The Personal Income Tax Law, in modified conformity with federal income tax laws, allows a California Earned Income Tax Credit (CalEITC) against personal income tax 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. The Personal Income Tax Law also allows a young child tax credit and a foster youth tax credit against the taxes imposed under that law to qualified taxpayers in a specified amount multiplied by the earned income tax credit adjustment factor, and allows a payment from the Tax Relief and Refund Account for an amount in excess of tax liability.

The Personal Income Tax Law requires an individual taxable under that law to make a return to the Franchise Tax Board stating specifically the items of the individuals gross income from all sources and the deductions and credits allowable, as prescribed.

Existing law requires the State Department of Social Services and the State Department of Health Care Services to exchange data with the Franchise Tax Board, including the names, addresses, and contact information of individuals that may qualify for the CalEITC, and authorizes the Franchise Tax Board to disclose individual income tax information for taxable years beginning on or after January 1, 2020, and before January 1, 2022, to the State Department of Social Services and the State Department of Health Care Services, and requires all data provided to remain confidential and be used only for specified purposes, including informing state residents of the availability of specified services and federal and state antipoverty tax credits, and for providing an estimate of potential state antipoverty tax credits. Existing law provides that unauthorized disclosure of this information is a misdemeanor.

This bill, for taxable years beginning on or after January 1, 2026, would authorize a qualified individual, who cannot claim withholding or other credits, to claim the earned income tax credit, the young child tax credit, or the foster youth tax credit on a form that does not require the qualified individual to file an individual income tax return. The bill would exempt the Franchise Tax Board from existing contracting laws and specified approvals and oversight in administration relating to the form described above.

This bill would additionally allow the State Department of Social Services and the State Department of Health Care Services to exchange data with the Franchise Tax Board for purposes of the form described above.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

This bill would incorporate additional changes to Section 19551.3 of the Revenue and Taxation Code proposed by SB 565 to be operative only if this bill and SB 565 are enacted and this bill is enacted last.

The Personal Income Tax Law, in modified conformity with federal income tax laws, allows a California Earned Income Tax Credit (CalEITC) against personal income tax 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. The Personal Income Tax Law also allows a young child tax credit and a foster youth tax credit against the taxes imposed under that law to qualified taxpayers in a specified amount multiplied by the earned income tax credit adjustment factor, and allows a payment from the Tax Relief and Refund Account for an amount in excess of tax liability.

The Personal Income Tax Law requires an individual taxable under that law to make a return to the Franchise Tax Board stating specifically the items of the individuals gross income from all sources and the deductions and credits allowable, as prescribed.

Existing law requires the State Department of Social Services and the State Department of Health Care Services to exchange data with the Franchise Tax Board, including the names, addresses, and contact information of individuals that may qualify for the CalEITC, and authorizes the Franchise Tax Board to disclose individual income tax information for taxable years beginning on or after January 1, 2020, and before January 1, 2022, to the State Department of Social Services and the State Department of Health Care Services, and requires all data provided to remain confidential and be used only for specified purposes, including informing state residents of the availability of specified services and federal and state antipoverty tax credits, and for providing an estimate of potential state antipoverty tax credits. Existing law provides that unauthorized disclosure of this information is a misdemeanor.

This bill, for taxable years beginning on or after January 1, 2026, would authorize a qualified individual, who cannot claim withholding or other credits, to claim the earned income tax credit, the young child tax credit, or the foster youth tax credit on a form that does not require the qualified individual to file an individual income tax return. The bill would exempt the Franchise Tax Board from existing contracting laws and specified approvals and oversight in administration relating to the form described above.

This bill would additionally allow the State Department of Social Services and the State Department of Health Care Services to exchange data with the Franchise Tax Board for purposes of the form described above.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

The Personal Income Tax Law, in modified conformity with federal income tax laws, allows a California Earned Income Tax Credit (CalEITC) against personal income tax 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. The Personal Income Tax Law also allows a young child tax credit and a foster youth tax credit against the taxes imposed under that law to qualified taxpayers in a specified amount multiplied by the earned income tax credit adjustment factor, and allows a payment from the Tax Relief and Refund Account for an amount in excess of tax liability.

The Personal Income Tax Law requires an individual taxable under that law to make a return to the Franchise Tax Board stating specifically the items of the individuals gross income from all sources and the deductions and credits allowable, as prescribed.

Existing law requires the State Department of Social Services and the State Department of Health Care Services to exchange data with the Franchise Tax Board, including the names, addresses, and contact information of individuals that may qualify for the CalEITC, and authorizes the Franchise Tax Board to disclose individual income tax information for taxable years beginning on or after January 1, 2020, and before January 1, 2022, to the State Department of Social Services and the State Department of Health Care Services, and requires all data provided to remain confidential and be used only for specified purposes, including informing state residents of the availability of CalFile, the federal Earned Income Tax Credit, the CalEITC, and other federal and state specified services and federal and state antipoverty tax credits. credits, and for providing an estimate of potential state antipoverty tax credits. Existing law provides that unauthorized disclosure of this information is a misdemeanor.

This bill, for taxable years beginning on or after January 1, 2026, would authorize a qualified individual, who cannot claim withholding or other credits, to claim the earned income tax credit, the young child tax credit, or the foster youth tax credit on a form that does not require the qualified individual to file an individual income tax return. The bill would exempt the Franchise Tax Board from existing contracting laws and specified approvals and oversight in administration relating to the form described above.

This bill would additionally allow the State Department of Social Services and the State Department of Health Care Services to exchange data with the Franchise Tax Board for purposes of the form described above. The bill would also extend the above-described authority of the Franchise Tax Board to disclose individual income tax return information to the State Department of Social Services and the State Department of Health Care Services for all taxable years beginning on or after January 1, 2020, indefinitely. By extending the crime associated with unauthorized disclosure of taxpayer information this bill would establish a state-mandated local program.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

The Earned Income Tax Credit Information Act requires employers to notify employees that they may be eligible for the federal and state earned income tax credit, as specified.

This bill would make a nonsubstantive change to that provision.

GOVERNOR'S VETO

GV Bill Id:AB 1002

Author:(Irwin)

As Enrolled Ver:September 18, 2023

2/3 vote

SUMMARY

Authorizes, for taxable years beginning on or after January 1, 2026, a method for taxpayers to claim the California Earned Income Tax Credit (CalEITC), the Young Child Tax Credit (YCTC), and the Foster Youth Tax Credit (FYTC) without filing a tax return, as prescribed.

Senate Amendments

1. Adopt changes made by SB 131 (Budget and Fiscal Review Committee), Chapter 55, Statutes of 2023, that modified existing data-sharing provisions between the Franchise Tax Board (FTB) and certain state agencies.
2. Incorporate modifications to Revenue and Taxation Code Section 19551.3 proposed by both this bill and SB 565 (Caballero) of the current legislative session, to be operative only if this bill and SB 565 (Caballero) are enacted, and this bill is enacted last.

Governor’s Veto Message

This bill, beginning with the 2026 tax year, would require the Franchise Tax Board (FTB) to develop a form that qualified individuals can use in lieu of a tax return to claim the California Earned Income Tax Credit, the Young Child Tax Credit, and the Foster Youth Tax Credit. This bill would allow the Department of Social Services and Department of Health Care Services to exchange data with the FTB for purposes of implementing the form.

While I appreciate the author's goal to increase utilization of these credits by eligible individuals, creating a separate form to claim tax credits may create confusion for taxpayers and result in them not claiming other tax credits that they are entitled to under the tax system, including federal tax credits. Further, implementation of this bill would result in ongoing General Fund costs in the millions of dollars not contemplated in the budget.

In partnership with the Legislature, we enacted a budget that closed a shortfall of more than $30 billion through balanced solutions that avoided deep program cuts and protected education, health care, climate, public safety, and social service programs that are relied on by millions of Californians. This year, however, the Legislature sent me bills outside of this budget process that, if all enacted, would add nearly $19 billion of unaccounted costs in the budget, of which $11 billion would be ongoing.

With our state facing continuing economic risk and revenue uncertainty, it is important to remain disciplined when considering bills with significant fiscal implications, such as this measure.

COMMENTS

CalEITC: In 2015, the Legislature enacted SB 80 (Budget and Fiscal Review Committee), Chapter 21, Statutes of 2015, which established the CalEITC. The CalEITC is a refundable Personal Income Tax (PIT) credit allowed to eligible individuals determined in accordance with the federal EITC, except as modified for California. The state credit is only operative in taxable years in which the Budget Act allocates resources for the FTB to oversee and audit returns associated with the credit. To be eligible, a taxpayer must have earned income of at least $1, but no more than $30,000 for that taxable year. The amount of credit varies based on a taxpayer's AGI, the number of dependents a taxpayer may claim on their return, and filing status, among other factors. The state credit calculation begins with a taxpayer's federal AGI and additional information that impacts the calculation of the state credit, such as number of dependents, is submitted via Form 3514 when filing a return. Generally speaking, eligible taxpayers with a higher number of dependents receive increased amounts of credit.

Barriers to claiming the CalEITC: In order to claim the CalEITC, and subsequently the YCTC and FYTC, a taxpayer must file an income tax return. Existing law, however, establishes a minimum income threshold that an individual may earn before being required to file a return. While these amounts vary based on the taxable year, filing status, and number of dependents, any taxpayer that has at least one dependent is not required to file a return if they make less than $35,546, in the 2022 taxable year. As noted above, the maximum income a taxpayer may earn to qualify for the CalEITC is $30,000. Thus, any family that earns income that is eligible for the CalEITC is not required to file a PIT return. Additionally, the cost to file a return for those individuals that are not required to file a return may outweigh the benefit of the CalEITC. The average cost to prepare a tax return is estimated at $325. The maximum amount of the CalEITC that a single filer with no dependents may receive is $275 for the 2022 taxable year. Moreover, as the number of dependents that a filer may claim increases, the complexity of preparing a return generally increases, which subsequently increases the cost for preparation. While there are free filing options for which CalEITC eligible households would qualify, the generally greater complexity of preparing a return as household size increases can push households towards a professional preparer which can be costly. Volunteer Income Tax Assistance programs, that provide free assistance to eligible, low-income filers, are often over-subscribed and cannot support all households that seek their assistance.

According to the Author

The CalEITC is a crucial anti-poverty tool that puts money back into the pockets of our working taxpayers. In 2021 alone, the state awarded nearly $1.3 billion in CalEITC credits to over 4.2 million low-income Californians. Yet despite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual's ability to claim the credit.

In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, or the FYTC without needing to file an individual income tax return. Through this simplified form, the state will further encourage working Californians to claim the CalEITC credits they have earned.

Arguments in Support

The Economic Security Project Action, writing in support of this bill, states, in part:

Eligible CalEITC recipients state time and time again that not meeting the filing threshold, combined with the complex filing methods that are currently used in California, hinder their ability to claim the credit. Analysis from Code for America found that 21 percent of low-income filers could not provide earnings documentation required to file taxes, making this a significant barrier. AB 1002 will create a stand-alone tax return form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, and the FYTC.

Arguments in Opposition

None on file

FISCAL COMMENTS

According to the Senate Appropriations Committee:

1. This bill would not change the way income tax is calculated under current law. However, it would likely increase the number of taxpayers claiming the CalEITC, YCTC, and/or FYTC. The resulting General Fund revenue loss is unknown, but would minimally be in the tens of millions of dollars annually.
2. FTB indicates that it would incur General Fund administrative costs of $600,000 in 2023-24, $4.1 million in 2024-25, $7 million annually for the three subsequent fiscal years, and $4.8 million annually thereafter (starting in 2028-29). Cost drivers would include creating the required form, IT programming, processing, and taxpayer outreach.
3. FTB notes this cost estimate was developed with the assumption that another bill is also enacted: SB 565 (Caballero), which would require it to provide a free tax return preparation program utilizing prepopulated data. The resources and system changes needed for both proposals overlap significantly. Consequently, costs associated with this bill may be higher if SB 565 is not also enacted.
4. The Department of Social Services and the Department of Health Care Services anticipate minor and absorbable costs related to this bill's data exchange provisions. Both entities already exchange data with FTB to implement other tax programs.

VOTES

ASM REVENUE AND TAXATION: 10-0-1

YES: Irwin, Wallis, Bains, Grayson, Pacheco, Jim Patterson, Petrie-Norris, Luz Rivas, Valencia, Zbur

ABS, ABST OR NV: Ta

ASM APPROPRIATIONS: 13-0-3

YES: Holden, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Weber, Ortega

ABS, ABST OR NV: Megan Dahle, Robert Rivas, Sanchez

ASSEMBLY FLOOR: 79-0-1

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones‑Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

ABS, ABST OR NV: Sanchez

SENATE FLOOR: 36-0-4

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

ABS, ABST OR NV: Caballero, Grove, Jones, Seyarto

ASSEMBLY FLOOR: 78-0-2

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones‑Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

ABS, ABST OR NV: Sanchez, Ta

UPDATED

VERSION: September 18, 2023

CONSULTANT: Harrison Bowlby / REV. & TAX. / (916) 319-2098 FN: 0002529

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1002

Author:(Irwin)

As Amended Ver:September 8, 2023

Majority vote

SUMMARY

Authorizes, for taxable years beginning on or after January 1, 2026, a method for taxpayers to claim the California Earned Income Tax Credit (CalEITC), the Young Child Tax Credit (YCTC), and the Foster Youth Tax Credit (FYTC) without filing a tax return, as prescribed.

Senate Amendments

1. Adopt changes made by SB 131 (Budget and Fiscal Review Committee), Chapter 55, Statutes of 2023, that modified existing data-sharing provisions between the Franchise Tax Board (FTB) and certain state agencies.
2. Incorporate modifications to Revenue and Taxation Code Section 19551.3 proposed by both this bill and Senate Bill 565 (Caballero), currently on the Assembly Third Reading File, to be operative only if this bill and SB 565 (Caballero) are enacted, and this bill is enacted last.

COMMENTS

CalEITC: In 2015, the Legislature enacted SB 80 (Committee on Budget and Fiscal Review), Chapter 21, Statutes of 2015, which established the CalEITC. The CalEITC is a refundable Personal Income Tax (PIT) credit allowed to eligible individuals determined in accordance with the federal EITC, except as modified for California. The state credit is only operative in taxable years in which the Budget Act allocates resources for the FTB to oversee and audit returns associated with the credit. To be eligible, a taxpayer must have earned income of at least $1, but no more than $30,000 for that taxable year. The amount of credit varies based on a taxpayer's AGI, the number of dependents a taxpayer may claim on their return, and filing status, among other factors. The state credit calculation begins with a taxpayer's federal AGI and additional information that impacts the calculation of the state credit, such as number of dependents, is submitted via Form 3514 when filing a return. Generally speaking, eligible taxpayers with a higher number of dependents receive increased amounts of credit.

Barriers to claiming the CalEITC: In order to claim the CalEITC, and subsequently the YCTC and FYTC, a taxpayer must file an income tax return. Existing law, however, establishes a minimum income threshold that an individual may earn before being required to file a return. While these amounts vary based on the taxable year, filing status, and number of dependents, any taxpayer that has at least one dependent is not required to file a return if they make less than $35,546, in the 2022 taxable year. As noted above, the maximum income a taxpayer may earn to qualify for the CalEITC is $30,000. Thus, any family that earns income that is eligible for the CalEITC is not required to file a PIT return. Additionally, the cost to file a return for those individuals that are not required to file a return may outweigh the benefit of the CalEITC. The average cost to prepare a tax return is estimated at $325. The maximum amount of the CalEITC that a single filer with no dependents may receive is $275 for the 2022 taxable year. Moreover, as the number of dependents that a filer may claim increases, the complexity of preparing a return generally increases, which subsequently increases the cost for preparation. While there are free filing options for which CalEITC eligible households would qualify, the generally greater complexity of preparing a return as household size increases can push households towards a professional preparer which can be costly. Volunteer Income Tax Assistance programs, that provide free assistance to eligible, low-income filers, are often over-subscribed and cannot support all households that seek their assistance.

Enterprise Data to Revenue (EDR) project: The FTB is currently undergoing a systems update, EDR project. The EDR project is in its second of three phases, and is intended to modernize the information technology (IT) systems and processes across the agency. This project is updating systems that date back to the 1980s, and any change to existing practices would likely require integration with the EDR project. This bill exempts its provisions from various state contracting laws and project oversight processes. This exemption is provided because the existing vendor for the EDR project would be required to integrate the filing option authorized by this bill into the general systems update occurring at the FTB. In order to prevent any impact to the EDR project, which would delay implementation and increase the projects costs, this bill seeks to ensure that the new filing option can be seamlessly integrated into the existing IT systems modernization efforts at the FTB.

According to the Author

The CalEITC is a crucial anti-poverty tool that puts money back into the pockets of our working taxpayers. In 2021 alone, the state awarded nearly $1.3 billion in CalEITC credits to over 4.2 million low-income Californians. Yet despite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual's ability to claim the credit.

In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, or the FYTC without needing to file an individual income tax return. Through this simplified form, the state will further encourage working Californians to claim the CalEITC credits they have earned.

Arguments in Support

The Economic Security Project Action, writing in support of this bill, states, in part:

Eligible CalEITC recipients state time and time again that not meeting the filing threshold, combined with the complex filing methods that are currently used in California, hinder their ability to claim the credit. Analysis from Code for America found that 21 percent of low-income filers could not provide earnings documentation required to file taxes, making this a significant barrier. AB 1002 will create a stand-alone tax return form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, and the FYTC.

Arguments in Opposition

None on file

FISCAL COMMENTS

According to the Senate Appropriations Committee:

1. This bill would not change the way income tax is calculated under current law. However, it would likely increase the number of taxpayers claiming the CalEITC, YCTC, and/or FYTC. The resulting General Fund revenue loss is unknown, but would minimally be in the tens of millions of dollars annually.
2. FTB indicates that it would incur General Fund administrative costs of $600,000 in 2023-24, $4.1 million in 2024-25, $7 million annually for the three subsequent fiscal years, and $4.8 million annually thereafter (starting in 2028-29). Cost drivers would include creating the required form, IT programming, processing, and taxpayer outreach.

FTB notes this cost estimate was developed with the assumption that another bill is also enacted: SB 565 (Caballero), which would require it to provide a free tax return preparation program utilizing prepopulated data. The resources and system changes needed for both proposals overlap significantly. Consequently, costs associated with this bill may be higher if SB 565 is not also enacted.

1. The Department of Social Services and the Department of Health Care Services anticipate minor and absorbable costs related to this bill's data exchange provisions. Both entities already exchange data with FTB to implement other tax programs.

VOTES:

ASM REVENUE AND TAXATION: 10-0-1

YES: Irwin, Wallis, Bains, Grayson, Pacheco, Jim Patterson, Petrie-Norris, Luz Rivas, Valencia, Zbur

ABS, ABST OR NV: Ta

ASM APPROPRIATIONS: 13-0-3

YES: Holden, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Weber, Ortega

ABS, ABST OR NV: Megan Dahle, Robert Rivas, Sanchez

ASSEMBLY FLOOR: 79-0-1

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones‑Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

ABS, ABST OR NV: Sanchez

UPDATED

VERSION: September 8, 2023

CONSULTANT: Harrison Bowlby / REV. & TAX. / (916) 319-2098 FN: 0002246

 THIRD READING  

Bill No: AB 1002

Author: Irwin (D), et al.

Amended: 9/8/23 in Senate

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 8-0, 6/28/23

AYES: Caballero, Seyarto, Blakespear, Dahle, Durazo, Glazer, Skinner, Wiener

SENATE APPROPRIATIONS COMMITTEE: 5-0, 9/1/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NO VOTE RECORDED: Jones, Seyarto

ASSEMBLY FLOOR: 79-0, 5/30/23 - See last page for vote

SUBJECT: Taxation: Earned Income Tax Credit: young child tax credit: foster youth tax credit: filing

SOURCE: Author

DIGEST:

This bill creates a method for taxpayers to claim the EITC, YCTC, and FYTC without filing a tax return by directing FTB to create a new form to do so.

Senate Floor Amendments of 9/8/23 resolve conflicts with SB 565 (Caballero).

ANALYSIS:

Existing law:

1. Requires the Franchise Tax Board (FTB) to develop and make available forms for taxpayers that are as simple as possible for taxpayers to prepare; FTB must ease taxpayers’ compliance burden in the form and design of tax returns.
2. Enacts a refundable Earned Income Tax Credit (EITC) against the Personal Income Tax, in modified conformity with federal law (SB 80, Committee on Budget and Fiscal Review, Chapter 51, Statutes of 2015).
3. Provides that the EITC is only operative for taxable years for which resources are authorized in the annual Budget Act for FTB to oversee and audit returns associated with the credit.
4. Provides that the Legislature must establish the California EITC adjustment factor – the percentage of the credit allowed for federal taxes for the taxpayer - for each taxable year; otherwise the California EITC adjustment factor is zero. For 2022, the California EITC adjustment factor is 85 percent, with the actual amount of EITC allowed dependent upon filing status of the eligible individual, how many qualifying children the eligible individual has, and how much earned income the eligible individual claims.
5. Allows, additionally, a refundable Young Child Tax Credit (YCTC) for a taxpayer who claims the EITC, and who has a child under the age of six at the end of the taxable year, equal to $1,000, which is reduced by $20 for each $100 (or fraction thereof) that the taxpayer’s income exceeds $25,000.
6. Allows, additionally, a Foster Youth Tax Credit (FTYC) of up to $1,083 per eligible individual, who meets all of the following requirements:
   1. Qualify for the CalEITC;
   2. Were between the ages of 18 and 25 at the end of the taxable year;
   3. Were in California foster care at age 13 or older and place through the California foster care system; and
   4. Satisfy the foster care verification requirement.
7. Allows individuals with income below a certain threshold to not file a tax return for state purposes, when the value of the standard deduction and personal exemption credit exceed the taxpayer’s liability. For 2022, these thresholds are $20,913 in gross income or $16,730 in adjusted gross income (AGI) for single taxpayers (under 65 years of age with no dependents) and $41,830 in gross income or $33,466 in AGI for married individuals filing jointly (under 65 years of age with no dependents).
8. Increases the above thresholds based on the number of dependents claimed, or if the taxpayer(s) are over the age of 65, and directs FTB to adjust them annually for inflation.
9. Prohibits, generally, disclosure or inspection of any income tax return information, and sets forth criminal sanctions, including imprisonment, which apply to FTB personnel convicted of unlawful disclosure or inspection of tax records.
10. Contains explicit exemptions allowing FTB to disclose information to certain entities for specified purposes, including to allow FTB to exchange data with the Department of Social Services (DSS) and the Department of Health Care Services (DHCS) including the names, addresses, and contact information of individuals that may qualify for Voluntary Tax Assistance, the Cal File Program, EITC, YCTC, and FYTC.

This bill:

1. Creates a program for taxpayers to claim the EITC, YCTC, and FYTC without filing a tax return by directing FTB to create a new form to do so.
2. Begins the program on January 1, 2026, which is limited in its first year to qualified individuals with no dependents.
3. Directs FTB to make the form available to all qualified individuals after the first year, defined as an individual who meets all of the following requirements:
   1. Does not have an income tax filing requirement;
   2. Has received an invitation from the FTB to participate in the free tax return preparation program for the taxable year;
   3. Is eligible for any of the following credits:
      1. CalEITC
      2. YCTC
      3. FYTC
4. Exempts the FTB from all provisions of state contracting law and any approvals or oversight from the Department of Technology or the Department of General Services, as well as from Project Approval Lifecycle requirements and reporting as described in the applicable sections of the Statewide Information Management Manual, for purposes of implementing the bill.
5. Expands existing data sharing provision between the DSS, the DHCS, and the FTB, to allow for the exchange of data directly connected with the administration of the free tax return preparation program established under this bill
6. Permits FTB to use data it receives from DSS and DHCS to prepopulate the form created by the bill, and directs taxpayers to edit and correct information as appropriate on any prepopulated form.
7. States that the form shall be prescribed by FTB, and is treated as a personal income tax return, but precludes taxpayers using the form from claiming credits or withholding on form created by the bill.
8. Makes a legislative fining and declaration regarding the bill’s limitation on the writings of public officials and agencies.
9. Contains provisions to resolve conflicts with SB 565 (Caballero).

Background:

Increasing EITC claims. Since it was enacted, taxpayers were not claiming the California EITC at the Legislature’s desired and anticipated rate. In 2020, the Legislature enacted SB 1409 (Caballero, Chapter 114, Statutes of 2020), which requires the FTB provide a study that would analyze and develop a plan to implement a “no return” or “non-filer” tax filing pilot program. The study was provided to the legislature on January 3, 2022. The findings discussed opportunities to allow for taxpayers with little to no income to file their returns to claim the CalEITC, YCTC and FYTC. The study discussed each possibility, and indicated that there would be less risk if FTB were able to work with “known populations” of taxpayers first, before they did any outreach to those without a filing requirement who have never filed with the FTB. The study recommended enhancing CalFile as a starting point would allow the FTB to reach out to those that have filed with the FTB in the past. The report noted that there were significant fraud risks in starting with the simplified one page return and not starting with a known population of taxpayers.

Related/Prior Legislation

Earlier this year, the Senate approved SB 565 (Caballero), which created a free program that utilized pre-population of data (to the extent possible) for qualified individuals to complete and e-file their California state personal income tax returns. The bill would also exempt the FTB from existing contracting laws and specified approvals and oversight in administration relating to the form, as well as make a conforming change to the same exception to taxpayer confidentiality as made by this bill. SB 565 is currently pending on the Assembly Floor.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• This bill would not change the way income tax is calculated under current law. However, it would likely increase the number of taxpayers claiming the CalEITC, YCTC, and/or FYTC. The resulting General Fund revenue loss is unknown, but would minimally be in the tens of millions of dollars annually.
• FTB indicates that it would incur General Fund administrative costs of $600,000 in 2023-24, $4.1 million in 2024-25, $7 million annually for the three subsequent fiscal years, and $4.8 million annually thereafter (starting in 2028-29). Cost drivers would include creating the required form, IT programming, processing, and taxpayer outreach.

FTB notes this cost estimate was developed with the assumption that another bill is also enacted: SB 565 (Caballero), which would require it to provide a free tax return preparation program utilizing prepopulated data. The resources and system changes needed for both proposals overlap significantly. Consequently, costs associated with this bill may be higher if SB 565 is not also enacted.

• The Department of Social Services (DSS) and the Department of Health Care Services (DHCS) anticipate minor and absorbable costs related to this bill’s data exchange provisions. Both entities already exchange data with FTB to implement other tax programs.

SUPPORT: (Verified 9/11/23)

All Home
California Alliance of Child and Family Services
California Family Resource Center
Child Abuse Prevention Center
Children’s Bureau of Southern California
Economic Security Project Action

OPPOSITION: (Verified 9/11/23)

None received

ARGUMENTS IN SUPPORT: According to the author, “California’s Earned Income Tax Credit (CalEITC) is a crucial anti-poverty tool that puts money back into the pockets of our working taxpayers. In 2021 alone, the state awarded nearly $1.3 billion in CalEITC credits to over 4.2 million low-income Californians. Yet despite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual’s ability to claim the credit. In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone tax return form that would allow certain qualified CalEITC recipients to claim the earned income tax credit, the young child tax credit, or the foster youth tax credit without needing to file an individual income tax return. Through this simplified return, the state will further encourage working Californians to claim the CalEITC credits they have earned.”

ASSEMBLY FLOOR: 79-0, 5/30/23

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NO VOTE RECORDED: Sanchez

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

9/11/23 17:50:56

**** END ****

 THIRD READING  

Bill No: AB 1002

Author: Irwin (D), et al.

Amended: 9/1/23 in Senate

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 8-0, 6/28/23

AYES: Caballero, Seyarto, Blakespear, Dahle, Durazo, Glazer, Skinner, Wiener

SENATE APPROPRIATIONS COMMITTEE: 5-0, 9/1/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NO VOTE RECORDED: Jones, Seyarto

ASSEMBLY FLOOR: 79-0, 5/30/23 - See last page for vote

SUBJECT: Taxation: Earned Income Tax Credit: young child tax credit: foster youth tax credit: filing

SOURCE: Author

DIGEST:

This bill creates a method for taxpayers to claim the EITC, YCTC, and FYTC without filing a tax return by directing FTB to create a new form to do so.

ANALYSIS:

Existing law:

1. Requires the Franchise Tax Board (FTB) to develop and make available forms for taxpayers that are as simple as possible for taxpayers to prepare; FTB must ease taxpayers’ compliance burden in the form and design of tax returns.
2. Enacts a refundable Earned Income Tax Credit (EITC) against the Personal Income Tax, in modified conformity with federal law (SB 80, Committee on Budget and Fiscal Review, Chapter 51, Statutes of 2015).
3. Provides that the EITC is only operative for taxable years for which resources are authorized in the annual Budget Act for FTB to oversee and audit returns associated with the credit.
4. Provides that the Legislature must establish the California EITC adjustment factor – the percentage of the credit allowed for federal taxes for the taxpayer - for each taxable year; otherwise the California EITC adjustment factor is zero. For 2022, the California EITC adjustment factor is 85 percent, with the actual amount of EITC allowed dependent upon filing status of the eligible individual, how many qualifying children the eligible individual has, and how much earned income the eligible individual claims.
5. Allows, additionally, a refundable Young Child Tax Credit (YCTC) for a taxpayer who claims the EITC, and who has a child under the age of six at the end of the taxable year, equal to $1,000, which is reduced by $20 for each $100 (or fraction thereof) that the taxpayer’s income exceeds $25,000.
6. Allows, additionally, a Foster Youth Tax Credit (FTYC) of up to $1,083 per eligible individual, who meets all of the following requirements:
   1. Qualify for the CalEITC;
   2. Were between the ages of 18 and 25 at the end of the taxable year;
   3. Were in California foster care at age 13 or older and place through the California foster care system; and
   4. Satisfy the foster care verification requirement.
7. Allows individuals with income below a certain threshold to not file a tax return for state purposes, when the value of the standard deduction and personal exemption credit exceed the taxpayer’s liability. For 2022, these thresholds are $20,913 in gross income or $16,730 in adjusted gross income (AGI) for single taxpayers (under 65 years of age with no dependents) and $41,830 in gross income or $33,466 in AGI for married individuals filing jointly (under 65 years of age with no dependents).
8. Increases the above thresholds based on the number of dependents claimed, or if the taxpayer(s) are over the age of 65, and directs FTB to adjust them annually for inflation.
9. Prohibits, generally, disclosure or inspection of any income tax return information, and sets forth criminal sanctions, including imprisonment, which apply to FTB personnel convicted of unlawful disclosure or inspection of tax records.
10. Contains explicit exemptions allowing FTB to disclose information to certain entities for specified purposes, including to allow FTB to exchange data with the Department of Social Services (DSS) and the Department of Health Care Services (DHCS) including the names, addresses, and contact information of individuals that may qualify for Voluntary Tax Assistance, the Cal File Program, EITC, YCTC, and FYTC.

This bill:

1. Creates a program for taxpayers to claim the EITC, YCTC, and FYTC without filing a tax return by directing FTB to create a new form to do so.
2. Begins the program on January 1, 2026, which is limited in its first year to qualified individuals with no dependents.
3. Directs FTB to make the form available to all qualified individuals after the first year, defined as an individual who meets all of the following requirements:
   1. Does not have an income tax filing requirement;
   2. Has received an invitation from the FTB to participate in the free tax return preparation program for the taxable year;
   3. Is eligible for any of the following credits:
      1. CalEITC
      2. YCTC
      3. FYTC
4. Exempts the FTB from all provisions of state contracting law and any approvals or oversight from the Department of Technology or the Department of General Services, as well as from Project Approval Lifecycle requirements and reporting as described in the applicable sections of the Statewide Information Management Manual, for purposes of implementing the bill.
5. Expands existing data sharing provision between the DSS, the DHCS, and the FTB, to allow for the exchange of data directly connected with the administration of the free tax return preparation program established under this bill
6. Permits FTB to use data it receives from DSS and DHCS to prepopulate the form created by the bill, and directs taxpayers to edit and correct information as appropriate on any prepopulated form.
7. States that the form shall be prescribed by FTB, and is treated as a personal income tax return, but precludes taxpayers using the form from claiming credits or withholding on form created by the bill.
8. Makes a legislative fining and declaration regarding the bill’s limitation on the writings of public officials and agencies.

Background

Increasing EITC claims. Since it was enacted, taxpayers were not claiming the California EITC at the Legislature’s desired and anticipated rate. In 2020, the Legislature enacted SB 1409 (Caballero, Chapter 114, Statutes of 2020), which requires the FTB provide a study that would analyze and develop a plan to implement a “no return” or “non-filer” tax filing pilot program. The study was provided to the legislature on January 3, 2022. The findings discussed opportunities to allow for taxpayers with little to no income to file their returns to claim the CalEITC, YCTC and FYTC. The study discussed each possibility, and indicated that there would be less risk if FTB were able to work with “known populations” of taxpayers first, before they did any outreach to those without a filing requirement who have never filed with the FTB. The study recommended enhancing CalFile as a starting point would allow the FTB to reach out to those that have filed with the FTB in the past. The report noted that there were significant fraud risks in starting with the simplified one page return and not starting with a known population of taxpayers.

Related/Prior Legislation

Earlier this year, the Senate approved SB 565 (Caballero), which created a free program that utilized pre-population of data (to the extent possible) for qualified individuals to complete and e-file their California state personal income tax returns. The bill would also exempt the FTB from existing contracting laws and specified approvals and oversight in administration relating to the form, as well as make a conforming change to the same exception to taxpayer confidentiality as made by this bill. SB 565 is currently pending on the Assembly Floor.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• This bill would not change the way income tax is calculated under current law. However, it would likely increase the number of taxpayers claiming the CalEITC, YCTC, and/or FYTC. The resulting General Fund revenue loss is unknown, but would minimally be in the tens of millions of dollars annually.
• FTB indicates that it would incur General Fund administrative costs of $600,000 in 2023-24, $4.1 million in 2024-25, $7 million annually for the three subsequent fiscal years, and $4.8 million annually thereafter (starting in 2028-29). Cost drivers would include creating the required form, IT programming, processing, and taxpayer outreach.

FTB notes this cost estimate was developed with the assumption that another bill is also enacted: SB 565 (Caballero), which would require it to provide a free tax return preparation program utilizing prepopulated data. The resources and system changes needed for both proposals overlap significantly. Consequently, costs associated with this bill may be higher if SB 565 is not also enacted.

• The Department of Social Services (DSS) and the Department of Health Care Services (DHCS) anticipate minor and absorbable costs related to this bill’s data exchange provisions. Both entities already exchange data with FTB to implement other tax programs.

SUPPORT: (Verified 9/2/23)

All Home
California Alliance of Child and Family Services
California Family Resource Center
Child Abuse Prevention Center
Children’s Bureau of Southern California
Economic Security Project Action

OPPOSITION: (Verified 9/2/23)

None received

ARGUMENTS IN SUPPORT: According to the author, “California’s Earned Income Tax Credit (CalEITC) is a crucial anti-poverty tool that puts money back into the pockets of our working taxpayers. In 2021 alone, the state awarded nearly $1.3 billion in CalEITC credits to over 4.2 million low-income Californians. Yet despite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual’s ability to claim the credit. In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone tax return form that would allow certain qualified CalEITC recipients to claim the earned income tax credit, the young child tax credit, or the foster youth tax credit without needing to file an individual income tax return. Through this simplified return, the state will further encourage working Californians to claim the CalEITC credits they have earned.”

ASSEMBLY FLOOR: 79-0, 5/30/23

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NO VOTE RECORDED: Sanchez

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

9/6/23 7:29:24

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 1002 (Irwin) - Taxation: Earned Income Tax Credit: young child tax credit: foster youth tax credit: filing

Bill Summary:

AB 1002 would direct the Franchise Tax Board (FTB) to create a new form that would allow taxpayers to claim the California Earned Income Tax Credit (CalEITC), the Young Child Tax Credit (YCTC), and the Foster Youth Tax Credit (FYTC), without filing a tax return.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on September 1, 2023

Fiscal Impact:

• This bill would not change the way income tax is calculated under current law. However, it would likely increase the number of taxpayers claiming the CalEITC, YCTC, and/or FYTC. The resulting General Fund revenue loss is unknown, but would minimally be in the tens of millions of dollars annually.
• FTB indicates that it would incur General Fund administrative costs of $600,000 in 2023-24, $4.1 million in 2024-25, $7 million annually for the three subsequent fiscal years, and $4.8 million annually thereafter (starting in 2028-29). Cost drivers would include creating the required form, IT programming, processing, and taxpayer outreach.

FTB notes this cost estimate was developed with the assumption that another bill is also enacted: SB 565 (Caballero), which would require it to provide a free tax return preparation program utilizing prepopulated data. The resources and system changes needed for both proposals overlap significantly. Consequently, costs associated with this bill may be higher if SB 565 is not also enacted.

• The Department of Social Services (DSS) and the Department of Health Care Services (DHCS) anticipate minor and absorbable costs related to this bill’s data exchange provisions. Both entities already exchange data with FTB to implement other tax programs.

Author Amendments:

• Update Section 1 of the bill to reflect changes to Revenue and Taxation Code Section 19551.3 that were recently enacted by SB 131, Chapter 55, Statues of 2023.
• Authorize FTB to prepopulate this bill’s form with data gathered under R&TC Section 19551.3.
• Clarify language stipulating the requirements for this bill’s form.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 1002 (Irwin) - Taxation: Earned Income Tax Credit: young child tax credit: foster youth tax credit: filing

Bill Summary:

AB 1002 would direct the Franchise Tax Board (FTB) to create a new form that would allow taxpayers to claim the California Earned Income Tax Credit (CalEITC), the Young Child Tax Credit (YCTC), and the Foster Youth Tax Credit (FYTC), without filing a tax return.

Fiscal Impact:

• This bill would not change the way income tax is calculated under current law. However, it would likely increase the number of taxpayers claiming the CalEITC, YCTC, and/or FYTC. The resulting General Fund revenue loss is unknown, but would minimally be in the tens of millions of dollars annually.
• FTB indicates that it would incur General Fund administrative costs of $600,000 in 2023-24, $4.1 million in 2024-25, $7 million annually for the three subsequent fiscal years, and $4.8 million annually thereafter (starting in 2028-29). Cost drivers would include creating the required form, IT programming, processing, and taxpayer outreach.

FTB notes this cost estimate was developed with the assumption that another bill is also enacted: SB 565 (Caballero), which would require it to provide a free tax return preparation program utilizing prepopulated data. The resources and system changes needed for both proposals overlap significantly. Consequently, costs associated with this bill may be higher if SB 565 is not also enacted.

• The Department of Social Services (DSS) and the Department of Health Care Services (DHCS) anticipate minor and absorbable costs related to this bill’s data exchange provisions. Both entities already exchange data with FTB to implement other tax programs.

Background:

The Earned Income Tax Credit (EITC) is a federal tax credit for low-to-moderate income individuals and families. Congress originally approved the EITC in 1975, in part to offset the burden of social security taxes and to provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who qualify for the credit and claim it. The credit is based on a percentage of the taxpayer's earned income, and phases out as income increases. The percentage varies depending on whether the taxpayer has qualifying children.

In 2015, the Legislature enacted the CalEITC (SB 80, Committee on Budget and Fiscal Review). The CalEITC is a refundable Personal Income Tax credit allowed to eligible individuals determined in accordance with the federal EITC, except as modified for California. The CalEITC is only operative for taxable years for which resources are authorized in the annual Budget Act for FTB to oversee and audit returns associated with the credit.

The CalEITC amount allowed is dependent upon filing status of the eligible individual, how many qualifying children the eligible individual has, and how much earned income the eligible individual claims. For tax year 2022, all individuals making $30,000 or less regardless of whether the eligible individual has a qualifying child, are eligible. The 2022 maximum credit for taxpayers is (1) $3,417 with three or more qualifying children, (2) $3,037 with two qualifying children, (3) $1,843 with one qualifying child, or (4) $275 with no qualifying children.

Starting in taxable year 2019, some individuals may qualify for the YCTC. To qualify, a taxpayer must have a child under the age of six at the end of the taxable year and the taxpayer must have been allowed a CalEITC. Taxpayers can claim a credit up to $1,000, which is reduced by $20 for each $100 (or fraction thereof) that the taxpayer’s income exceeds $25,000. In 2022, the Legislature expanded the credit to allow it to those individuals who have a qualified child and would have received the CalEITC, but have no earned income in the taxable year (SB 201, Committee on Budget). SB 201 also indexed the value of the YCTC to inflation; consequently, the maximum YCTC allowed in 2022 increased to $1,083. Unlike all other state tax credits, CalEITC and YCTC are refundable, meaning that the state refunds the taxpayer any amount of credit even if their tax liability is reduced to zero.

SB 201 also implemented the FTYC. This credit provides up to $1,083 per eligible individual. To qualify for this credit, current and former foster youth must meet all of the following requirements: (2) qualify for the CalEITC, (2) were between the ages of 18 and 25 at the end of the taxable year, (3) were in California foster care at age 13 or older and placed through the California foster care system, and (4) satisfy the foster care verification requirement.

State law allows individuals with income below a certain threshold to not file a tax return for state purposes, when the value of the standard deduction and personal exemption credit exceed the taxpayer’s liability. For 2022, these thresholds are $20,913 in gross income or $16,730 in adjusted gross income (AGI) for single taxpayers (under 65 years of age with no dependents) and $41,830 in gross income or $33,466 in AGI for married individuals filing jointly (under 65 years of age with no dependents). These thresholds are increased based on the number of dependents claimed, or if the taxpayer(s) are over the age of 65, and are increased annually for inflation.

Senate Bill 1409 (Caballero, 2020) requires FTB provide a study that would analyze and develop a plan to implement a “no return” or “non-filer” tax filing pilot program. The study was provided to the Legislature in January, 2022. The findings discussed opportunities to allow for taxpayers with little to no income to file their returns to claim the CalEITC, YCTC and FYTC. The study discussed each possibility, and indicated that there would be less risk if FTB were able to work with “known populations” of taxpayers first, before they did any outreach to those without a filing requirement who have never filed with the FTB. The study recommended enhancing CalFile as a starting point would allow the FTB to reach out to those that have filed with the FTB in the past. The report noted that there were significant fraud risks in starting with the simplified one page return and not starting with a known population of taxpayers.

Proposed Law:

This bill would, among other things, do the following:

• Create a method for taxpayers to claim the CalEITC, YCTC, and FYTC without filing a tax return by directing FTB to create a new form to do so. The program would begin on January 1, 2026, and is limited in its first year to qualified individuals with no dependents. The following year, FTB would be required to make the form available to all qualified individuals, defined as an individual who (1) is eligible for the EITC, YCTC, or FYTC, (2) does not have a tax return filing requirement, and (3) received an invitation from FTB.
• Provide that FTB prescribe the form, which is subject to the same requirements as a tax return. Individuals who claim withholding or other credits would be precluded from using the form.
• Exempt FTB from all provisions of state contracting law and any approvals or oversight from the Department of Technology or the Department of General Services. Additionally, FTB would be exempt from Project Approval Lifecycle requirements and reporting as described in the applicable sections of the Statewide Information Management Manual.
• Make conforming changes to current law requiring DSS and DHCS to exchange information with FTB to identify individuals who may be eligible for the CalEITC.

Related Legislation:

SB 565 (Caballero) would require FTB to provide a free tax return preparation program to individuals eligible for the CalEITC, the YCTC, and the FYTC. The program would (1) utilize prepopulated data, and (2) allow taxpayers to edit or correct information before filing their California personal income tax return. The bill would also include a data sharing provision to accomplish this purpose. SB 565 is currently pending in the Assembly Appropriations Committee.

Staff Comments:

FTB assumes that by offering (1) a simplified tax filing option under this bill, and (2) the free state tax return preparation program as proposed under SB 565, 139,000 qualified taxpayers would file and claim the CalEITC, YCTC, or the FYTC in taxable year 2025 using these new tools. FTB anticipates the number to grow to 420,000 in taxable year 2026, and would increase each year thereafter.

Any local government costs resulting from the mandate in this measure are not state-reimbursable because the mandate only involves the definition of a crime or the penalty for conviction of a crime.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Taxation: Earned Income Tax Credit: young child tax credit: foster youth tax credit: filing

Creates a method for taxpayers to claim the EITC, YCTC, and FYTC without filing a tax return by directing FTB to create a new form to do so.

Background

Earned income tax credit (EITC). The EITC is a federal tax credit for low-to-moderate income individuals and families. Congress originally approved the tax credit legislation in 1975, in part to offset the burden of social security taxes and to provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. As the name implies, the credit is based on a percentage of the taxpayer's earned income, and phases out as income increases. The percentage varies depending on whether the taxpayer has qualifying children. Married individuals are eligible for only one credit on their combined earned income and must file a joint return to claim the credit.

In 2015, the Legislature enacted a California EITC (SB 80, Committee on Budget and Fiscal Review). The California EITC (CalEITC) is a refundable Personal Income Tax credit allowed to eligible individuals determined in accordance with the federal EITC, except as modified for California. The CalEITC is only operative for taxable years for which resources are authorized in the annual Budget Act for the Franchise Tax Board (FTB) to oversee and audit returns associated with the credit. The Legislature controls the fiscal effect of the EITC each year by establishing the CalEITC adjustment factor for each taxable year; if it does not do so, the CalEITC adjustment factor is zero. The adjustment factor is the percent of the total credit that will be allowed for any taxable year. For 2022, the CalEITC adjustment factor is 85%.

The amount of EITC allowed is dependent upon filing status of the eligible individual, how many qualifying children the eligible individual has, and how much earned income the eligible individual claims. For tax year 2022, all individuals making $30,000 or less regardless of whether the eligible individual has a qualifying child, are eligible for the CalEITC. The 2022 maximum credit for taxpayers is as follows:

• $3,417 with three or more qualifying children.
• $3,037 with two qualifying children.
• $1,843 with one qualifying child.
• $275 with no qualifying children.

Young Child Tax Credit. In addition to the CalEITC outlined above, starting in taxable year 2019, some individuals qualified for the “young child tax credit” (YCTC). To qualify for the credit a taxpayer must have a child under the age of six at the end of the taxable year and the taxpayer must have been allowed a CalEITC. Taxpayers can claim a credit up to $1,000, which is reduced by $20 for each $100 (or fraction thereof) that the taxpayer’s income exceeds $25,000. In 2022, the Legislature expanded the YCTC to allow it to those individuals who have a qualified child and would have received the CalEITC, but have no earned income in the taxable year (SB 201, Committee on Budget and Fiscal Review). SB 201 also indexed the value of the YCTC to inflation and as a result the maximum YCTC allowed in 2022 increased to $1,083. Unlike all other state tax credits, CalEITC or YCTC are refundable, meaning the state refunds the taxpayer any amount of credit even if their tax liability is reduced to zero.

Foster Youth Tax Credit. In 2022, the Legislature enacted SB 201 (Committee on Budget) to create the Foster Youth Tax Credit (FTYC). This credit provides up to $1,083 per eligible individual. To qualify for this credit, current and former foster youth must meet all of the following requirements:

• Qualify for the CalEITC;
• Were between the ages of 18 and 25 at the end of the taxable year;
• Were in California foster care at age 13 or older and place through the California foster care system; and
• Satisfy the foster care verification requirement.

Filing requirements. State law allows individuals with income below a certain threshold to not file a tax return for state purposes, when the value of the standard deduction and personal exemption credit exceed the taxpayer’s liability. For 2022, these thresholds are $20,913 in gross income or $16,730 in adjusted gross income (AGI) for single taxpayers (under 65 years of age with no dependents) and $41,830 in gross income or $33,466 in AGI for married individuals filing jointly (under 65 years of age with no dependents). These thresholds are increased based on the number of dependents claimed, or if the taxpayer(s) are over the age of 65, and are increased annually for inflation.

Taxpayer confidentiality. State law generally prohibits the disclosure or inspection of any income tax return information, and sets forth criminal sanctions, including imprisonment, which apply to FTB personnel convicted of unlawful disclosure or inspection of tax records. However, state law contains explicit exemptions allowing FTB to disclose information to certain entities for specified purposes, including allowing FTB to exchange data with the Department of Social Services (DSS) and the Department of Health Care Services (DHCS) including the names, addresses, and contact information of individuals who may qualify for the EITC.

Tax forms. FTB is responsible for administering the Personal Income and Corporation Tax Laws, and as part of this duty, must develop and make available forms for taxpayers that are as simple as possible for taxpayers to prepare. State law directs FTB to ease taxpayers’ compliance burden in the form and design of tax returns.

Senate Bill 1409 (Caballero, 2020). In 2020, the Legislature (SB 1409, Caballero) required the FTB provide a study to analyze and develop a plan to implement a “no return” or “non-filer” tax filing pilot program. The study was provided to the Legislature on January 3, 2022. The findings discussed opportunities to allow for taxpayers with little to no income to file their returns to claim the CalEITC, YCTC and FYTC. The study discussed each possibility, and indicated there would be less risk of incomplete information resulting in inaccurate tax filing as well as the potential for fraudulent returns if FTB were able to work with “known populations” of taxpayers first. The study recommended that enhancing CalFile, which is the FTB’s free online direct to government e-filing program for the California personal income tax return, as a starting point would allow the FTB to reach out to those that have filed with the FTB in the past. The report noted there were significant fraud risks in starting with the simplified one page return that did not start with a known population of taxpayers.

The author wants to provide another option for individuals to claim the California EITC, YCTC and FYTC by directing FTB to design a form for use by those who do not file a return.

Proposed Law

Assembly Bill 1002 creates a method for taxpayers to claim the EITC, YCTC, and FYTC without filing a tax return by directing FTB to create a new form to do so. The program begins on January 1, 2026, and is limited in its first year to qualified individuals with no dependents. After the first year, FTB must make the form available to all qualified individuals, which the measure defines as an individual who:

• Is eligible for the EITC, YCTC, or FYTC;
• Does not have a tax return filing requirement; and
• Received an invitation from FTB.

FTB prescribes the form and manner of the form, which is subject to the same requirements as a tax return. Individuals who claim withholding or other credits cannot use the form.

The bill exempts the FTB from all provisions of state contracting law and any approvals or oversight from the Department of Technology or the Department of General Services. Additionally, the FTB shall be exempt from Project Approval Lifecycle requirements and reporting as described in the applicable sections of the Statewide Information Management Manual.

AB 1002 makes a conforming change to provisions of law requiring the Departments of Social Services and Health Care Services to exchange information with FTB to identify individuals who may be eligible for the EITC, and makes a legislative finding regarding its limitation on disclosing sensitive taxpayer information.

State Revenue Impact

According to FTB, AB 1002 does not alter the calculation of income tax, although it may increase the number of persons claiming the EITC, YCTC, or FYTC.

Comments

1. Purpose of the bill. According to the author, “California’s Earned Income Tax Credit (CalEITC) is a crucial anti-poverty tool that puts money back into the pockets of our working taxpayers. In 2021 alone, the state awarded nearly $1.3 billion in CalEITC credits to over 4.2 million low-income Californians. Yet despite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual’s ability to claim the credit. In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone tax return form that would allow certain qualified CalEITC recipients to claim the earned income tax credit, the young child tax credit, or the foster youth tax credit without needing to file an individual income tax return. Through this simplified return, the state will further encourage working Californians to claim the CalEITC credits they have earned.”

2. Why the exemption from state contracting law? The FTB is currently undergoing a large-scale, multi-year systems upgrade where the vendors have already been chosen and have been working to implement the project for several years. Due to the complex nature of the project and the large scale impact it has on the entire department, it is important that the vendor currently managing the current large project be allowed to implement the changes required by the bill into the project. If FTB were subject to the state contracting law, and required to put system upgrades out to bid where other vendors could win the contract, this could cause problems with their current project, and delay implementation of this bill and the entire project. To alleviate the problem, the bill provides an exclusion from this requirement so FTB may work with the vendor that is already working on its systems upgrade to make the system changes necessary to implement this bill.

3. Related Legislation. Earlier this year, the Committee approved SB 565 (Caballero), which created a “free tax return preparation program” as a free program that utilized pre-population of data (to the extent possible) for qualified individuals to complete and e-file their California state personal income tax returns. The bill would also exempt the FTB from existing contracting laws and specified approvals and oversight in administration relating to the form, as well as make a conforming change to the same exception to taxpayer confidentiality as made by this bill. SB 565 is currently pending in the Assembly Revenue and Taxation Committee.

Assembly Actions

Assembly Revenue and Taxation Committee: 10-0
Assembly Appropriations Committee: 13-0
Assembly Floor: 79-0

Support and Opposition

(6/23/23)

Support: California Alliance of Child and Family Services
California Catholic Conference
Children's Bureau of Southern California
Economic Security Project Action

Opposition: None submitted.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1002

Author:(Irwin)

As Amended Ver:April 17, 2023

Majority vote

SUMMARY

Authorizes, for taxable years beginning on or after January 1, 2026, a method for taxpayers to claim the California Earned Income Tax Credit (CalEITC), the Young Child Tax Credit (YCTC), and the Foster Youth Tax Credit (FYTC) without filing a tax return, as prescribed.

Major Provisions

1. Allows, for taxable years beginning on or after January 1, 2026, but before January 1, 2027, a "qualified individual" with no dependents to claim a "qualified credit" on a form that does not require the filing of an individual tax return.
2. Authorizes, for taxable years beginning on or after January 1, 2027, any "qualified individual" to claim a "qualified credit" on a form that does not require the filing of an individual tax return.
3. Defines a "qualified credit" as the CalEITC, the YCTC, or the FYTC.
4. Defines a "qualified individual" as an individual that is eligible for a qualified credit, does not have a tax return filing requirement, and receives an invitation from the Franchise Tax Board (FTB) to submit the form to claim a qualified credit.
5. Provides that the form shall be in the form and manner prescribed by the FTB and be subject to the same requirements as an individual income tax return.
6. Prohibits individuals who can claim withholding or other credits from eligibility for this form.
7. Removes the repeal date on the authorization for the FTB to disclose individual income tax return information to specified state agencies for the purposes of informing state residents of certain anti-poverty tax credits, and free tax preparation and filing services.
8. Adds this bill's provisions as an eligible purpose under the authorization for the FTB to disclose individual income tax return information to specified state agencies.
9. Exempts the FTB from state contracting laws for the purposes of administering this bill's provisions.

COMMENTS

1. CalEITC: In 2015, the Legislature enacted SB 80 (Committee on Budget and Fiscal Review), Chapter 21, Statutes of 2015, which established the CalEITC. The CalEITC is a refundable PIT credit allowed to eligible individuals determined in accordance with the federal EITC, except as modified for California. The state credit is only operative in taxable years in which the Budget Act allocates resources for the FTB to oversee and audit returns associated with the credit. To be eligible, a taxpayer must have earned income of at least $1.00, but no more than $30,000 for that taxable year. The amount of credit varies based on a taxpayer's AGI, the number of dependents a taxpayer may claim on their return, and filing status, among other factors. The state credit calculation begins with a taxpayer's federal AGI and additional information that impacts the calculation of the state credit, such as number of dependents, is submitted via Form 3514 when filing a return. Generally speaking, eligible taxpayers with a higher number of dependents receive increased amounts of credit.
2. Barriers to claiming the CalEITC: In order to claim the CalEITC, and subsequently the YCTC and FYTC, a taxpayer must file an income tax return. Existing law, however, establishes a minimum income threshold that an individual may earn before being required to file a return. While these amounts vary based on the taxable year, filing status, and number of dependents, any taxpayer that has at least one dependent is not required to file a return if they make less than $35,546, in the 2022 taxable year. As noted above, the maximum income a taxpayer may earn to qualify for the CalEITC is $30,000. Thus, any family that earns income that is eligible for the CalEITC is not required to file a PIT return.

Additionally, the cost to file a return for those individuals that are not required to file a return may outweigh the benefit of the CalEITC. The average cost to prepare a tax return is estimated at $325. The maximum amount of the CalEITC that a single filer with no dependents may receive is $275 for the 2022 taxable year. Moreover, as the number of dependents that a filer may claim increases, the complexity of preparing a return generally increases, which subsequently increases the cost for preparation. While there are free filing options for which CalEITC eligible households would qualify, the generally greater complexity of preparing a return as household size increases can push households towards a professional preparer which can be costly. Volunteer Income Tax Assistance programs, that provide free assistance to eligible, low-income filers, are often over-subscribed and cannot support all households that seek their assistance.

1. Enterprise Data to Revenue (EDR) project: The FTB is currently undergoing a systems update, EDR project. The EDR project is in its second of three phases, and is intended to modernize the information technology (IT) systems and processes across the agency. This project is updating systems that date back to the 1980s, and any change to existing practices would likely require integration with the EDR project. This bill exempts its provisions from various state contracting laws and project oversight processes. This exemption is provided because the existing vendor for the EDR project would be required to integrate the filing option authorized by this bill into the general systems update occurring at the FTB. In order to prevent any impact to the EDR project, which would delay implementation and increase the projects costs, this bill seeks to ensure that the new filing option can be seamlessly integrated into the existing IT systems modernization efforts at the FTB.

According to the Author

The CalEITC is a crucial anti-poverty tool that puts money back into the pockets of our working taxpayers. In 2021 alone, the state awarded nearly $1.3 billion in CalEITC credits to over 4.2 million low-income Californians. Yet despite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual's ability to claim the credit.

In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, or the FYTC without needing to file an individual income tax return. Through this simplified form, the state will further encourage working Californians to claim the CalEITC credits they have earned.

Arguments in Support

The Economic Security Project Action, writing in support of this bill, states, in part:

Eligible CalEITC recipients state time and time again that not meeting the filing threshold, combined with the complex filing methods that are currently used in California, hinder their ability to claim the credit. Analysis from Code for America found that 21 percent of low-income filers could not provide earnings documentation required to file taxes, making this a significant barrier. AB 1002 will create a stand-alone tax return form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, and the FYTC.

Arguments in Opposition

None on file

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

1. General Fund (GF) revenue loss of an unknown, but potentially significant, amount to the extent streamlining the claims process increases the number of taxpayers claiming the CalEITC, YCTC, or FYTC.
2. GF costs of approximately $609,000 in fiscal year (FY) 2023-24, $4.1 million in FY 2024-25, and $7 million in FY 2025-26 to FTB to develop the form and update information technology (IT) systems. FTB notes this cost estimate was developed with the assumption that another bill (SB 565 (Caballero)) requiring FTB to provide a free tax return preparation program utilizing prepopulated data is also enacted, as the resources and system changes needed for both proposals are significantly intertwined. Thus, costs associated with this bill may be higher if SB 565 is not also enacted.
3. Minor and absorbable costs to DSS and DHCS related to this bill's data exchange provisions, as these state agencies already exchange data with FTB to implement other tax programs.

VOTES

ASM REVENUE AND TAXATION: 10-0-1

YES: Irwin, Wallis, Bains, Grayson, Pacheco, Jim Patterson, Petrie-Norris, Luz Rivas, Valencia, Zbur

ABS, ABST OR NV: Ta

ASM APPROPRIATIONS: 13-0-3

YES: Holden, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Weber, Ortega

ABS, ABST OR NV: Megan Dahle, Robert Rivas, Sanchez

UPDATED

VERSION: April 17, 2023

CONSULTANT: Harrison Bowlby / REV. & TAX. / (916) 319-2098 FN: 0000624

Date of Hearing: May 10, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1002

Author:(Irwin) – As Amended Ver:April 17, 2023

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

SUMMARY:

This bill authorizes, for taxable years beginning on or after January 1, 2026, a qualified individual to claim the California Earned Income Tax Credit (CalEITC), Young Child Tax Credit (YCTC), or Foster Youth Tax Credit (FYTC) on a form that does not require filing an individual income tax return.

This bill also allows the Department of Social Services (DSS) and Department of Health Care Services (DHCS) to exchange data with the Franchise Tax Board (FTB), and vice versa, for purposes of implementing the form. This bill exempts FTB from all provisions of state contracting laws and any approvals or oversight from the Department of Technology (CDT) or Department of General Services (DGS) for purposes of administering the form.

FISCAL EFFECT:

1. General Fund (GF) revenue loss of an unknown, but potentially significant, amount to the extent streamlining the claims process increases the number of taxpayers claiming the CalEITC, YCTC, or FYTC.
2. GF costs of approximately $609,000 in fiscal year (FY) 2023-24, $4.1 million in FY 2024-25, and $7 million in FY 2025-26 to FTB to develop the form and update information technology (IT) systems. FTB notes this cost estimate was developed with the assumption that another bill (SB 565 (Caballero)) requiring FTB to provide a free tax return preparation program utilizing prepopulated data is also enacted, as the resources and system changes needed for both proposals are significantly intertwined. Thus, costs associated with this bill may be higher if SB 565 is not also enacted.
3. Minor and absorbable costs to DSS and DHCS related to this bill’s data exchange provisions, as these state agencies already exchange data with FTB to implement other tax programs.

COMMENTS:

1. Purpose. According to the author:

[D]espite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual’s ability to claim the credit.

In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, or the FYTC without needing to file an individual income tax return.

This bill is supported by Economic Security Project Action and other family resource groups.

1. Background.

Anti-poverty Tax Credit Programs. The federal EITC and CalEITC are one of the most effective anti-poverty programs in America, putting money back in the pockets of low-income working families who file a tax return. California also recently enacted the YCTC to provide an additional credit for every family who qualifies for the CalEITC and has at least one child age six or under, as well as the FYTC for current and foster youth ages 18 to 25 who qualify for the CalEITC and were in California foster care at age 13 or older.

Barriers to Claiming Tax Credits. In order to claim the CalEITC, YCTC, or FYTC, a taxpayer must file an income tax return. Existing law, however, establishes a minimum income threshold before an individual must file a return. While these amounts vary based on the taxable year, filing status, and number of dependents, any taxpayer with at least one dependent is not required to file a return if the taxpayer makes less than $35,546 in the 2022 taxable year. Since a taxpayer must earn below $30,000 to qualify for the CalEITC, most families eligible for the CalEITC are not required to file a return and are not aware they could get a tax refund if they filed a return claiming these credits. This bill provides a simplified method for eligible households to claim the CalEITC, YCTC, and FYTC without having to file a full tax return. In the first year of this new filing option, eligible filers would be restricted to single filers with no dependents, as this group of individuals has fewer variables that impact calculation of the credit, before opening to all qualified taxpayers in subsequent years.

Enterprise Data to Revenue (EDR) Project. FTB’s EDR project is in the second of three phases and will modernize the IT systems and processes across the agency. Since the existing vendor for the EDR project would be required to integrate the filing option authorized by this bill into the vendor’s scope of work, this bill provides a related exemption from state contracting laws and approvals or oversight from CDT and DGS to prevent any delay or cost increase to the ongoing EDR project.

1. Related Legislation. SB 565 (Caballero) requires FTB to provide a free tax return preparation program that utilizes the pre-population of data so a taxpayer eligible for the CalEITC can complete and e-file their state personal income tax return. SB 565 is pending in the Senate Committee on Appropriations.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 24, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 1002 (

Author:Irwin) – As Amended Ver:April 17, 2023

Majority vote. Fiscal committee.

SUBJECT: Taxation: Earned Income Tax Credit: young child tax credit: foster youth tax credit: filing

SUMMARY: Authorizes, for taxable years beginning on or after January 1, 2026, a method for taxpayers to claim the California Earned Income Tax Credit (CalEITC), the Young Child Tax Credit (YCTC), and the Foster Youth Tax Credit (FYTC) without filing a tax return, as prescribed. Specifically, this bill:

1. Allows, for taxable years beginning on or after January 1, 2026, but before January 1, 2027, a "qualified individual" with no dependents to claim a "qualified credit" on a form that does not require the filing of an individual tax return.
2. Authorizes, for taxable years beginning on or after January 1, 2027, any "qualified individual" to claim a "qualified credit" on a form that does not require the filing of an individual tax return.
3. Defines a "qualified credit" as the CalEITC, the YCTC, or the FYTC.
4. Defines a "qualified individual" as an individual that is eligible for a qualified credit, does not have a tax return filing requirement, and receives an invitation from the Franchise Tax Board (FTB) to submit the form to claim a qualified credit.
5. Provides that the form shall be in the form and manner prescribed by the FTB and be subject to the same requirements as an individual income tax return.
6. Prohibits individuals who can claim withholding or other credits from eligibility for this form.
7. Removes the repeal date on the authorization for the FTB to disclose individual income tax return information to specified state agencies for the purposes of informing state residents of certain anti-poverty tax credits, and free tax preparation and filing services.
8. Adds this bill's provisions as an eligible purpose under the authorization for the FTB to disclose individual income tax return information to specified state agencies.
9. Exempts the FTB from state contracting laws for the purposes of administering this bill's provisions.
10. Finds and declares that this bill imposes a limitation on the public's right of access to the meetings of public bodies or the writing of public officials and agencies, and that this limitation serves to adequately protect sensitive taxpayer information from disclosure and to increase compliance.
11. Provides that no reimbursement is required by this bill because the only costs that may be incurred by a local agency or school district would result from the creation of a new crime or infraction, elimination of a crime or infraction, modification of the penalty for a crime or infraction, or changes the definition of a crime.

EXISTING FEDERAL LAW: authorizes a refundable earned income tax credit (EITC) to eligible taxpayers. The amount of this credit varies based on the taxpayer's adjusted gross income (AGI) and the number of dependents that the taxpayer may claim on their tax return, among other eligibility requirements. The credit is reduced as a taxpayer's AGI increases until it is phased out after surpassing a certain threshold. (26 U.S. Code § 32.)

EXISTING STATE LAW:

1. Conforms, with certain modifications, to the federal EITC, by authorizing the CalEITC under the (Personal Income Tax) PIT Law. The CalEITC focuses on a smaller subset of taxpayers than the federal EITC by targeting the state credit to taxpayers with the lowest incomes. (Revenue and Taxation Code (R&TC) Section 17052.)
2. Provides, for taxable years beginning on or after January 1, 2019, a refundable credit under the PIT Law equal to $1,176, multiplied by the EITC adjustment factor, per qualifying child under the age of six, as specified. The amount of the credit is adjusted for inflation. To be eligible for this credit, a taxpayer must have received a CalEITC in that taxable year. (R&TC Section 17052.1.)
3. Provides, for taxable years beginning on or after January 1, 2022, a refundable credit under the PIT Law equal to $1,176 , multiplied by the EITC adjustment factor, to a taxpayer aged 18 through 25 that was formerly in a foster youth program while age 13 or older. The amount of the credit is adjusted for inflation. To be eligible for this credit, a taxpayer must have received a CalEITC in that taxable year. (R&TC Section 17052.1.)
4. Authorizes, for taxable years beginning on or after January 1, 2020, and before January 1, 2022, the FTB to share individual income tax return information to the California Department of Social Services and the State Department of Health Care Services to inform state residents of certain anti-poverty tax credits, and free tax preparation and filling services.

FISCAL EFFECT: None, according to the FTB.

COMMENTS:

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

The CalEITC is a crucial anti-poverty tool that puts money back into the pockets of our working taxpayers. In 2021 alone, the state awarded nearly $1.3 billion in CalEITC credits to over 4.2 million low-income Californians. Yet despite best efforts at both the federal and state level, thousands of eligible individuals are still not claiming the credit due to barriers, including complex filing methods which may hinder an individual's ability to claim the credit.

In an effort to eliminate the filing burden on eligible CalEITC recipients, AB 1002 will create a stand-alone form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, or the FYTC without needing to file an individual income tax return. Through this simplified form, the state will further encourage working Californians to claim the CalEITC credits they have earned.

1. The Economic Security Project Action, writing in support of this bill, states, in part:

Eligible CalEITC recipients state time and time again that not meeting the filing threshold, combined with the complex filing methods that are currently used in California, hinder their ability to claim the credit. Analysis from Code for America found that 21 percent of low-income filers could not provide earnings documentation required to file taxes, making this a significant barrier. AB 1002 will create a stand-alone tax return form that would allow certain qualified CalEITC recipients to claim the CalEITC, the YCTC, and the FYTC.

1. Committee Staff Comments:
   1. CalEITC: In 2015, the Legislature enacted SB 80 (Committee on Budget and Fiscal Review), Chapter 21, Statutes of 2015, which established the CalEITC. The CalEITC is a refundable PIT credit allowed to eligible individuals determined in accordance with the federal EITC, except as modified for California. The state credit is only operative in taxable years in which the Budget Act allocates resources for the FTB to oversee and audit returns associated with the credit. To be eligible, a taxpayer must have earned income of at least $1.00, but no more than $30,000 for that taxable year. The amount of credit varies based on a taxpayer's AGI, the number of dependents a taxpayer may claim on their return, and filing status, among other factors. The state credit calculation begins with a taxpayer's federal AGI and additional information that impacts the calculation of the state credit, such as number of dependents, is submitted via Form 3514 when filing a return. Generally speaking, eligible taxpayers with a higher number of dependents receive increased amounts of credit.
   2. Barriers to claiming the CalEITC: In order to claim the CalEITC, and subsequently the YCTC and FYTC, a taxpayer must file an income tax return. Existing law, however, establishes a minimum income threshold that an individual may earn before being required to file a return. While these amounts vary based on the taxable year, filing status, and number of dependents, any taxpayer that has at least one dependent is not required to file a return if they make less than $35,546, in the 2022 taxable year. As noted above, the maximum income a taxpayer may earn to qualify for the CalEITC is $30,000. Thus, any family that earns income that is eligible for the CalEITC is not required to file a PIT return.

Additionally, the cost to file a return for those individuals that are not required to file a return may outweigh the benefit of the CalEITC. The average cost to prepare a tax return is estimated at $325. The maximum amount of the CalEITC that a single filer with no dependents may receive is $275 for the 2022 taxable year. Moreover, as the number of dependents that a filer may claim increases, the complexity of preparing a return generally increases, which subsequently increases the cost for preparation. While there are free filing options for which CalEITC eligible households would qualify, the generally greater complexity of preparing a return as household size increases can push households towards a professional preparer which can be costly. Volunteer Income Tax Assistance programs, that provide free assistance to eligible, low-income filers, are often over-subscribed and cannot support all households that seek their assistance.

• 1. Enterprise Data to Revenue (EDR) project: The FTB is currently undergoing a systems update, EDR project. The EDR project is in its second of three phases, and is intended to modernize the information technology (IT) systems and processes across the agency. This project is updating systems that date back to the 1980s, and any change to existing practices would likely require integration with the EDR project.
  2. This bill: As currently drafted, this bill would provide a simplified method for eligible households to claim the CalEITC, the YCTC, and the FYTC without having to file a full tax return. In the first year of this new filing option, eligible filers would be restricted to single filers with no dependents, as this group of individuals have fewer variables that impact the calculation of the credit. In the second and proceeding years, this bill's filing option would be available to any household eligible for the CalEITC, the YCTC, and the FYTC.

This bill exempts its provisions from various state contracting laws and project oversight processes. This exemption is provided because the existing vendor for the EDR project would be required to integrate the filing option authorized by this bill into the general systems update occurring at the FTB. In order to prevent any impact to the EDR project, which would delay implementation and increase the projects costs, this bill seeks to ensure that the new filing option can be seamlessly integrated into the existing IT systems modernization efforts at the FTB.

REGISTERED SUPPORT / OPPOSITION:

Support

Economic Security Project Action

Opposition

None on file

Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098