BILL ANALYSIS �
AB 2578
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Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2578 (Solorio) - As Amended: April 9, 2012
Majority vote. Fiscal committee.
SUBJECT : Franchise Tax Board: information: tax refund
deposits: tax-advantaged savings plans
SUMMARY : Requires the Franchise Tax Board (FTB) to include
certain specified information on its website and other taxpayer
publications, relating to a taxpayer's ability to deposit a tax
refund directly into specified tax-advantaged savings plans.
Specifically, this bill :
1)Requires the FTB to include information on its website,
taxpayer form instructions, and any other publications for
taxpayers, stating that on Personal Income Tax (PIT) returns,
the taxpayer has the option to directly deposit all or a
portion of a tax refund into the following tax-advantaged
savings plans:
a) A plan that meets Internal Revenue Code (IRC) Section
401(k) requirements relating to qualified cash or deferred
arrangements of qualified pension, profit-sharing, and
stock bonus plans;
b) A plan that meets IRC Section 403(b) requirements
relating to the taxability of a beneficiary under an
annuity purchased by an IRC Section 501(c)(3) organization
or public school;
c) A plan that meets IRC Section 457 requirements relating
to deferred compensation plans of state and local
governments and tax-exempt organizations;
d) A plan that meets IRC Section 529 requirements relating
to qualified tuition programs;
e) A Roth 401(k) plan that meets IRC Section 402A
requirements relating to optional treatment of elective
deferrals as Roth contributions;
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f) A Roth individual retirement account (IRA) plan that
meets IRC Section 408A requirements;
g) A simplified employee pension individual retirement
arrangement (SEP-IRA) plan that meets IRC Section 408(k)
requirements;
h) A savings incentive match plan for employees (SIMPLE)
retirement plan that meets IRC Section 408(p) requirements;
and,
i) A traditional IRA plan that meets IRC Section 408
requirements.
EXISTING LAW :
1)Requires the FTB to make a refund to a taxpayer of any
overpayment of taxes and allows taxpayers to contribute their
refunds for the support of specified funds or accounts.
2)Authorizes the FTB to electronically deposit a taxpayer's
refund into the taxpayer's checking or savings account.
3)Conforms to federal law relating to pension, profit-sharing,
stock bonus plans, other employee benefit plans, and IRC
Section 457, relating to deferred compensation plans of state
and local governments and tax-exempt organizations. All
federal changes made to those provisions are automatically
adopted by California without regard to the specified date.
�Part I of Subchapter D of Chapter 1 of IRC Sections 401
through 420.]
4)Provides that a distribution from a 401(k) plan, a qualified
annuity plan under IRC Section 403(a), a tax-sheltered annuity
under IRC Section 403(b), an eligible deferred compensation
plan under IRC Section 457, or an IRA under IRC Section 408 is
included in income for the year distributed.
FISCAL EFFECT : The FTB's revenue estimate of this bill is
currently pending.
COMMENTS :
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1)The author has provided the following statement in support of
this bill:
A tax-advantaged savings account is an investment vehicle
designed to incentivize individuals to save for future
expenses through which contributions, investments, and/or
disbursements are tax-reduced, tax-deferred, or tax-free.
A well-utilized example is a retirement plan, such as a
401(k). Currently, taxpayers filing state personal income
tax returns are able to deposit their income tax refunds
(in excess of tax liability) directly into tax-advantaged
savings accounts, as long as the financial institution that
holds the account can receive deposits with an ABA routing
number and account number. Additionally, in 2006, the
Governor signed into law AB 2439 (Statutes of 2007, Chapter
90), which allowed individual taxpayers to designate more
than one account ("split refund") for direct deposits of
the taxpayer's refund.
Assembly Bill 2625 raises awareness on the option for
taxpayers to deposit their state tax refunds directly into
their existing tax-advantaged savings accounts.
Specifically, AB 2625 would require the FTB to inform
taxpayers on its website, tax return instructions, and
marketing materials about the option to directly deposit
income tax returns in excess of tax liability into
tax-advantaged savings accounts.
2)Proponents of this bill state:
Saving for retirement is a critical element of any
�family's] financial planning. To help families prepare
for the future, the federal and state governments have
approved a variety of investment tools to help with this
necessary saving, including those enumerated in AB 2578.
However, families do not always know of all the options
available to them, such as having tax returns automatically
deposited into a retirement account.
The outreach specified in this bill is a positive step
toward informing taxpayers of all the opportunities
available to them. For this reason, we support AB 2578.
3)Committee Staff Comments :
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a) Tax-Advantaged Savings Accounts and Retirement Plans :
Congress has authorized several kinds of retirement savings
plans that qualify for reduced or deferred income taxes to
encourage workers to save for retirement. A qualified
retirement plan, such as a 401(k) plan, allows a worker to
save for retirement by investing a portion of his/her wages
while deferring current income taxes on the original
investment and earnings until withdrawal. All 401(k)
contributions are invested on a pre-tax basis and not taxed
until the money is withdrawn. With the enactment of the
so-called Roth provisions, participants in 401(k) plans may
elect to deposit some or all of their wages in a designated
brokerage account, commonly known as a Roth 401(k).
Qualified distributions from a designated Roth account are
tax free, while contributions are made on an after-tax
basis (i.e., income tax is paid or withheld on the
contributions in the year contributed).
b) What Does This Bill Do? This bill requires the FTB to
include information on its website, tax instructions, and
marketing materials about taxpayers' ability to deposit
their income tax refunds directly into tax-advantaged
savings accounts. The author notes there has been little
outreach or awareness about taxpayers' ability to do this.
Committee staff recognizes the importance of saving for the
future and fully appreciates this bill's goal. It should
be noted, however, that this bill would not enable
individuals to establish a tax-advantaged savings account.
By making an explicit reference to such accounts, however,
this bill could remind PIT filers with existing accounts of
their ability to deposit refund moneys into the account.
An explicit reference to tax-advantaged savings plans could
also conceivably incentivize filers to explore
tax-advantaged savings plans as potential vehicles for
retirement savings. These benefits must be weighed against
the cost of revising the FTB's website, instructions, and
other taxpayer publications.
c) Are PIT Returns Considered a "Taxpayer Publication"? :
It is unclear to Committee staff whether "taxpayer
publications" include PIT returns. To avoid conflicting
interpretations in the future, Committee staff suggests
AB 2578
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explicitly excluding "PIT returns" from "taxpayer
publications" if this bill does not intend to require the
FTB to list the specified information about tax-advantaged
savings plans on PIT returns.
d) Related Legislation :
i) AB 2625 (Solorio), introduced in the current
legislative session, would require the FTB to revise the
individual tax forms to allow taxpayers to request
information regarding the Scholarshare Qualified Tuition
Program (SQTP) under the Golden State Scholarshare
College Savings Trust Program and other Qualified Tuition
Programs (QTPs). AB 2625 would also require the FTB to
include information on the direct deposit program on its
internet website and within its marketing materials and
also distribute information on the SQTP and other QTPs to
individuals who request it. AB 2625 is currently pending
on this Committee's suspense file.
ii) AB 1175 (Fletcher), introduced in the current
legislative session, would require the FTB to revise the
PIT instructions to include information about a
taxpayer's ability to directly deposit a portion of a
refund into the Trust. AB 1175 is in the Senate
Governance and Finance Committee.
iii) SB 323 (Oropeza), introduced in the 2009-10
legislative session, would have allowed taxpayers to
direct an amount in excess of their tax liability to a
QTP account. SB 323 would have additionally required the
Scholarshare Investment Board to reimburse the FTB for
the actual costs of implementation. SB 323 was held by
the Assembly Committee on Appropriations.
iv) SB 918 (Oropeza), introduced in the 2007-08
legislative session, would have allowed taxpayers to
direct an amount in excess of their tax liability to a
QTP account. SB 918 was held by the Assembly Committee
on Appropriations.
v) AB 2437 (Baca), introduced in the 2005-06
legislative session, would have allowed taxpayers to
designate a minimum amount of $250 to be deposited to the
credit of the taxpayer's QTP. AB 2437 failed to pass out
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of this Committee.
vi) AB 2439 (Klehs), Chapter 90, Statutes of 2006,
required the FTB to revise PIT returns to allow taxpayers
to designate more than one financial institution account
for direct deposit of the taxpayer's refund.
REGISTERED SUPPORT / OPPOSITION :
Support
Financial Services Institute
Opposition
None on file
Analysis Prepared by : Rosailda Perez / Oksana Jaffe / REV. &
TAX. / (916) 319-2098