The Personal Income Tax Law, in modified conformity with federal income tax laws, allows an earned income tax credit 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, as specified. The law provides that the amount of the credit is calculated as a percentage of the eligible individuals earned income and is phased out above a specified amount as income increases, and provides alternative calculation factors under specified circumstances. Existing law, for taxable years beginning on or after January 1, 2020, and until and including the taxable year in which the minimum wage is set at $15 per hour, requires the phaseout percentage for eligible individuals to be recalculated by the Franchise Tax Board so that the calculated amount of credit for a taxpayer with an earned income of $30,000 is equal to zero. Existing law allows a payment to an eligible individual from the Tax Relief and Refund Account, a continuously appropriated fund, for any amount of the credit in excess of tax liability, as provided.

This bill, upon appropriation by the Legislature, for taxable years beginning on or after January 1, 2023, if the amount of credit computed for an eligible individual is less than $355, as specified, would allow the credit for the eligible individual to be $355, except as otherwise specified.

(1)The Personal Income Tax Law, in modified conformity with federal income tax laws, allows an earned income tax credit 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, as specified. The law provides that the amount of the credit is calculated as a percentage of the eligible individuals earned income and is phased out above a specified amount as income increases, and provides alternative calculation factors under specified circumstances. Existing law, for taxable years beginning on or after January 1, 2020, and until and including the taxable year in which the minimum wage is set at $15 per hour, requires the phaseout percentage for eligible individuals to be recalculated by the Franchise Tax Board so that the calculated amount of credit for a taxpayer with an earned income of $30,000 is equal to zero. Existing law allows a payment to an eligible individual from the Tax Relief and Refund Account, a continuously appropriated fund, for any amount of the credit in excess of tax liability, as provided.

This bill, upon appropriation by the Legislature, for taxable years beginning on or after January 1, 2023, if the amount of credit computed for an eligible individual is less than $355, as specified, would allow the credit for the eligible individual to be $355, except as otherwise specified.

(2)Existing law requires the Controller to state an account with persons that receive funds or property belonging to the state and fail to properly render account thereof to the state, and persons that fail to pay to the State Treasury any money belonging to the state. Existing law requires the Controller to offset delinquent accounts against personal income tax refunds that have been certified by the Franchise Tax Board, subject to a specified priority. Existing law, for taxable years beginning on or after January 1, 2024, prohibit the Controller from offsetting delinquent accounts against the personal income tax refunds of an individual who received the above-described earned income tax credit or the young child tax credit for the taxable year, except as specified.

This bill would state that the prohibition on the Controller from offsetting delinquent accounts against the personal income tax refunds of an individual who received the earned income tax credit or the young child tax credit for the taxable year includes advance or periodic payments of those credits.

Date of Hearing: May 17, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1498

Author:(Gipson) – As Amended Ver:April 26, 2023

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

SUMMARY:

This bill increases, upon appropriation, the minimum California Earned Income Tax Credit (CalEITC) amount to $355.

FISCAL EFFECT:

1. General Fund (GF) cost pressures to appropriate approximately $550 million in fiscal year (FY) 2023-24, $550 million in FY 2024-25, and $550 million in FY 2025-26 to provide increased CalEITC amounts to specified taxpayers. To the extent an appropriation is made, the corresponding amount of GF revenue loss would occur.
2. GF costs of an unknown, but potentially significant, amount to the Franchise Tax Board (FTB) to reprogram systems, revise forms, and conduct taxpayer outreach for the increased CalEITC amount

COMMENTS:

1. Purpose. According to the author, increasing the minimum CalEITC amount “will make the benefit more meaningful by providing recipients with greater economic security and encouraging eligible taxpayers to claim the credit.” This bill is sponsored by GRACE – End Child Poverty in California and supported by the CalEITC Coalition, which consists of community-based faith, labor, youth, and immigrant organizations.
2. CalEITC Expansion. In 2016, California began offering its own CalEITC program, modeled off the federal EITC, to put money back in the pockets of low-income, working families who file a tax return. The Budget Act of 2019 significantly expanded the CalEITC by more than doubling spending on the existing credit from $400 million to $1 billion and raising the number of households receiving the credit to three million. The Budget Act of 2019 also enacted the Young Child Tax Credit (YCTC) to provide an additional $1,000 credit for every family who qualifies for the CalEITC and has at least one child younger than age six. The Budget Act of 2020 subsequently extended the CalEITC to undocumented taxpayers who file using an Individual Taxpayer Identification Number. Most recently, the Budget Act of 2022 extended the YCTC to zero-income filers and created a Foster Youth Tax Credit (FYTC) providing a $1,000 credit to young adults who were in the foster care system. This bill increases the minimum CalEITC amount to $355 for the lowest income claimants, thus providing a greater monetary benefit to those claimants.

1. Related Legislation. AB 1002 (Irwin) authorizes a qualified individual to claim the CalEITC, YCTC, or FYTC on a form that does not require filing an individual income tax return. AB 1002 is pending on this committee’s suspense file.

AB 1128 (Santiago) expands the number of taxpayers eligible for the YCTC by repealing the limitation that a qualifying child must be younger than six years old. AB 1128 is pending hearing in this committee.

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 on the Senate Committee on Appropriations’ suspense file.

1. Prior Legislation. AB 2589 (Santiago), of the 2021-22 Legislative Session, would have, upon appropriation, increased the YCTC to $2,000, extended the YCTC to zero-income filers, and set a minimum CalEITC amount of $255. AB 2589’s hearing in the Senate Committee on Governance and Finance was cancelled at the request of the author.

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 1498 (

Author:Gipson) – As Introduced Ver:February 17, 2023

SUSPENSE

Majority vote. Fiscal committee.

SUBJECT: Personal income tax: Earned Income Tax Credit

SUMMARY: Establishes, upon appropriation by the Legislature and for taxable years beginning on or after January 1, 2023, a minimum credit amount of approximately $300 for taxpayers who claim the California Earned Income Tax Credit (CalEITC), as specified. Specifically, this bill:

1. Provides that, if the credit amount calculated for an eligible individual under the CalEITC, multiplied by the earned income tax credit adjustment factor, is less than $355, the individual is instead allowed a CalEITC of $355, multiplied by the earned income tax credit adjustment factor.
2. Provides, for taxable years beginning on or after January 1, 2024, that the CalEITC amount shall be recomputed annually to adjust for inflation.
3. Provides that the CalEITC amount shall be reduced by $5 for each $100 that the qualified individual's adjusted gross income or earned income, whichever is greater, exceeds the threshold amount.
4. Provides that the threshold amount is $28,000 and this amount shall be adjusted for inflation for taxable years beginning after the taxable year in which the minimum wage is set at $15 per hour.
5. Extends the prohibition on the State Controller from offsetting delinquent accounts against the personal income tax refunds of an individual who received the CalEITC or the Young Child Tax Credit (YCTC) for the taxable year to include advance or periodic payments of these credits.

EXISTING FEDERAL LAW:

1. Allows eligible individuals a refundable EITC. A refundable credit allows for the excess of the credit amount over the taxpayer's tax liability to be refunded to the taxpayer. The EITC is calculated as a percentage of the taxpayer's earned income and is phased out as income increases. For 2022, the EITC is available to individuals and families earning up to $59,187. The federal credit rate varies from 7.65% to 45%, depending on the number of qualifying children. (Internal Revenue Code (IRC) Section 32.)
2. Defines an "eligible individual" as:
   1. Any individual who has a qualifying child for the taxable year; or,
   2. Any other individual who does not have a qualifying child for the taxable year, if they:
      1. Have attained the age of 25 but not attained the age of 65 before the close of the taxable year;
      2. Have a principal place of abode in the United States for more than one-half the taxable year; and,
      3. Are not a dependent of another taxpayer.
3. Requires an eligible individual (and spouse, if filing a joint return) to have a social security number (SSN) issued by the Social Security Administration that is valid for employment. Thus, a social security card stating "Not Valid for Employment" or a federal ITIN (Individual Taxpayer Identification Number) may not be used for the federal EITC. (IRC Section 32.)
4. Specifically excludes certain individuals from the definition of an eligible individual. Specifically, IRC Section 32(c)(1) excludes the following from the definition of an eligible individual:
   1. An individual who is a qualifying child of another taxpayer;
   2. U.S. citizens or residents living abroad and claiming benefits under IRC Section 911; and,
   3. Most nonresident aliens, unless they elect to be treated as U.S. residents for federal tax purposes.
5. Provides generally that a qualifying child must live with the eligible individual for more than one-half the taxable year in the United States, and must be under the age of 19, unless the child is a full-time student under age 24, or the child is permanently and totally disabled. (IRC Section 32.)

EXISTING STATE LAW:

1. Allows, with certain modifications, a refundable CalEITC based on the federal EITC amount determined in accordance with IRC Section 32. (Revenue & Taxation Code (R&TC) Section 17052.)
2. Provides that the amount of credit determined under IRC Section 32, as modified, shall be multiplied by an EITC adjustment factor for the taxable year, and that unless otherwise specified in the annual Budget Act, the EITC adjustment factor shall be 0%. (R&TC Section 17052(a)(2).)
3. Generally conforms, with modifications, to the federal definitions of an "eligible individual" and a "qualifying child". However, for taxable years beginning on or after January 1, 2018, the age limit for an eligible individual without a qualifying child is 18 years or older, rather than between the ages of 25 and 64 years. Additionally, starting in 2020, California expanded access to the CalEITC to filers with an ITIN, including undocumented workers. (R&TC Section 17052(p).)
4. Provides, for taxable years beginning on or after January 1, 2024, that the State Controller shall not offset delinquent accounts against the personal income tax refunds of an individual who received the CalEITC or YCTC for the taxable year. This provision does not apply to delinquent accounts for the nonpayment of child or family support. (Government Code Section 12419.3.3.)

FISCAL EFFECT: The Franchise Tax Board estimates General Fund revenue losses of $850 million in fiscal year (FY) 2023-24, $900 million in FY 2024-25, and $950 million in FY 2025-26.

COMMENTS:

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

AB 1498 will increase the minimum credit amount for the California Earned Income Tax Credit to $300. The credit would provide meaningful assistance to over 3 million workers no matter their dependency status. The California Budget and Policy Center has estimated that most CalEITC recipients receive less than $200 from the credit, and by establishing a $300 minimum amount for the CalEITC will make the benefit more meaningful by providing recipients with greater economic security and encouraging eligible taxpayers to claim the credit. The result will incentivize tax filing and in doing so, there will be an uptake of federal credits to individuals by boosting family's total incomes and local economies.

1. GRACE – End Child Poverty in California, sponsor of this measure, writes, in part:

The CalEITC is one of California's best tools to prevent poverty, redistribute wealth, and close the state's racial wealth gap. The CalEITC is a refundable tax credit that goes towards families earning $30,000 or less in a given tax year and, unlike the Federal EITC, allows Individual Taxpayer Identification Number (ITIN) holders to qualify… The CalEITC is in direct alignment with statewide goals of alleviating poverty and supporting communities that have historically been excluded from state-sanctioned wealth building opportunities. The CalEITC is a cost-effective way to deliver direct, targeted support to Californians who struggle to afford soaring living expenses, such as housing, childcare, healthcare, etc… Increasing the CalEITC minimum to $300 will provide all filers with a meaningful credit and address the state's racial and economic equity problems by targeting low-income, majority non-white filers.

1. This bill is supported by the California Association of Food Banks, which notes, in part:

Californians are facing an unprecedented hunger cliff with the ending of the CalFresh Emergency Allotments, as individuals on CalFresh are losing on average $82 a month. Food Banks alone cannot make up the difference. We need to invest in anti-poverty initiatives like the CalEITC to ensure families and children can meet their basic needs.

1. Committee Staff Comments:
2. Background on EITCs: California and the federal government have adopted anti-poverty EITC programs for both adults and children in lower income working families. The programs' primary purpose is to lift people out of poverty and encourage labor market participation by providing additional tax benefits for those who earn wages or compensation from employment or entrepreneur business operations. The EITCs, unlike other anti-poverty programs, are administered through the tax system and require the filing of a tax return with the federal government and California to claim the credits. A persistent challenge with this mechanism, however, is that many taxpayers do not earn enough to trigger the requirement to file their taxes and may not be aware that they are actually entitled to receive money from the government.
3. Federal EITC: The Federal EITC depends on a recipient's earned income and phases in as a percentage of earned income (the "credit rate") until the credit amount reaches its maximum level. The EITC then remains at its maximum level over a subsequent range of earned income, between the "earned income amount" and the "phaseout amount threshold." Finally, the credit gradually decreases to zero at a fixed rate (the "phaseout rate") for each additional dollar of adjusted gross income (AGI) (or earned income, whichever is greater) above the phaseout amount threshold. The specific values of these EITC parameters (e.g., credit rate, earned income amount) vary depending on several factors, including the number of qualifying children a taxpayer has and the taxpayer's marital status.

The American Rescue Plan (ARP), signed into law by President Biden in March 2021, significantly expanded tax credits that apply to many lower income and middle-income filers, including the Federal EITC, the Child Tax Credit, and the Child and Dependent Care Expenses Credit. The ARP made two significant changes to the EITC for 2021 only: (i) increased the credit amounts available to childless workers, and (ii) broadened the age range for eligible filers from 24 to 65 years old to 19 and over.^[1]

For 2022, the Federal EITC income limits and credit amounts are as follows:^[2]

1. Background on CalEITC: To qualify for the CalEITC, taxpayers must:
   • 1. Have taxable earned income, which are W-2 wages, self-employment income, and other types of income with California withholdings;
     2. Have a valid SSN or ITIN for all eligible persons;
     3. Live in California for more than half the year; and,
     4. Not use married/registered domestic partner (RDP) if filing separately unless an exception applies.

For the 2022 taxable year, taxpayers received a CalEITC amount based on the following chart: ^[3]

1. What does this bill do? This bill, subject to an appropriation by the Legislature, replaces the existing CalEITC calculation in certain cases and instead establishes a minimum credit amount of approximately $300. The $355 amount contained in this bill is multiplied by the earned income tax credit adjustment factor, which has historically been 0.85. By guaranteeing a minimum credit amount that is more substantial than the minimum amounts received in prior years, the proponents of this bill argue that more individuals who are eligible for the CalEITC will file their taxes and claim the credits they are entitled to receive.
2. Who benefits from this bill? This bill would primarily benefit qualified low-income taxpayers who claim the CalEITC. Specifically, this bill would provide the greatest benefits to qualified low-income taxpayers who do not have dependents because the CalEITC amount is significantly increased when one or more dependents are claimed by the taxpayer. Using data from tax year 2020, the California Budget & Policy Center (CBPC) estimates that 74% of CalEITC beneficiaries are single filers without dependents and typical credit amounts range between $1 and $255 per year. Further, CBPC finds that 79% of CalEITC recipients – about 3.4 million households – get less than $200 for the credit.^[4] CBPC estimates that nearly 8 million Californians are eligible to benefit from the CalEITC; approximately 59% of these individuals are Latino, 22% are White, 10% are Asian/Pacific Islander, and 6% are Black.^[5]
3. Implementation considerations:
   • 1. One-time appropriation: As currently drafted, this bill provides the increased CalEITC amount on an ongoing basis following a one-time appropriation by the Legislature. If the author's intent is to make the increased credit amount operative in years when the Legislature provides for a corresponding allocation in that year's Budget Act, this bill should be amended.
     2. Phase-out exceeds current income limit: As currently drafted, this bill requires the credit amount to be reduced by $5 for every $100 over which the taxpayer's income exceeds the threshold amount of $28,000. Currently, the income limit for the CalEITC is $30,000. Using the phase-out calculation contained in this bill creates inconsistencies with the existing income limit and creates confusion about whether taxpayers with incomes over $30,000 would be eligible for the credit. The author should amend this bill to clarify the desired outcome.
     3. Unnecessary language: As currently drafted, this bill extends the prohibition on the State Controller from offsetting delinquent accounts against the personal income tax refunds of an individual who received the CalEITC or the YCTC for the taxable year to include advance or periodic payments of these credits. However, the other provisions of this bill do not provide for advance or periodic payments of the CalEITC or YCTC. Additionally, this bill requires the threshold amount to be annually adjusted for inflation for taxable years beginning after the taxable year in which the state minimum wage is set to $15 per hour. This statewide minimum wage increase took effect on January 1, 2022. The author may wish to remove the unnecessary language from this bill.
4. Committee amendments: The author has agreed to accept Committee amendments that address the implementation issues outlined above.
5. Related legislation:
6. AB 441 (Haney) requires the FTB to establish a program for making advance periodic payments for individuals who are estimated to qualify for at least $1,000 in aggregate tax credits under the CalEITC, YCTC, and Foster Youth Tax Credit (FYTC), as specified. AB 441 is currently pending in this Committee.
7. AB 1002 (Irwin) requires the FTB to conduct a study on potential programs for eligible taxpayers to claim the CalEITC, the YCTC, and the FYTC without filing a tax return. AB 1002 is currently pending in this Committee.
8. AB 1128 (Santiago) expands the number of taxpayers eligible for the California YCTC by removing the requirement that a qualifying child must be younger than 6 years of age as of the last day of the taxable year. AB 1128 is currently pending in this Committee.
9. Prior legislation:
10. AB 194 (Committee on Budget), Chapter 55, Statutes of 2022, provides, in part, that the Controller cannot offset delinquent accounts against personal income tax refunds of an individual who received the CalEITC or YCTC.
11. AB 2589 (Santiago), of the 2021-22 Legislative Session, would have, upon appropriation by the Legislature, expanded the YCTC from $1,000 per household with children six years old or younger to $2,000 for every CalEITC eligible dependent, allowed qualified taxpayers who earned no income for the taxable year to receive the YCTC, and set a minimum amount of CalEITC for any eligible tax filer at $255. AB 2589 was not heard by the Senate Governance and Finance Committee.
12. AB 1876 (Committee on Budget), Chapter 252, Statutes of 2018, modified the CalEITC by allowing the use of federal ITINs for all eligible individuals, eligible individuals' spouses, and qualifying children.

REGISTERED SUPPORT / OPPOSITION:

Support

All Home
California Association of Food Banks
California Catholic Conference
California Immigrant Policy Center
California Pan - Ethnic Health Network
Economic Security Project Action
Etta
Friends Committee on Legislation of California
Glide
Grace Institute - End Child Poverty in CA
Hadassah
Jewish Community Relations Council of Sacramento
Jewish Family & Children's Service of Long Beach and Orange County
Jewish Family Service San Diego
Jewish Family Services of Silicon Valley
Jewish Federation of The Greater San Gabriel and Pomona Valleys
Jewish Federation of The Sacramento Region
Jewish Long Beach
Jewish Public Affairs Committee of California
John Burton Advocates for Youth
Lincoln Families
National Association of Social Workers, California Chapter
NextGen California
Orange County United Way
San Francisco-Marin Food Bank
The Children's Partnership
United Way Bay Area
United Way Fresno Madera Counties, United Way of Stanislaus County
United Way of Ventura County
United Ways of California (UWCA)
Universal Income Project
Worksafe
Young Invincibles

Opposition

None on file

Analysis Prepared by: Wesley Whitaker / REV. & TAX. / (916) 319-2098

1. Garosi, Justin. "Tax Credit Expansions in the American Rescue Plan," Legislative Analyst's Office (April 13, 2021). https://lao.ca.gov/Publications/Report/4410. ↑

2. "EITC and CTC Eligibility, 2022." Get It Back Campaign – Center on Budget & Policy Priorities. https://www.taxoutreach.org/wp-content/uploads/EITC-CTC-Eligibility-Chart-2022.pdf. ↑

3. "California Earned Income Tax Credit and Young Child Tax Credit (2022)," FTB. https://www.ftb.ca.gov/file/personal/credits/california-earned-income-tax-credit.html ↑

4. Anderson, Alissa. "Most CalEITC Recipients Receive Very Little from the Credit," California Budget & Policy Center (March 2022). https://calbudgetcenter.org/resources/most-caleitc-recipients-receive-very-little-from-the-credit/. ↑

5. Kimberlin, Sara. "Millions of Californians with Low Incomes Can Benefit from State Tax Credits", California Budget & Policy Center (April 2022). https://calbudgetcenter.org/app/uploads/2022/04/R-FP-Regional-County-Tax-Credits-2.pdf. ↑

Date of Hearing: April 17, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 1498 (

Author:Gipson) – As Introduced Ver:February 17, 2023

Majority vote. Fiscal committee.

SUBJECT: Personal income tax: Earned Income Tax Credit

SUMMARY: Establishes, upon appropriation by the Legislature and for taxable years beginning on or after January 1, 2023, a minimum credit amount of approximately $300 for taxpayers who claim the California Earned Income Tax Credit (CalEITC), as specified. Specifically, this bill:

1. Provides that, if the credit amount calculated for an eligible individual under the CalEITC, multiplied by the earned income tax credit adjustment factor, is less than $355, the individual is instead allowed a CalEITC of $355, multiplied by the earned income tax credit adjustment factor.
2. Provides, for taxable years beginning on or after January 1, 2024, that the CalEITC amount shall be recomputed annually to adjust for inflation.
3. Provides that the CalEITC amount shall be reduced by $5 for each $100 that the qualified individual's adjusted gross income or earned income, whichever is greater, exceeds the threshold amount.
4. Provides that the threshold amount is $28,000 and this amount shall be adjusted for inflation for taxable years beginning after the taxable year in which the minimum wage is set at $15 per hour.
5. Extends the prohibition on the State Controller from offsetting delinquent accounts against the personal income tax refunds of an individual who received the CalEITC or the Young Child Tax Credit (YCTC) for the taxable year to include advance or periodic payments of these credits.

EXISTING FEDERAL LAW:

1. Allows eligible individuals a refundable EITC. A refundable credit allows for the excess of the credit amount over the taxpayer's tax liability to be refunded to the taxpayer. The EITC is calculated as a percentage of the taxpayer's earned income and is phased out as income increases. For 2022, the EITC is available to individuals and families earning up to $59,187. The federal credit rate varies from 7.65% to 45%, depending on the number of qualifying children. (Internal Revenue Code (IRC) Section 32.)
2. Defines an "eligible individual" as:
   1. Any individual who has a qualifying child for the taxable year; or,
   2. Any other individual who does not have a qualifying child for the taxable year, if they:
      1. Have attained the age of 25 but not attained the age of 65 before the close of the taxable year;
      2. Have a principal place of abode in the United States for more than one-half the taxable year; and,
      3. Are not a dependent of another taxpayer.
3. Requires an eligible individual (and spouse, if filing a joint return) to have a social security number (SSN) issued by the Social Security Administration that is valid for employment. Thus, a social security card stating "Not Valid for Employment" or a federal ITIN (Individual Taxpayer Identification Number) may not be used for the federal EITC. (IRC Section 32.)
4. Specifically excludes certain individuals from the definition of an eligible individual. Specifically, IRC Section 32(c)(1) excludes the following from the definition of an eligible individual:
   1. An individual who is a qualifying child of another taxpayer;
   2. U.S. citizens or residents living abroad and claiming benefits under IRC Section 911; and,
   3. Most nonresident aliens, unless they elect to be treated as U.S. residents for federal tax purposes.
5. Provides generally that a qualifying child must live with the eligible individual for more than one-half the taxable year in the United States, and must be under the age of 19, unless the child is a full-time student under age 24, or the child is permanently and totally disabled. (IRC Section 32.)

EXISTING STATE LAW:

1. Allows, with certain modifications, a refundable CalEITC based on the federal EITC amount determined in accordance with IRC Section 32. (Revenue & Taxation Code (R&TC) Section 17052.)
2. Provides that the amount of credit determined under IRC Section 32, as modified, shall be multiplied by an EITC adjustment factor for the taxable year, and that unless otherwise specified in the annual Budget Act, the EITC adjustment factor shall be 0%. (R&TC Section 17052(a)(2).)
3. Generally conforms, with modifications, to the federal definitions of an "eligible individual" and a "qualifying child". However, for taxable years beginning on or after January 1, 2018, the age limit for an eligible individual without a qualifying child is 18 years or older, rather than between the ages of 25 and 64 years. Additionally, starting in 2020, California expanded access to the CalEITC to filers with an ITIN, including undocumented workers. (R&TC Section 17052(p).)
4. Provides, for taxable years beginning on or after January 1, 2024, that the State Controller shall not offset delinquent accounts against the personal income tax refunds of an individual who received the CalEITC or YCTC for the taxable year. This provision does not apply to delinquent accounts for the nonpayment of child or family support. (Government Code Section 12419.3.3.)

FISCAL EFFECT: The Franchise Tax Board estimates General Fund revenue losses of $850 million in fiscal year (FY) 2023-24, $900 million in FY 2024-25, and $950 million in FY 2025-26.

COMMENTS:

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

AB 1498 will increase the minimum credit amount for the California Earned Income Tax Credit to $300. The credit would provide meaningful assistance to over 3 million workers no matter their dependency status. The California Budget and Policy Center has estimated that most CalEITC recipients receive less than $200 from the credit, and by establishing a $300 minimum amount for the CalEITC will make the benefit more meaningful by providing recipients with greater economic security and encouraging eligible taxpayers to claim the credit. The result will incentivize tax filing and in doing so, there will be an uptake of federal credits to individuals by boosting family's total incomes and local economies.

1. GRACE – End Child Poverty in California, sponsor of this measure, writes, in part:

The CalEITC is one of California's best tools to prevent poverty, redistribute wealth, and close the state's racial wealth gap. The CalEITC is a refundable tax credit that goes towards families earning $30,000 or less in a given tax year and, unlike the Federal EITC, allows Individual Taxpayer Identification Number (ITIN) holders to qualify… The CalEITC is in direct alignment with statewide goals of alleviating poverty and supporting communities that have historically been excluded from state-sanctioned wealth building opportunities. The CalEITC is a cost-effective way to deliver direct, targeted support to Californians who struggle to afford soaring living expenses, such as housing, childcare, healthcare, etc… Increasing the CalEITC minimum to $300 will provide all filers with a meaningful credit and address the state's racial and economic equity problems by targeting low-income, majority non-white filers.

1. This bill is supported by the California Association of Food Banks, which notes, in part:

Californians are facing an unprecedented hunger cliff with the ending of the CalFresh Emergency Allotments, as individuals on CalFresh are losing on average $82 a month. Food Banks alone cannot make up the difference. We need to invest in anti-poverty initiatives like the CalEITC to ensure families and children can meet their basic needs.

1. Committee Staff Comments:
2. Background on EITCs: California and the federal government have adopted anti-poverty EITC programs for both adults and children in lower income working families. The programs' primary purpose is to lift people out of poverty and encourage labor market participation by providing additional tax benefits for those who earn wages or compensation from employment or entrepreneur business operations. The EITCs, unlike other anti-poverty programs, are administered through the tax system and require the filing of a tax return with the federal government and California to claim the credits. A persistent challenge with this mechanism, however, is that many taxpayers do not earn enough to trigger the requirement to file their taxes and may not be aware that they are actually entitled to receive money from the government.
3. Federal EITC: The Federal EITC depends on a recipient's earned income and phases in as a percentage of earned income (the "credit rate") until the credit amount reaches its maximum level. The EITC then remains at its maximum level over a subsequent range of earned income, between the "earned income amount" and the "phaseout amount threshold." Finally, the credit gradually decreases to zero at a fixed rate (the "phaseout rate") for each additional dollar of adjusted gross income (AGI) (or earned income, whichever is greater) above the phaseout amount threshold. The specific values of these EITC parameters (e.g., credit rate, earned income amount) vary depending on several factors, including the number of qualifying children a taxpayer has and the taxpayer's marital status.

The American Rescue Plan (ARP), signed into law by President Biden in March 2021, significantly expanded tax credits that apply to many lower income and middle-income filers, including the Federal EITC, the Child Tax Credit, and the Child and Dependent Care Expenses Credit. The ARP made two significant changes to the EITC for 2021 only: (i) increased the credit amounts available to childless workers, and (ii) broadened the age range for eligible filers from 24 to 65 years old to 19 and over.^[1]

For 2022, the Federal EITC income limits and credit amounts are as follows:^[2]

1. Background on CalEITC: To qualify for the CalEITC, taxpayers must:
   • 1. Have taxable earned income, which are W-2 wages, self-employment income, and other types of income with California withholdings;
     2. Have a valid SSN or ITIN for all eligible persons;
     3. Live in California for more than half the year; and,
     4. Not use married/registered domestic partner (RDP) if filing separately unless an exception applies.

For the 2022 taxable year, taxpayers received a CalEITC amount based on the following chart: ^[3]

1. What does this bill do? This bill, subject to an appropriation by the Legislature, replaces the existing CalEITC calculation in certain cases and instead establishes a minimum credit amount of approximately $300. The $355 amount contained in this bill is multiplied by the earned income tax credit adjustment factor, which has historically been 0.85. By guaranteeing a minimum credit amount that is more substantial than the minimum amounts received in prior years, the proponents of this bill argue that more individuals who are eligible for the CalEITC will file their taxes and claim the credits they are entitled to receive.
2. Who benefits from this bill? This bill would primarily benefit qualified low-income taxpayers who claim the CalEITC. Specifically, this bill would provide the greatest benefits to qualified low-income taxpayers who do not have dependents because the CalEITC amount is significantly increased when one or more dependents are claimed by the taxpayer. Using data from tax year 2020, the California Budget & Policy Center (CBPC) estimates that 74% of CalEITC beneficiaries are single filers without dependents and typical credit amounts range between $1 and $255 per year. Further, CBPC finds that 79% of CalEITC recipients – about 3.4 million households – get less than $200 for the credit.^[4] CBPC estimates that nearly 8 million Californians are eligible to benefit from the CalEITC; approximately 59% of these individuals are Latino, 22% are White, 10% are Asian/Pacific Islander, and 6% are Black.^[5]
3. Implementation considerations:
   • 1. One-time appropriation: As currently drafted, this bill provides the increased CalEITC amount on an ongoing basis following a one-time appropriation by the Legislature. If the author's intent is to make the increased credit amount operative in years when the Legislature provides for a corresponding allocation in that year's Budget Act, this bill should be amended.
     2. Phase-out exceeds current income limit: As currently drafted, this bill requires the credit amount to be reduced by $5 for every $100 over which the taxpayer's income exceeds the threshold amount of $28,000. Currently, the income limit for the CalEITC is $30,000. Using the phase-out calculation contained in this bill creates inconsistencies with the existing income limit and creates confusion about whether taxpayers with incomes over $30,000 would be eligible for the credit. The author should amend this bill to clarify the desired outcome.
     3. Unnecessary language: As currently drafted, this bill extends the prohibition on the State Controller from offsetting delinquent accounts against the personal income tax refunds of an individual who received the CalEITC or the YCTC for the taxable year to include advance or periodic payments of these credits. However, the other provisions of this bill do not provide for advance or periodic payments of the CalEITC or YCTC. Additionally, this bill requires the threshold amount to be annually adjusted for inflation for taxable years beginning after the taxable year in which the state minimum wage is set to $15 per hour. This statewide minimum wage increase took effect on January 1, 2022. The author may wish to remove the unnecessary language from this bill.
4. Related legislation:
5. AB 441 (Haney) requires the FTB to establish a program for making advance periodic payments for individuals who are estimated to qualify for at least $1,000 in aggregate tax credits under the CalEITC, YCTC, and Foster Youth Tax Credit (FYTC), as specified. AB 441 is currently on this Committee's Suspense File.
6. AB 1002 (Irwin) requires the FTB to conduct a study on potential programs for eligible taxpayers to claim the CalEITC, the YCTC, and the FYTC without filing a tax return. AB 1002 is currently pending hearing in this Committee.
7. AB 1128 (Santiago) expands the number of taxpayers eligible for the California YCTC by removing the requirement that a qualifying child must be younger than 6 years of age as of the last day of the taxable year. AB 1128 is currently on this Committee's Suspense File.
8. Prior legislation:
9. AB 194 (Committee on Budget), Chapter 55, Statutes of 2022, provides, in part, that the Controller cannot offset delinquent accounts against personal income tax refunds of an individual who received the CalEITC or YCTC.
10. AB 2589 (Santiago), of the 2021-22 Legislative Session, would have, upon appropriation by the Legislature, expanded the YCTC from $1,000 per household with children six years old or younger to $2,000 for every CalEITC eligible dependent, allowed qualified taxpayers who earned no income for the taxable year to receive the YCTC, and set a minimum amount of CalEITC for any eligible tax filer at $255. AB 2589 was not heard by the Senate Governance and Finance Committee.
11. AB 1876 (Committee on Budget), Chapter 252, Statutes of 2018, modified the CalEITC by allowing the use of federal ITINs for all eligible individuals, eligible individuals' spouses, and qualifying children.

REGISTERED SUPPORT / OPPOSITION:

Support

All Home
California Association of Food Banks
California Catholic Conference
California Immigrant Policy Center
California Pan - Ethnic Health Network
Economic Security Project Action
Etta
Friends Committee on Legislation of California
Glide
Grace Institute - End Child Poverty in CA
Hadassah
Jewish Community Relations Council of Sacramento
Jewish Family & Children's Service of Long Beach and Orange County
Jewish Family Service San Diego
Jewish Family Services of Silicon Valley
Jewish Federation of The Greater San Gabriel and Pomona Valleys
Jewish Federation of The Sacramento Region
Jewish Long Beach
Jewish Public Affairs Committee of California
John Burton Advocates for Youth
Lincoln Families
National Association of Social Workers, California Chapter
NextGen California
Orange County United Way
San Francisco-Marin Food Bank
The Children's Partnership
United Way Bay Area
United Way Fresno Madera Counties, United Way of Stanislaus County
United Way of Ventura County
United Ways of California (UWCA)
Universal Income Project
Worksafe
Young Invincibles

Opposition

None on file

Analysis Prepared by: Wesley Whitaker / REV. & TAX. / (916) 319-2098

1. Garosi, Justin. "Tax Credit Expansions in the American Rescue Plan," Legislative Analyst's Office (April 13, 2021). https://lao.ca.gov/Publications/Report/4410. ↑

2. "EITC and CTC Eligibility, 2022." Get It Back Campaign – Center on Budget & Policy Priorities. https://www.taxoutreach.org/wp-content/uploads/EITC-CTC-Eligibility-Chart-2022.pdf. ↑

3. "California Earned Income Tax Credit and Young Child Tax Credit (2022)," FTB. https://www.ftb.ca.gov/file/personal/credits/california-earned-income-tax-credit.html ↑

4. Anderson, Alissa. "Most CalEITC Recipients Receive Very Little from the Credit," California Budget & Policy Center (March 2022). https://calbudgetcenter.org/resources/most-caleitc-recipients-receive-very-little-from-the-credit/. ↑

5. Kimberlin, Sara. "Millions of Californians with Low Incomes Can Benefit from State Tax Credits", California Budget & Policy Center (April 2022). https://calbudgetcenter.org/app/uploads/2022/04/R-FP-Regional-County-Tax-Credits-2.pdf. ↑