SB 454: Personal Income Tax Law: deferred compensation: retirement account catch-up limits: contributions.
- Session Year: 2023-2024
- House: Senate
- Latest Version Date: 2023-04-25
Current Status:
Failed
(2024-02-01: Returned to Secretary of Senate pursuant to Joint Rule 56.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
The Personal Income Tax Law, in modified conformity with federal income tax laws, generally allows various deductions in computing the income that is subject to taxes imposed by that law, including a deduction for qualified retirement contributions. Existing federal law, the Consolidated Appropriations Act, 2023, among other things, expanded the deduction for qualified retirement contributions by indexing catch-up limitations for persons 50 years of age or older to inflation, increasing catch-up limits for persons age 60, 61, 62, and 63, and increasing contribution limits for simple plans, as defined.
This bill would conform state law to the above-referenced changes to federal law.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
The bill would also include additional information required for any bill authorizing a new tax expenditure.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law, in modified conformity to federal income tax laws, imposes an additional tax upon early distributions from specified retirement plans, as provided. Federal income tax law, for distributions made after December 31, 2023, waives this penalty for certain types of distributions, including emergency distributions and distributions in cases of domestic abuse, as provided. This bill, for distributions made after December 31, 2023, would conform to federal law in regards to emergency distributions and distributions made in cases of domestic abuse.This bill would take effect immediately as a tax levy.The Personal Income Tax Law, in modified conformity to federal income tax laws, imposes an additional tax upon early distributions from specified retirement plans, as provided. Federal income tax law, for distributions made after December 31, 2023, waives this penalty for certain types of distributions, including emergency distributions and distributions in cases of domestic abuse, as provided.
This bill, for distributions made after December 31, 2023, would conform to federal law in regards to emergency distributions and distributions made in cases of domestic abuse.
This bill would take effect immediately as a tax levy.
(a)The following amendments made by the Consolidated Appropriations Act, 2023 (Public Law 117-328) shall apply for purposes of this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001) except as otherwise provided:
(1)The amendments made by Section 108 of Division T of that act to Section 219(b)(5)(C) of the Internal Revenue Code, relating to indexing IRA catch-up limit.
(2)The amendments made by Section 109 of Division T of that act to Section 414(v) of the Internal Revenue Code, relating to higher catch-up limit to apply at age 60, 61, 62, and 63.
(3)The amendments made by Section 117 of Division T of that act to Sections 401(k), 408(p)(2), and 414(v)(2) of the Internal Revenue Code, relating to contribution limit for simple plans.
(b)(1)For the purposes of complying with Section 41, as it pertains to the deductions expanded by this section, the Legislature finds and declares as follows:
(A)The specific goal, purpose, and objective of this bill is to conform state law to changes in federal law in order to reduce complications relating to mismatches in basis of retirement accounts for federal income tax purposes compared to state income tax purposes.
(B)The performance indicators used by the Legislature to determine if the deductions are achieving the stated goal shall be the number of taxpayers making contributions that would, but for the expansion of deductions pursuant to this section, be included in income for state purposes, and the total dollar value of those contributions.
(2)The Legislative Analysts Office shall, no later than October 1, 2024, submit a report to the Legislature, in accordance with Section 9795 of the Government Code, that estimates the number of taxpayers making contributions to retirement accounts that, but for the expansion of deductions provided by this section, would be included in income, and estimates of the total dollar value of those contributions, to the extent data is available.
SEC. 2.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
SECTION 1.Section 17085 of the Revenue and Taxation Code is amended to read:17085.Section 72 of the Internal Revenue Code, relating to annuities, certain proceeds of endowment and life insurance contracts, is modified as follows:(a)The amendments and transitional rules made by Public Law 99-514 shall be applicable to this part for the same transactions and the same years as they are applicable for federal purposes, except that the repeal of Section 72(d) of the Internal Revenue Code, relating to repeal of special rule for employees annuities, shall apply only to the following:(1)Any individual whose annuity starting date is after December 31, 1986.(2)At the election of the taxpayer, any individual whose annuity starting date is after July 1, 1986, and before January 1, 1987.(b)The amount of a distribution from an individual retirement account or annuity or employee trust or employee annuity that is includable in gross income for federal purposes shall be reduced for purposes of this part by the lesser of either of the following:(1)An amount equal to the amount includable in federal gross income for the taxable year.(2)An amount equal to the basis in the account or annuity allowed by Section 17507 (relating to individual retirement accounts and simplified employee pensions), the increased basis allowed by Sections 17504 and 17506 (relating to plans of self-employed individuals), the increased basis allowed by Section 17501, or the increased basis allowed by Section 17551 that is remaining after adjustment for reductions in gross income under this provision in prior taxable years.(c)(1)Except as provided in paragraph (2), the amount of the additional tax imposed under this part shall be computed in accordance with Sections 72(m), (q), (t), and (v) of the Internal Revenue Code, as applicable for federal income tax purposes for the same taxable year, using a rate of 21/2 percent, in lieu of the rate provided in those sections.(2)In the case where Section 72(t)(6) of the Internal Revenue Code, relating to special rules for simple retirement accounts, as applicable for federal income tax purposes for the same taxable year, applies, the rate in paragraph (1) shall be 6 percent in lieu of the 21/2 percent rate specified therein.(d)Section 72(f)(2) of the Internal Revenue Code shall be applicable without applying the exceptions which immediately follow that paragraph.(e)The amendments made by Section 844 of the federal Pension Protection Act of 2006 (P.L. 109-280) to Section 72(e) of the Internal Revenue Code, shall not apply.(f)For purposes of this part, Section 2202(b) of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136), relating to loans from qualified plans shall apply.(g)(1)The amendments made to Section 72(t) of the Internal Revenue Code by Section 115 of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328), relating to distributions for certain emergency expenses, shall apply for distributions made after December 31, 2023.(2)The amendments made to Section 72(t) of the Internal Revenue Code by Section 314 of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328), relating to distributions from retirement plans in case of domestic abuse, shall apply for distributions made after December 31, 2023.SEC. 2.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.Section 72 of the Internal Revenue Code, relating to annuities, certain proceeds of endowment and life insurance contracts, is modified as follows:
(a)The amendments and transitional rules made by Public Law 99-514 shall be applicable to this part for the same transactions and the same years as they are applicable for federal purposes, except that the repeal of Section 72(d) of the Internal Revenue Code, relating to repeal of special rule for employees annuities, shall apply only to the following:
(1)Any individual whose annuity starting date is after December 31, 1986.
(2)At the election of the taxpayer, any individual whose annuity starting date is after July 1, 1986, and before January 1, 1987.
(b)The amount of a distribution from an individual retirement account or annuity or employee trust or employee annuity that is includable in gross income for federal purposes shall be reduced for purposes of this part by the lesser of either of the following:
(1)An amount equal to the amount includable in federal gross income for the taxable year.
(2)An amount equal to the basis in the account or annuity allowed by Section 17507 (relating to individual retirement accounts and simplified employee pensions), the increased basis allowed by Sections 17504 and 17506 (relating to plans of self-employed individuals), the increased basis allowed by Section 17501, or the increased basis allowed by Section 17551 that is remaining after adjustment for reductions in gross income under this provision in prior taxable years.
(c)(1)Except as provided in paragraph (2), the amount of the additional tax imposed under this part shall be computed in accordance with Sections 72(m), (q), (t), and (v) of the Internal Revenue Code, as applicable for federal income tax purposes for the same taxable year, using a rate of 21/2 percent, in lieu of the rate provided in those sections.
(2)In the case where Section 72(t)(6) of the Internal Revenue Code, relating to special rules for simple retirement accounts, as applicable for federal income tax purposes for the same taxable year, applies, the rate in paragraph (1) shall be 6 percent in lieu of the 21/2 percent rate specified therein.
(d)Section 72(f)(2) of the Internal Revenue Code shall be applicable without applying the exceptions which immediately follow that paragraph.
(e)The amendments made by Section 844 of the federal Pension Protection Act of 2006 (P.L. 109-280) to Section 72(e) of the Internal Revenue Code, shall not apply.
(f)For purposes of this part, Section 2202(b) of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136), relating to loans from qualified plans shall apply.
(g)(1)The amendments made to Section 72(t) of the Internal Revenue Code by Section 115 of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328), relating to distributions for certain emergency expenses, shall apply for distributions made after December 31, 2023.
(2)The amendments made to Section 72(t) of the Internal Revenue Code by Section 314 of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328), relating to distributions from retirement plans in case of domestic abuse, shall apply for distributions made after December 31, 2023.
SEC. 2.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
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Date
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Status
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| Feb 1, 2024 | Returned to Secretary of Senate pursuant to Joint Rule 56. |
| May 18, 2023 | May 18 hearing: Held in committee and under submission. |
| May 16, 2023 | Set for hearing May 18. |
| May 15, 2023 | May 15 hearing: Placed on APPR suspense file. |
| May 5, 2023 | Set for hearing May 15. |
| May 3, 2023 | From committee: Do pass and re-refer to Com. on APPR with recommendation: To consent calendar. (Ayes 7. Noes 0. Page 993.) (May 3). Re-referred to Com. on APPR. |
| Apr 25, 2023 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on GOV. & F. |
| Apr 20, 2023 | Set for hearing May 3. |
| Feb 22, 2023 | Referred to Com. on GOV. & F. |
| Feb 14, 2023 | From printer. May be acted upon on or after March 16. |
| Feb 13, 2023 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
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Date
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Description
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Location
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Votes
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| May 15, 2023 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
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| May 3, 2023 | Do pass, but first be re-referred to the Committee on [Appropriations] with the recommendation: To Consent Calendar | Senate Standing Committee on Governance and Finance |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
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Date
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| California Society Of Enrolled Agents | ** Support |
SENATE COMMITTEE ON APPROPRIATIONS
Senator Anthony Portantino, Chair
2023 - 2024 Regular Session
SB 454 (Ochoa Bogh) - Personal Income Tax Law: deferred compensation: retirement account catch-up limits: contributions
Version: April 25, 2023 | Policy Vote: GOV. & F. 7 - 0 |
Urgency: No | Mandate: No |
Hearing Date: May 15, 2023 | Consultant: Robert Ingenito |
Bill Summary:
SB 454 would modify state tax law to conform to federal retirement account catch-up limitations.
Fiscal Impact:
The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $2.8 million in 2023-24, $5.5 million in 2024-25, and $6.8 million in 2025-26. FTB’s costs to implement the bill have yet to be determined.
Background:
Tax expenditure programs (TEPs) are special tax provisions that reduce the amount of revenues the “basic” tax system would otherwise generate in order to provide (1) benefits to certain groups of taxpayers, and/or (2) incentives to encourage certain types of behavior and activities, such as charitable giving. Specifically, current law provides for, among other things, various income and corporation tax credits and deductions, as well as exemptions from the sales and use tax. The Department of Finance is required to publish a list of TEPs (currently totaling several hundred), which currently exceed $87 billion annually.
Taxpayers are generally able to claim a deduction on their tax returns for the amount contributed to their Individual Retirement Account (IRA). California generally conforms to federal law when it comes to deduction limits. For 2022, taxpayers can contribute to a traditional IRA up to $6,000 if under the age of 50 or $7,000 for those 50 or older by the end of the tax year (catch-up contributions). Taxpayers cannot contribute more than their taxable compensation for the year. Taxpayers’ deductions will depend on (1) whether they are covered by a retirement plan at work, and (2) their tax filing status.
A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) is an employer-sponsored retirement plan, similar in some ways to retirement accounts such as 401(k) or 403(b) accounts. A SIMPLE IRA has the same rules as a regular IRA, but SIMPLE IRAs are easier to implement because they have lower start-up and administrative costs than many other retirement plans. SIMPLE IRAs require employers to make a minimum contribution to the account, while employees are not required to contribute and SIMPLE IRAs vest immediately. For 2022, the contribution limit is $14,000, and $17,000 for those aged 50 or older.
Federal legislation enacted in December 2022, among other things, expanded the deduction for qualified retirement contributions by (1) indexing catch-up limitations for persons 50 years of age or older to inflation, (2) increasing catch-up limits for persons age 60 through 63, and (3) increasing contribution limits for SIMPLE IRAs, as defined.
Proposed Law:
This bill would conform state law to specified 2022 federal changes. Specifically, it would (1) expand the deduction for qualified retirement contributions by indexing the catch-up limitations for persons 50 years or age or older, (2) increase the catch-up limits for persons age 60-63, and (3) increase the contribution limits for SIMPLE plans.
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SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Anna M. Caballero, Chair
2023 - 2024 Regular
Bill No: | SB 454 | Hearing Date: | 5/3/23 |
Author: | Ochoa Bogh | Tax Levy: | Yes |
Version: | 4/25/23 | Fiscal: | Yes |
Consultant: | Deitchman | ||
Personal Income Tax Law: deferred compensation: retirement account catch-up limits: contributions
Modifies California law to conform to federal retirement account catch-up limitations.
Background
Tax expenditures. California law allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving. The Legislature uses tax incentives to encourage taxpayers to do something that but for the tax credit, they would otherwise not do. The Department of Finance is required annually to publish a list of tax expenditures, currently totaling around $87 billion per year.
Conformity. State law does not automatically conform to changes in federal tax law, except for specific retirement provisions. Instead, the Legislature must affirmatively conform to federal changes, which it can do in two different ways. First, the Legislature can pass an individual tax bill that conforms to a specific federal provision, such as the Regulated Investment Company Modernization Act (AB 1423, Perea, 2011). Second, the Legislature can pass one omnibus bill that provides that state law conforms to federal law as of a specified date. Currently state law generally conforms to federal tax law as of January 1, 2015 (AB 154, Ting, 2015).
Retirement Contributions. Taxpayers are generally able to claim a deduction on their tax returns for the amount contributed to their IRA. California generally conforms to federal law when it comes to deduction limits. For 2022, taxpayers can contribute to a traditional IRA up to $6,000 if under the age of 50 or $7,000 for those 50 or older by the end of the tax year (catch-up contributions).
Taxpayers cannot contribute more than their taxable compensation (salary and benefits) for the year. Contributions may be made during the tax year and up to the filing due date of a tax return. Taxpayers can deduct their full contribution, part of it, or none. Taxpayers’ deduction will depend on if they are covered by a retirement plan at work or not and their filing status.
SIMPLE IRA. A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) is an employer-sponsored retirement plan, similar in some ways to a regular individual retirement accounts (IRAs) such as 401(k) or 403(b) accounts. A SIMPLE IRA has the same rules as a regular IRA, but SIMPLE IRAs are easier to implement because they have lower start-up and administrative costs than many other retirement plans. SIMPLE IRAs require employers to make a minimum contribution to the account, while employees are not required to contribute and SIMPLE IRAs vest immediately. For 2022, the contribution limit is $14,000, and $17,000 for those aged 50 or older.
Consolidated Appropriations Act, 2023. The Consolidated Appropriations Act, passed by Congress on December 23, 2022, and signed by President Biden on December 29, 2022, among other things, expanded the deduction for qualified retirement contributions by indexing catch-up limitations for persons 50 years of age or older to inflation, increasing catch-up limits for persons age 60, 61, 62, and 63, and increasing contribution limits for SIMPLE IRAs, as defined.
The author wants to bring California into conformity with regard to contributions made to retirement accounts and conform to some of the provisions in the Consolidated Appropriations Act.
Proposed Law
Senate Bill 454 conforms state law to the Consolidated Appropriations Act to expand the deduction for qualified retirement contributions by indexing the catch-up limitations for persons 50 years or age or older, increasing the catch-up limits for persons age 60-63 and increasing the contribution limits for SIMPLE plans.
The bill contains provisions to comply with the requirements of Revenue and Taxation Code Section 41.
State Revenue Impact
Pending.
Comments
1. Purpose of the bill. According to the author, “According to U.S. Census Bureau data, 50% of women and 47% of men between the ages of 55 and 66 have no retirement savings. More than 38 million working-age households, or 45 percent of the workforce, do not hold any retirement assets. The National Institute on Retirement Security (NIRS) estimates the collective retirement savings gap – defined as the gap between how much retirement savings working Americans have versus how much is recommended – could be as high as $14 trillion. To address the collective lack of retirement savings, the federal Consolidated Appropriations Act (CAA) of 2023 – among other provisions – expanded the deductions for qualified retirement contributions. However, because California does not automatically conform to all parts of federal tax law, many of the deductions expanded in the CAA are not granted at the state level. SB 454 will conform California tax law to federal tax law, authorizing those 50 and older to contribute more to their retirement savings.”
2. Revenue loss. Existing tax law provides various credits, deductions, exclusions, and exemptions for certain taxpayers. Since these items are enacted to accomplish some governmental purpose and determined to have a cost — in the form of foregone revenues — state law refers to them as "tax expenditures." This bill would create a new tax expenditure, costing the General Fund in foregone revenue. As a result, the state will have to reduce spending or increase taxes to match the foregone revenue. The Committee may wish to consider whether SB 454 is worth the tradeoff of spending cuts and/or raising taxes.
3. Section 41. Section 41 of the Revenue and Taxation Code requires any bill enacting a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve and detailed performance indicators, along with data collection and reporting requirements (SB 1335, Leno, 2014). To satisfy these requirements SB 454 states that its purpose is to conform state law to changes in federal law in order to reduce complications relating to mismatches in basis of retirement accounts for federal income tax purposes compared to state income tax purposes. To measure its impact, the bill directs the Legislative Analyst’s Office to prepare an annual report which must be provided no later than October 1, 2024, to the Legislature that estimates the number of taxpayers making the contributions to retirement accounts as a result of this bill, to the extent data is available.
Support and Opposition
(4/28/23)
Support: California Society of Enrolled Agents
Opposition: None received.
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Bill Author
Bill Co-Author(s):