $76.6 million,
Orange County missing $63.4 million,
Fresno County missing $45.6 million,
Sacramento County missing $41.3 million,
Kern County missing $37.9 million,
Tulare missing $31.2 million, and
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Alameda County missing $29.1 million.
According to the IRS, California's EITC non-filer
rate-eligible claimants who don't file-is 24.9%, compared
to the national average of 17.8%. Moreover, a number of
researchers have found that counties with higher number of
non-claimants are those with: 1) higher concentrations of
Hispanics; 2) significant numbers of low-income
individuals; 3) high participation in the food stamp
assistance programs; 4) significant numbers of families
with no qualifying children.
8. Similar bill . On May 5, the Senate passed Senate
Concurrent Resolution 12 (Liu, 2011) with 24 ayes and 15
noes. SCR 12 encourages state and local governments and
community organization to utilized existing outreach to
improve EITC awareness. The Committee may wish to consider
if SCR 12, which encourages collaboration among local,
state, and federal existing resources, would be more
effective at reaching low-income populations. Does AB
509's notification expansion justify the administrative
costs to increased enrollment? The Committee may wish to
ask which mechanism is the appropriate measure to get more
people to claim the EITC.
9. Prior legislation . AB 509 is not the first legislation
seeking to mobilize EITC outreach efforts.
AB 1154 (Cedillo, 2010) would have required the
California Public Utilities Commission (CPUC) to
provide information on the EITC to applicants for
either the California Alternate Rates for Energy or
the Universal Lifeline Telephone Service. Governor
Schwarzenegger vetoed the bill because it is not the
"CPUCs responsibility to provide outreach materials."
He was also concerned that the CPUC's advertisement of
the EITC "would set a bad precedent? that would impose
costs on other ratepayers who may receive little or no
benefit."
AB 650 (Lieu and Jones, 2007) requires any employer
that is required to provide unemployment insurance to
employees to notify them of their possible eligibility
for the EITC.
AB 2813 (Nunez, 2004) and AB 1370 (Wesson, 1999)
would have required employers to notify eligible
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employees about the EITC program and its benefits.
Governor Davis vetoed AB 1370 (Wesson, 1999) stating,
"it is the responsibility of the federal government to
educate taxpayers on its availability." Governor
Schwarzenegger vetoed AB 2813 (Nunez, 2004) because
"it is duplicative of federal efforts."
Assembly Actions
Assembly Revenue & Taxation Committee:6-2
Assembly Appropriations Committee: 12-5
Assembly Floor: 52-24
Support and Opposition (06/23/11)
Support : California Catholic Conference, Inc.; Coalition
of California Welfare Rights Organization; Community
Housing Development Corporation; Congress of California
Seniors; Contra Costa's Family Economic Security
Partnership; Controller John Chiang.
Opposition : Unknown.