SB 1176: Personal income taxes: exemption credit: dependents.
- Session Year: 2017-2018
- House: Senate
- Latest Version Date: 2018-04-23
The Personal Income Tax law authorizes a credit of $227 for each dependent of a taxpayer for each taxable year beginning on or after January 1, 1999, as adjusted for inflation, which may be reduced if a taxpayers federal adjusted gross income exceeds a threshold amount. The credit for the 2017 taxable year is $353.
This bill would increase that credit to $700 $389 for taxable years beginning on or after January 1, 2019, which would be adjusted for inflation in taxable years thereafter.
This bill would take effect immediately as a tax levy.
The Personal Income Tax law authorizes a credit of $227 for each dependent of a taxpayer for each taxable year beginning on or after January 1, 1999, as adjusted for inflation, which may be reduced if a taxpayers federal adjusted gross income exceeds a threshold amount. The credit for the 2017 taxable year is $353.
This bill would increase that credit to $700 for taxable years beginning on or after January 1, 2019, which would be adjusted for inflation in taxable years thereafter.
This bill would take effect immediately as a tax levy.
In the case of individuals, the following credits for personal exemption may be deducted from the tax imposed under Section 17041 or 17048, less any increases imposed under paragraph (1) of subdivision (d) or paragraph (1) of subdivision (e), or both, of Section 17560.
(a)In the case of a single individual, a head of household, or a spouse making a separate return, a credit of fifty-two dollars ($52).
(b)In the case of a surviving spouse (as defined in Section 17046), or spouses making a joint return, a credit of one hundred four dollars ($104). If one spouse was a resident for the entire taxable year and the other spouse was a nonresident for all or any portion of the taxable year, the personal exemption shall be divided equally.
(c)In addition to any other credit provided in this section, in the case of an individual who is 65 years of age or over by the end of the taxable year, a credit of fifty-two dollars ($52).
(d)(1)(A)For taxable years beginning before January 1, 2019, a credit of two hundred twenty-seven dollars ($227) for each dependent (as defined in Section 17056) for whom an exemption is allowable under Section 151(c) of the Internal Revenue Code, relating to additional exemption for dependents. The credit allowed under this subparagraph for taxable years beginning on or after January 1, 1999, shall not be adjusted pursuant to subdivision (i) for any taxable year beginning before January 1, 2000.
(B)For taxable years beginning on or after January 1, 2019, a credit of seven three hundred eighty-nine dollars ($700) ($389) for each dependent, as defined in Section 17056, for whom an exemption is allowable under Section 151(c) of the Internal Revenue Code, relating to additional exemption for dependents. The credit allowed under this subparagraph for taxable years beginning on or after January 1, 2019, shall be computed, as otherwise provided in subdivision (i), for taxable years beginning on or after January 1, 2020. shall be adjusted in accordance with subdivision (i) except that January 1, 2020 shall be substituted for January 1, 1989.
(2)(A)For taxable years beginning on or after January 1, 2015, a credit shall not be allowed under paragraph (1) with respect to any individual unless the identification number, as defined in Section 6109 of the Internal Revenue Code, of that individual is included on the return claiming the credit.
(B)A disallowance of a credit due to the omission of a correct identification number required under this paragraph, may be assessed by the Franchise Tax Board in the same manner as is provided by Section 19051 in the case of a mathematical error appearing on the return. A claimant shall have the right to claim a credit or refund of adjusted amounts within the period provided in Section 19306, 19307, 19308, or 19311, whichever period expires later.
(3)(A)For taxable years beginning on or after January 1, 2009, the credit allowed under paragraph (1) for each dependent shall be equal to the credit allowed under subdivision (a). This subparagraph shall cease to be operative for taxable years beginning on or after January 1, 2011, unless the Director of Finance makes the notification pursuant to Section 99040 of the Government Code, in which case this subparagraph shall cease to be operative for taxable years beginning on or after January 1, 2013.
(B)For taxable years that subparagraph (A) ceases to be operative, the credit allowed under paragraph (1) for each dependent shall be equal to the amount that would be allowed if subparagraph (A) had never been operative.
(e)A credit for personal exemption of fifty-two dollars ($52) for the taxpayer if he or she is blind at the end of his or her taxable year.
(f)A credit for personal exemption of fifty-two dollars ($52) for the spouse of the taxpayer if a separate return is made by the taxpayer, and if the spouse is blind and, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer.
(g)For the purposes of this section, an individual is blind only if either (1) his or her central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or (2) his or her visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.
(h)In the case of an individual with respect to whom a credit under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individuals taxable year begins, the credit amount applicable to that individual for that individuals taxable year is zero.
(i)For each taxable year beginning on or after January 1, 1989, the Franchise Tax Board shall compute the credits prescribed in this section. That computation shall be made as follows:
(1)The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year.
(2)The Franchise Tax Board shall add 100 percent to the percentage change figure which is furnished to them pursuant to paragraph (1), and divide the result by 100.
(3)The Franchise Tax Board shall multiply the immediately preceding taxable year credits by the inflation adjustment factor determined in paragraph (2), and round off the resulting products to the nearest one dollar ($1).
(4)In computing the credits pursuant to this subdivision, the credit provided in subdivision (b) shall be twice the credit provided in subdivision (a).
SEC. 2.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
In the case of individuals, the following credits for personal exemption may be deducted from the tax imposed under Section 17041 or 17048, less any increases imposed under paragraph (1) of subdivision (d) or paragraph (1) of subdivision (e), or both, of Section 17560.
(a)In the case of a single individual, a head of household, or a spouse making a separate return, a credit of fifty-two dollars ($52).
(b)In the case of a surviving spouse (as defined in Section 17046), or spouses making a joint return, a credit of one hundred four dollars ($104). If one spouse was a resident for the entire taxable year and the other spouse was a nonresident for all or any portion of the taxable year, the personal exemption shall be divided equally.
(c)In addition to any other credit provided in this section, in the case of an individual who is 65 years of age or over by the end of the taxable year, a credit of fifty-two dollars ($52).
(d)(1)A(A)For taxable years beginning before January 1, 2019, a credit of two hundred twenty-seven dollars ($227) for each dependent (as defined in Section 17056) for whom an exemption is allowable under Section 151(c) of the Internal Revenue Code, relating to additional exemption for dependents. The credit allowed under this subdivision subparagraph for taxable years beginning on or after January 1, 1999, shall not be adjusted pursuant to subdivision (i) for any taxable year beginning before January 1, 2000.
(B)For taxable years beginning on or after January 1, 2019, a credit of seven hundred dollars ($700) for each dependent, as defined in Section 17056, for whom an exemption is allowable under Section 151(c) of the Internal Revenue Code, relating to additional exemption for dependents. The credit allowed under this subparagraph for taxable years beginning on or after January 1, 2019, shall be computed, as otherwise provided in subdivision (i), for taxable years beginning on or after January 1, 2020.
(2)(A)For taxable years beginning on or after January 1, 2015, a credit shall not be allowed under paragraph (1) with respect to any individual unless the identification number, as defined in Section 6109 of the Internal Revenue Code, of that individual is included on the return claiming the credit.
(B)A disallowance of a credit due to the omission of a correct identification number required under this paragraph, may be assessed by the Franchise Tax Board in the same manner as is provided by Section 19051 in the case of a mathematical error appearing on the return. A claimant shall have the right to claim a credit or refund of adjusted amounts within the period provided in Section 19306, 19307, 19308, or 19311, whichever period expires later.
(3)(A)For taxable years beginning on or after January 1, 2009, the credit allowed under paragraph (1) for each dependent shall be equal to the credit allowed under subdivision (a). This subparagraph shall cease to be operative for taxable years beginning on or after January 1, 2011, unless the Director of Finance makes the notification pursuant to Section 99040 of the Government Code, in which case this subparagraph shall cease to be operative for taxable years beginning on or after January 1, 2013.
(B)For taxable years that subparagraph (A) ceases to be operative, the credit allowed under paragraph (1) for each dependent shall be equal to the amount that would be allowed if subparagraph (A) had never been operative.
(e)A credit for personal exemption of fifty-two dollars ($52) for the taxpayer if he or she is blind at the end of his or her taxable year.
(f)A credit for personal exemption of fifty-two dollars ($52) for the spouse of the taxpayer if a separate return is made by the taxpayer, and if the spouse is blind and, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer.
(g)For the purposes of this section, an individual is blind only if either (1) his or her central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or (2) his or her visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.
(h)In the case of an individual with respect to whom a credit under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individuals taxable year begins, the credit amount applicable to that individual for that individuals taxable year is zero.
(i)For each taxable year beginning on or after January 1, 1989, the Franchise Tax Board shall compute the credits prescribed in this section. That computation shall be made as follows:
(1)The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year.
(2)The Franchise Tax Board shall add 100 percent to the percentage change figure which is furnished to them pursuant to paragraph (1), and divide the result by 100.
(3)The Franchise Tax Board shall multiply the immediately preceding taxable year credits by the inflation adjustment factor determined in paragraph (2), and round off the resulting products to the nearest one dollar ($1).
(4)In computing the credits pursuant to this subdivision, the credit provided in subdivision (b) shall be twice the credit provided in subdivision (a).
SEC. 2.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
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Date
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Status
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| May 25, 2018 | May 25 hearing: Held in committee and under submission. |
| May 18, 2018 | Set for hearing May 25. |
| May 14, 2018 | May 14 hearing: Placed on APPR. suspense file. |
| May 4, 2018 | Set for hearing May 14. |
| May 2, 2018 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 7. Noes 0.) (May 2). Re-referred to Com. on APPR. |
| Apr 27, 2018 | Set for hearing May 2. |
| Apr 23, 2018 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on GOV. & F. |
| Feb 22, 2018 | Referred to Com. on GOV. & F. |
| Feb 15, 2018 | From printer. May be acted upon on or after March 17. |
| Feb 14, 2018 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
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Date
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Description
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Location
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Votes
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| May 14, 2018 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
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| May 2, 2018 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Governance and Finance |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
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Date
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| Unknown. | ** Against | Apr 27, 2018 |
| Unknown. | ** Support | Apr 27, 2018 |
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2017 - 2018 Regular Session
SB 1176 (Nguyen) - Personal income taxes: exemption credit: dependents
Version: April 23, 2018 | Policy Vote: GOV. & F. 7 - 0 |
Urgency: No | Mandate: No |
Hearing Date: May 14, 2018 | Consultant: Robert Ingenito |
This bill meets the criteria for referral to the Suspense File.
Bill Summary:
SB 1176 would increase the dependent exemption credit by $36, to $389.
Fiscal Impact:
The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $46 million in 2018-19, $80 million in 2019-20, and $80 million in 2020-21. FTB’s costs to implement the bill have yet to be determined.
Background:
Through 2017, federal law provided a dependent exemption for each claimed dependent — such as a child or an aging parent — which is deducted from adjusted gross income (AGI) to reduce a taxpayer’s taxable income. The dependent exemption was phased out for high income taxpayers and was indexed to inflation annually. In the 2017 taxable year, the exemption was $4,050.
State law continues to provide for a dependent exemption credit. Unlike federal law, the exemption amount is not deducted from AGI, but is instead a credit against tax due (a dollar-for-dollar reduction in tax liability). The exemption credit amounts are indexed annually for inflation. The exemption credits (1) are not refundable, (2) may not be carried over to future years, and (3) in 2017, begin to phase out at federal AGI levels as follows: (1) $178,203 for filers that are single, married, or registered domestic partner filing separately, (2) $280,808 for filers that are the head of household, and (3) $374,411 for filers that are married or registered domestic partners filling jointly or a surviving spouse.
The dependent exemption credit amount is reduced by $6 for every $2,500 ($1,250 for married taxpayers filing a separate return) that the taxpayer's federal AGI exceeds the above threshold amounts, not to exceed the full amount of the credit. Taxpayers who file a joint return or who file as a surviving spouse must reduce their credit by $12 for every $2,500.
For taxable years beginning on or after January 1, 2015, the dependent's TIN must be provided on the California tax return or the dependent exemption credit will be disallowed. The state dependent exemption credit amount for taxable year 2018 is $353.
Proposed Law:
This bill would, beginning in taxable year 2019, increase the dependent exemption credit from $353 to $389, indexed annually for inflation.
Related Legislation:
SB 874 (Gaines, 2016) would have increased the dependent exemption credit to $371 per dependent. The bill was held under submission on the Suspense file of this Committee.
Staff Comments:
The average cost of raising a child born in 2015 for a middle-income family in the U.S. was approximately $233,610, according to the latest annual “Cost of Raising A Child” report from the U.S. Department of Agriculture. The dependent exemption can help offset the high cost of caring for children and other dependents.
Fundamental changes to the federal income tax structure occurred in 2017. Among them was an increase in the federal child tax credit. Previously, the credit was worth $1,000 per qualifying child, refundable for taxpayers with earned income of at least $3,000, and phased out for taxpayers with AGI above $75,000 (single filers) and $110,000 (joint filers). After the changes in federal tax law, the credit is worth $2,000 per qualifying child, refundable for taxpayers with earned income of (at least) $2,500, and phased it out for taxpayers with AGI above $200,000 (single filers) and $400,000 (joint filers).
FTB’s estimated revenue impact of increasing the dependent exemption credit was computed using a two-step analysis. First, the $353 dependent exemption credit from taxable year 2017 was grown using the California Consumer Price Index (CPI). This amount and the indexed amounts for each year thereafter were run through FTB’s simulation model to calculate the tax impact of the credit under current law. Next, the proposed $389 credit amount and the indexed amounts for the credit were run through the PIT simulation model to calculate the tax impact of the proposed credit. The current law amounts were subtracted from the proposed law amounts resulting in the taxable year 2019 estimated tax impact of $80 million.
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SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Mike McGuire, Chair
2017 - 2018 Regular
Bill No: | SB 1176 | Hearing Date: | 5/2/18 |
Author: | Nguyen | Tax Levy: | Yes |
Version: | 4/23/18 | Fiscal: | Yes |
Consultant: | Brown | ||
Personal income taxes: exemption credit: dependents
Increase the dependent exemption from $353 to $389.
Background
Federal law allows for the deduction of certain expenses from a taxpayer’s adjusted gross income (AGI) when calculating taxable income. Some examples include the mortgage interest deduction, the charitable contributions deduction, and exemptions. Federal law provides a dependent exemption for each claimed dependent — such as a child or an aging parent — which is deducted from AGI to reduce a taxpayer’s taxable income. The dependent exemption is phased out for high income taxpayers and is indexed to inflation annually. In the 2017 taxable year, the exemption is $4,050.
State law also provides a dependent exemption credit. Unlike federal law, the exemption is not deducted from AGI. Instead, it is a credit against the taxpayer’s taxable income. Similar to federal law, the amount of the dependent exemption credit is indexed to inflation annually and its current amount is $353. Exemption credits are nonrefundable and may not be carried over to future years. Additionally, the dependent exemption credit begins to phase out once a taxpayer’s federal AGI exceeds:
- $187,203 for filers that are single or married filing separately;
- $280,808 for filers that are the head of household; or
- $374,411 for filers that are married and filling jointly, or a surviving spouse.
The phase out is calculated as follows:
- If the taxpayer is single or head of household, the dependent exemption credit amount is reduced by $6 for every $2,500 the taxpayer’s federal AGI is above the threshold;
- If the taxpayer is married filing jointly or a surviving spouse, the dependent exemption credit amount is reduced by $12 for every $2,500 the taxpayer’s federal AGI is above the threshold;
- If the taxpayer is married filing separately, the dependent exemption credit amount is reduced by $6 for every $1,250 the taxpayer’s federal AGI is above the threshold.
The author would like to increase California’s dependent exemption credit to help families pay for the state’s high cost of living.
Proposed Law
Senate Bill 1176 increases the dependent exemption credit from $353 to $389, indexed annually for inflation. SB 1176 applies to taxable years beginning on or after January 1, 2019, and makes technical and conforming changes.
State Revenue Impact
Pending.
Comments
1. Purpose of the bill. According to the author, “Many California families struggle to make ends meet. California parents are saddled with high taxes on top of high costs for necessities including housing, food, child care, transportation, healthcare, and clothing. According the California Budget & Policy Center, the average family with two working parents and two children—assuming one pre-school aged and one school aged— must earn about $75,952 to pay for their needs. This bill would provide relief to families, helping offset some of California’s high taxes and cost of living by returning more of their money on their tax returns. This discretionary money could help families pay for housing, food, childcare, healthcare, transportation or clothing costs.”
2. Revenue loss. Existing tax law provides various credits, deductions, exclusions, and exemptions for certain taxpayers. Since these items are enacted to accomplish some governmental purpose and determined to have a cost (in the form of foregone revenues), State law refers to them as "expenditures." This bill would increase an existing tax expenditure, costing the General Fund millions of dollars. As a result, the state will have to reduce spending or increase taxes to match the foregone revenue. The Committee may wish to consider whether SB 1176 is worth the tradeoff of spending cuts or raising taxes.
3. Every bit counts. Dependent exemption credits are justified on the grounds that taxpayers who raise children or care for others incur extra expenses. Therefore, these taxpayers have less disposable income from which to pay taxes. According to the U.S. Department of Agriculture’s 2017 Cost of Raising a Child report, the average cost of raising a child born in 2015 for a middle-income family in the U.S. is approximately $233,610. That calculation includes spending for food, shelter, and other necessities to raise a child through age 17. This calculation does not include college education. Additionally, according to the U.S Department of Health and Human Services report, Long-Term Services and Supports for Older Americans: Risks and Financing Research Brief, the average cost of long term services and supports for adults 65 and over is $138,000 each year. When taking into account that California’s cost of living is one of the highest in the country, Californians will most likely spend more than the national average. While an increased dependent exemption of $36 is incidental, taxpayers would still appreciate the support.
4. Federal tax reform. On December 22nd, 2017, President Trump signed HR 1, which enacted fundamental changes to the federal income tax. One of those changes was an increase to the Child Tax Credit. Before HR1, the Child Tax Credit was worth $1,000 per qualifying child; refundable for taxpayers with earned income of at least $3,000; and phased out for taxpayers with AGI above $75,000 (single filers) and $110,000 (joint filers). HR1 increased the Child Tax Credit to $2,000 per qualifying child; made it refundable for taxpayers with earned income of (at least) $2,500; and phased it out for taxpayers with AGI above $200,000 (single filers) and $400,000 (joint filers). Since the federal government is already giving California families more money to help pay for the cost of raising children, is an increase in the state dependent exemption credit necessary?
Support and Opposition
(4/26/18)
Support: Unknown.
Opposition: Unknown.
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Discussed in Hearing
3MIN
Senate Standing Committee on Governance and Finance
Bill Author
Bill Co-Author(s):