The Personal Income Tax Law allows various credits against the taxes imposed by that law.

This bill, for each taxable year beginning and or after January 1, 2018, and before January 1, 2023, would allow a credit against those taxes in an amount equal to 50% of the amount paid or incurred by a family caregiver during the taxable year for eligible expenses, as defined, not to exceed $1,000. The bill would limit the aggregate amount of these credits to be allocated in each calendar year to $50,000,000. The bill would require the Franchise Tax Board to allocate and certify these tax credits to taxpayers on a first-come-first-served basis. The bill would make these provisions operative on the effective date of any budget measure specifically appropriating funds to the Franchise Tax Board for its costs to administer these provisions.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law allows various credits against the taxes imposed by that law.

This bill bill, for each taxable year beginning and or after January 1, 2018, and before January 1, 2023, would allow a credit against those taxes for each taxable year beginning on or after January 1, 2018, in an amount equal to 50% of the amount paid or incurred by a family caregiver during the taxable year for eligible expenses, as defined, not to exceed $1,000.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law allows various credits against the taxes imposed by that law.

This bill would allow a credit against those taxes for each taxable year beginning on or after January 1, 2018, in an amount equal to 50% of the amount paid or incurred by a family caregiver during the taxable year for eligible expenses, as defined, not to exceed $1,000.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law allows various credits against the taxes imposed by that law.

This bill would allow a credit against those taxes for each taxable year beginning on or after January 1, 2018, in an amount equal to 50% of the amount paid or incurred by a family caregiver during the taxable year for eligible expenses, as defined, not to exceed $1,000.

This bill would take effect immediately as a tax levy.

Date of Hearing: May 24, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 806

Author:(Kalra) – As Amended Ver:May 15, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows a Personal Income Tax (PIT) credit equal to 50% of the amount spent by a family caregiver on eligible expenses, not to exceed $1,000. This credit is limited to taxpayers with an eligible family member with long-term care needs and taxpayers with adjusted gross income (AGI) of less than $75,000 for an individual and $150,000 for a joint return. No more than $50 million in credits can be provided each taxable year, and the availability of the credit is contingent upon a budget appropriation to the Franchise Tax Board (FTB) to administer it.

FISCAL EFFECT:

1. Significant administrative General Fund (GF) cost pressures in excess of $150,000 for the Franchise Tax Board (FTB) to implement and run the capped credit program, as required by this bill. These costs only materialize if FTB receives a budget appropriation to administer the provisions of this bill, as required.
2. Additional GF cost pressures of $8.5 million in 2017-18, $13.0 million in 2018-19, and $12 million in 2019-20. These cost pressures reflect the potential GF revenue loss if the proposed credit becomes operative once FTB receives an appropriation to administer it.

COMMENTS:

1. Background and Purpose. According to the National Multiple Sclerosis Society, over 4.4 million family caregivers provide care to an adult with limitations in daily activities, with the economic value of their unpaid contributions in California approximating $57 billion. On average, a family caregiver spends 24 hours each week providing care to a family member, often requiring the caregiver to reduce work hours or leave the workforce, giving rise to financial challenges. According to the author, AB 806 will provide financial support for these family caregivers.
2. Previous credit. California previously allowed a tax credit to eligible caregivers for taxable years beginning January 1, 2000 and ending January 1, 2005. The credit amount was $500 for each qualifying individual who had been certified as needing long-term care by a physician. An eligible caregiver must have had AGI under $100,000, regardless of filing status, and the credit could not be carried forward or backwards.
3. Tax expenditures and fiscal implications. Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. These features of tax law are referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues). One ongoing concern about tax expenditures is the lack of control over revenue losses, since the number of taxpayers taking advantage of any given tax expenditure can vary each year.

Recent policy committee amendments take steps to reduce the costs of this bill, but significant cost pressure and administrative complexity remain. First, the total aggregate amount of tax credits that can be allocated is $50 million each year. While the proposed family caregiver tax credit is not expected to be used in an amount that reaches that cap, this cap helps reduce potential financial risk in case utilization is higher than expected. It also introduces administrative complexity because the FTB will need develop systems and processes to allocate the tax credit on first-come, first-serve basis if the credit is more popular than expected. Second, this new proposed credit is now operative on years when the FTB receives an appropriation to administer it. This provision helps to control year-to-year costs, but significant cost pressures remain. As amended, this bill creates the expectation that this credit will be available and puts in place the conditions for it to be so.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: May 8, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 806 (

Author:Kalra) – As Amended Ver:May 1, 2017

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal income taxes: credit: family caregiver

SUMMARY: Creates a non-refundable tax credit under the Personal Income Tax (PIT) Law in an amount equal to 50% of the amount paid or incurred by a family caregiver during the taxable year for eligible expenses, not to exceed $1,000. Specifically, this bill:

1. Makes findings and declarations and states legislative intent to create a tax credit for certain expenses incurred by a family caregiver for the care and support of a qualifying family member.
2. Allows, for each taxable year beginning on or after January 1, 2018, and before January 1, 2023, a credit under the PIT Law in an amount equal to 50% of the amount paid or incurred by a family caregiver during the taxable year for eligible expenses, not to exceed $1,000, regardless of the type of return filed.
3. Defines a "family caregiver" as an individual (including the individual's spouse in the case of a joint return) who meets all of the following:
4. Has a federal adjusted gross income (AGI) of less than $75,000 for an individual and $150,000 for a joint return;
5. Incurs uncompensated expenses directly related to the care of an eligible family member; and,
6. Provides care to one or more eligible family members during the taxable year.
7. Defines an "eligible family member" as any individual who has been certified, within the 39½-month period ending on the due date for filing a tax return for the taxable year (without extensions), by a physician as being an individual with long-term care needs for a period that meets both of the following requirements:
8. Is at least 180 consecutive days; and,
9. A portion of that period occurs within the taxable year.
10. Describes an individual to be an "eligible family member" if that individual meets any of the following requirements:
11. The individual is at least six years of age and meets either of the following requirements:
12. The individual is unable to perform (without substantial assistance from another individual) at least three activities of daily living, as defined in Internal Revenue Code (IRC) Section 7702B(c)(2)(B), relating to activities of daily living (eating, toileting, transferring, bathing, dressing, and continence), due to a loss of functional capacity; or,
13. The individual requires substantial supervision to protect that individual from threats to health and safety due to severe cognitive impairment and is unable to perform at least one activity of daily living, as defined in IRC Section 7702B(c)(2)(B), relating to activities of daily living, or to the extent provided by the Franchise Tax Board (FTB), in consultation with the Secretary of California Health and Human Services, is unable to engage in age-appropriate activities;
14. The individual is at least two years of age but less than six years of age and is unable, due to a loss of functional capacity, to perform without substantial assistance from another individual at least two of the following activities: eating, transferring, or mobility; or,
15. The individual is under two years of age and requires specific durable medical equipment due to a severe health condition, or requires a skilled nurse practitioner trained to address the individual's condition to be available if the individual's parents or guardians are absent.
16. Defines "eligible expenses" to include the following that are directly related to assisting a family caregiver in providing care for an eligible family member in the state:
17. The total amount expended by the family caregiver to retrofit an existing residence, provided that the new residence or the retrofitting of the existing residence is designed to improve accessibility, or to provide universal visitability;
18. Purchases or leases of equipment that is necessary to assist an eligible family member in carrying out one or more activities of daily living; and,
19. Goods, services, or support that assists the family caregiver in providing care to an eligible family member, including, but not limited to, expenditures related to hiring a home care aide or personal care attendant, respite care, adult day care, transportation, legal and financial services, and for assistive technology to care for the eligible family member.
20. Provides that only one family caregiver may be allowed the credit in a taxable year for a specific eligible family member.
21. Allows the credit to be carried forward for three years.
22. Requires the taxpayer to include the name and taxpayer identification number of the individual for whom care is provided, and the identification number of the physician certifying that individual, on the tax return for the taxable year the credit is to be allowed. If required information is not included, the credit may be denied, pursuant to R&TC Section 19051.
23. Requires the taxpayer to retain the physician certification needed to claim the credit, and make that certification available to the FTB upon request.
24. Authorizes the FTB to adopt regulations to implement the credit, as specified.
25. Provides that any deduction otherwise allowed under the PIT Law, for any amount paid or incurred by the taxpayer upon which the credit is based, is to be reduced by the amount of the credit allowed.
26. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Excludes from gross income, under federal and state law, wages of In-Home Supportive Services providers who live with the recipient of those services. Provider wages are considered to be "difficulty of care" payments under Section 131 of the Internal Revenue Code (IRC), but remain subject to withholding for social security and unemployment taxes.
2. Allows various tax deductions, such as medical expenses for the taxpayer, taxpayer's spouse, or taxpayer's dependents, as itemized deductions under federal and state law. Certain other expenses for the production of income are considered miscellaneous itemized deductions, only allowed to the extent that they exceed 2% of AGI. Individuals may claim itemized deductions for all qualifying expenses, or the standard deduction, a fixed dollar amount intended to approximate deductible living expenses.
3. Allows various tax credits under federal and state law, generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
4. Allows a Child and Dependent Care Expenses tax credit under federal and state law. The credit is based on employment-related costs of care for a "qualifying individual," defined as a dependent of the taxpayer under age 13 or a dependent or spouse who is physically or mentally unable to provide self-care. Employment-related expenses are limited to the lesser of the taxpayer's earned income or $3,000 per taxable year for one qualifying individual ($6,000 per year if there are two or more qualifying individuals). The state credit is limited to taxpayers with AGI of $100,000 or less.
5. Applies performance measurement standards to any new tax credit under either the PIT Law or the Corporation Tax (CT) Law if enacted by a bill introduced on or after January 1, 2015.  Specifically, existing law requires all of the following:
   1. Specific goals, purposes, and objectives that the tax credit will achieve;
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives stated in the bill; and,
   3. Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives, including a requirement to specify both of the following:
      1. The baseline data, to be collected and remitted in each year the credit is effective, for the Legislature to measure the change in performance indicators; and,
      2. The taxpayers, state agencies, or other entities required to collect and remit data.

FISCAL EFFECT: The FTB estimates General Fund revenue losses of $210 million in fiscal year (FY) 2017-18, $500 million in FY 2018-19, and $600 million in FY 2019-20.

COMMENTS:

1. The author has provided the following statement in support of this bill:

If family caregivers were no longer available, the economic cost to our health care and long-term care system would increase astronomically. Providing support for family caregivers will ultimately be a cost-savings for the state because the loss of tax revenue would be offset by lower health care costs from state funded programs.

1. The National Multiple Sclerosis Society (MS Society) states in support of this bill that "[p]eople with MS are perhaps the largest single "disease group" needing long-term care before age sixty-five" and that the "primary responsibility for shouldering the cost and care of long-term care services for people with MS usually falls to the family." The estimated cost of living with MS is upward of $70,000 per year per person, so this tax credit "will assist families with the care and support of their loved ones and help ease the financial burden of caregiving."
2. The California Tax Reform Association states in opposition to this bill that "[l]ower-income families often pay little or no tax and are greatly burdened by elder care" and that "many middle-income families may only owe a few hundred dollars in tax after their dependent and personal credits, so will be unable to use the credit despite a heavier burden for the elderly as a percentage of their income."
3. Committee Staff Comments:
   1. What is a "Tax Expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them (in the form of forgone revenues). This bill would enact a new tax expenditure program in the form of a tax credit for eligible expenses paid or incurred by family caregivers.
   2. Tax Expenditure vs. Direct Expenditure: As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. This can offer taxpayers greater certainty, but it can also result in tax expenditures remaining part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This bill includes a five year sunset date as generally recommended by this Committee, allowing for proper legislative review of the benefits and costs of this tax expenditure in the future.
   3. Financial Toll of Family Caregiving: According to data provided by the MS Society, over 4.4 million family caregivers provide care to an adult with limitations in daily activities, with the economic value of their unpaid contributions in California approximating $57 billion. More than one-half of people living with MS require some form of assistance with daily activities, with 80% of care provided by an informal caregiver, who is usually a family caregiver. On average, a family caregiver spends 24 hours each week providing care to a family member, often requiring the caregiver to reduce work hours or leave the workforce, giving rise to financial challenges.

Similarly, data provided by the Alzheimer's Association reveals that over 60% of individuals providing unpaid care to family and friends living with Alzheimer's and other dementias spend more than 20 hours per week providing care, and over 40% of those caregivers have been providing care for at least two years. The AARP estimates that 78% of family caregivers incur out-of-pocket costs as a result of caregiving, with average out-of-pocket expenses estimated at $6,954 (representing nearly 20% of total income) for family caregivers in 2016.

• 1. California's Previous Long-Term Care Credit: California previously allowed a non-refundable tax credit to eligible caregivers for taxable years beginning January 1, 2000 and ending January 1, 2005. The credit amount was $500 for each qualifying individual who had been certified as needing long-term care by a physician. A qualifying individual included the taxpayer, spouse of the taxpayer, or a qualified dependent, as specified, with a taxpayer providing care for herself or himself also included as an eligible caregiver. If more than one person met the criteria for claiming the credit, the person with the highest federal modified AGI was treated as the eligible caregiver, unless all otherwise eligible caregivers, except for the eligible caregiver actually claiming the credit, signed written declarations that they would not claim the credit. An eligible caregiver must have had AGI under $100,000 (no adjustment for different filing statuses) and the credit could not be carried forward or backwards.

The Legislative Analyst's Office (LAO) reviewed information from the FTB on the credit's utilization and found that credits of almost $2.4 million were claimed for the 2003 tax year. In 2003, over 75% of the claimants reported AGI in excess of $50,000. Very few taxpayers receiving the credit (263 out of 5,768 taxpayers) had AGI of $25,000 or less. The LAO concluded that the credit operated more as a reward for the care provider rather than an incentive to induce more people to provide care, since the amount of the credit is relatively small. Instead, the credit provided a measure of financial relief for the care provider. Nevertheless, legislation to extend the sunset date of the credit failed to advance and the credit sunset in 2005.

• 1. What Does This Bill Do? This bill establishes a new family caregiver credit equal to 50% of costs incurred by a family caregiver during the year for eligible expenses, not to exceed $1,000. As noted by the FTB in its analysis of this bill, it is unclear whether the costs (making the maximum credit $500) or credit is capped at $1,000; however, the author states that the intent is for the overall credit to be limited to $1,000. To qualify for the credit, the family caregiver must have federal AGI of less than $75,000 as an individual filer or less than $150,000 as a joint filer, and incur uncompensated expenses directly related to the care of an eligible family member certified by a physician to have long-term care needs. As noted in the FTB's analysis of this bill, however, it is not specified whether and how the eligible family member must be related to the taxpayer. Eligible expenses include: (i) costs by the family caregiver to retrofit an existing residence designed to improve accessibility and visitability; (ii) purchases or leases of equipment necessary to assist an eligible family member in carrying out activities of daily living; and, (iii) goods, services, or support that assist the family caregiver in providing care to an eligible family member, such as hiring a home care aide or personal care attendant; respite care; adult day care; transportation, legal, and financial services; and assistive technology.

The credit proposed by this bill is similar to the previous long-term care credit in its use of the physician certification process to qualify an eligible family member or individual. However, the new credit does not specify a process by which to verify that only one family caregiver claims the credit in relation to a specific eligible family member. Additionally, the previous credit was allowed at $500 per individual to whom the taxpayer with AGI under $100,000 was an eligible caregiver, and the type of care required to be provided was not specified. The new credit will be limited to $1,000 of eligible expenses, without regard to the number of eligible family members, with a higher AGI threshold for joint filers but a lower AGI threshold for individual filers. According to supporters of this bill, allowing specified eligible expenses for home modifications and assistive technology to be offset by the credit are critical because they help individuals requiring long-term care to remain in their homes as long as possible. Prolonged independence is not only important for the overall well-being of the individual requiring care, but helps save money to the healthcare system by preventing injuries and premature institutional care.

• 1. Interaction with the Child and Dependent Care Expenses Tax Credit: Existing federal and state law allows a credit for employment-related costs of care for a qualifying individual, generally defined as expenses incurred to enable gainful employment such as child care or respite care. A "qualifying individual" must be a dependent of the taxpayer that is under the age of 13 or a dependent or spouse who is physically or mentally unable to care for herself or himself, meaning that the individual is incapable of caring for his or her hygiene or nutritional needs or requires the full-time attention of another person for the individual's own safety or the safety of others. The state credit is limited to taxpayers with AGI of $100,000 or less and is computed as a percentage of the federal credit.

It is possible that some taxpayers qualifying for the new credit proposed by this bill already benefit from the existing Child and Dependent Care Expenses Credit. Although this bill specifies that any deduction (such as those for medical expenses of the taxpayer, taxpayer's spouse, or taxpayer's dependents) otherwise allowed for any costs upon which the new credit is based must be reduced by the amount of the new credit allowed, the same treatment is not specified for any existing credits otherwise allowed. The Committee may wish to similarly consider whether multiple credits should be allowed for the same items of expense.

• 1. Lowest Income Earners May Never See a Credit: This bill provides a non-refundable credit, meaning that taxpayers may not see a benefit if their tax liability is insufficient to be offset by a credit. Although this bill allows the taxpayer to carry the credit forward and apply the credit to any tax liability over the next three taxable years, many lower income earners often have little to no tax liability and may not be able to take advantage of the proposed credit as readily as higher income earners within this bill's AGI limits. The Committee may wish to consider whether a direct grant program to support family caregivers is a more equitable way to provide relief to taxpayers.
  2. R&TC Section 41: SB 1335 (Leno), Chapter 845, Statutes of 2014 added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax preference programs, including tax credits.  Thus, Section 41 requires any bill that is introduced on or after January 1, 2015 and allows a new PIT or CT credit to contain specific goals, purposes, and objectives that the tax credit will achieve.  In addition, Section 41 requires detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives so-identified. This bill does not outline specific goals, purposes, or objectives, nor does it specify performance indicators for the Legislature to measure the proposed tax credit's effectiveness. The Committee may wish to consider what criteria should be used in future evaluation of the proposed tax credit.
  3. Technical Amendments:

1. On Page 3, Line 26, insert "to have long-term care needs" between "paragraph" and "if";
2. On Page 4, Line 18, strike "and" and insert "or"; and,
3. On Page 4, Lines 33-34, strike "the new residence or".
   1. Related Legislation: AB 230 (Chavez) would increase the Child and Dependent Care Expenses tax credit amount by increasing the applicable state credit percentage for taxpayers with AGI of $70,000 or less, if an appropriation for such purpose is provided in the state budget. AB 230 has been referred to the Committee on Appropriations' Suspense File.

REGISTERED SUPPORT / OPPOSITION:

Support

AARP California

Alzheimer's Association

Association of Regional Center Agencies

California Health Advocates

California PACE Association

Multipurpose Senior Services Program Site Association

National Multiple Sclerosis Society

Opposition

California Tax Reform Association

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098