AB 1010: Personal income taxes: earned income tax credit.

The Personal Income Tax Law allows various credits against the taxes imposed by that law, including certain credits that are allowed in modified conformity to credits allowed by federal income tax laws. Federal income tax laws allow a refundable earned income tax credit for certain low-income individuals who have earned income from wages, salaries, tips, and other employee compensation plus net earnings from self-employment and who meet certain other requirements.

The Personal Income Tax Law, for taxable years beginning on or after January 1, 2015, in modified conformity with federal income tax laws, allows an earned income credit against personal income tax, which is only for earned income from wages, salaries, tips, and other employee compensation, and a payment from the Tax Relief and Refund Account for an allowable credit in excess of tax liability, to an eligible individual that is equal to that portion of the earned income tax credit allowed by federal law as determined by the earned income tax credit adjustment factor, as specified. The Personal Income Tax Law provides that the amount of the credit is calculated as a percentage of the eligible individuals earned income and is phased out above a specified amount as income increases. Existing law provides, in modified conformity with federal income tax law, for taxable years beginning on and after January 1, 2016, that the credit percentage and phaseout percentage for an eligible individual with no qualifying children is 7.65%, for an eligible individual with one qualifying child is 34%, for an eligible individual with 2 qualifying children is 40%, and for an eligible individual with 3 or more qualifying children is 45%.

This bill, for taxable years beginning on and after January 1, 2017, would expand the earned income credit allowed by the Personal Income Tax Law by providing additional conformity with federal income tax law to include net earnings from self-employment in earned income and to change the phaseout percentage for an eligible individual with no qualifying children to 2.22%, for an eligible individual with one qualifying child to 4.99%, for an eligible individual with 2 qualifying children to 7.53%, and for an eligible individual with 3 or more qualifying children to 7.79%.

Existing law establishes the continuously appropriated Tax Relief and Refund Account and provides that payments required to be made to taxpayers or other persons from the Personal Income Tax Fund are to be paid from that account, including any amount allowable as an earned income credit in excess of any tax liabilities.

By authorizing new payments from that account for additional amounts in excess of personal income tax liabilities, this bill would make an appropriation.