Summary of Federal Income Tax Changes

The section allows a charitable contribution deduction to a 501(c)(19) organization that is a federally chartered corporation of past or present members of the Armed Forces of the United States, or an auxiliary unit or society of, or a trust or foundation for, any such post or organization. The organization must be organized in the United States, have at least 75 percent of the members that are past or present Armed Forces, and other members who are cadets, or are spouses, widows, widowers, ancestors, or lineal descendants, and no part of the net earnings are for the benefit of any private shareholder or individual.

Charitable contributions made to these types of 501(c) organizations are limited to 50-percent of the taxpayer’s contribution base, which is their adjusted gross income computed without regard to their net operating loss carrybacks.

Under the Personal Income Tax Law (PITL), California generally conforms to the federal charitable contribution rules under Internal Revenue Code (IRC) section 170 as of the specified date of 01/01/2015, with modifications. As a result, under the PITL, California does not conform to the allowance of a charitable contribution deduction for contributions to a 501(c)(19) organization or this section’s special treatment that allows charitable contributions to these organizations to qualify for the 50-percent limitation.

Under the Corporation Tax Law (CTL), California does not conform to IRC section 170 but instead has standalone law that is generally similar to federal law allowing corporations a deduction for charitable contributions. In general, in any taxable year, charitable contributions by a corporation are not deductible to the extent the aggregate contributions exceed 10 percent of the corporation's taxable income computed without regard to net operating or capital loss carrybacks, and any excess may be carried forward for up to five years. Additionally, the CTL provides its own rules that exempt corporations from tax and a federally chartered corporation (veteran’s organization) as defined under IRC 501(c)(19) is an exempt organization for CA purposes. Thus, California would not conform to these provisions under the CTL.

The estimated revenue impact to conform to the above federal provisions would result in the following loss:

The Taxpayer Certainty and Disaster Tax Relief Act (TCDTRA) of 2020 (part of the Consolidated Appropriations Act, 2021 (CAA, 2021), Public Law 116-260), provides special rules for individuals who had qualified disaster-related personal casualty losses in a Presidentially declared disaster area, that was declared a major disaster on or after 01/01/2020 and on or before 02/25/2021. The relief applied to disasters with an incident period beginning on or after 12/28/2019 and on or before 12/27/2020.

The Federal Disaster Tax Relief Act (FDTRA) of 2023 extends the disaster relief treatment for personal casualty losses provided under the TCDTRA to include Presidentially declared disasters that are declared a major disaster on or before 02/10/2025 with an incident period beginning on or after 12/28/2019 and on or before 12/12/2024.

The estimated revenue impact to conform to the above federal provisions would result in the following loss: ($ in millions)

This section provides that qualified wildfire relief payments received by an individual are excluded from gross income.

This section defines the term “qualified wildfire relief payments” as any amount received by or on behalf of an individual as compensation for losses, expenses, or damages (including additional living expenses compensation, lost wages (other than compensation that would have been paid by the employer for such wages), personal injury, death, or emotional distress) incurred as a result of a qualified wildfire disaster that were not compensated by insurance or otherwise.

The section defines the term “qualified wildfire disaster” as a federally declared disaster as defined under Internal Revenue Code (IRC) section 165(i)(5)(A), declared after 12/31/2014, as a result of any forest or range fire.

Additionally, the section disallows a deduction or credit to the person for whose benefit a qualified wildfire relief payment is made, for any expenditure to the extent of the amount excluded. In addition, no increase in the basis or adjusted basis of property is allowed as a result of the amount excluded.

The section extends the time for a credit or claim for refund for an additional year after 12/12/2024. The section also removes limitations on the amount of credit or claim for refund.

The estimated revenue impact to conform to the above federal provisions would result in the following loss: ($ in millions)

The section allows East Palestine train derailment payments to be treated as qualified disaster relief payments as defined under Internal Revenue Code (IRC) section 139(b).

The section defines East Palestine train derailment payments as amounts received by or on behalf of an individual as compensation for loss, damages, expenses, real property value loss, real property closing costs (including relator commissions), or inconvenience resulting from the East Palestine train derailment. The amount must have been provided by a Federal, State, or local government agency, Norfolk Southern Railway, or any subsidiary, insurer, or agent of Norfolk Southern Railway or any related person.

The section defines the term “East Palestine train derailment” as the derailment of a train in East Palestine, Ohio on 02/02/2023.

Under the Personal Income Tax Law, California conforms by reference to Part III of Subchapter B of Chapter 1 of Subtitle A of the IRC, relating to items that are specifically excluded from gross income, as of the “specified date” of 01/01/2015, in Revenue and Taxation Code (RTC) section 17131. As a result, California does not conform to the East Palestine Train Derailment payments exclusion under Personal Income Tax Law.

Under the Corporation Tax Law, pursuant to RTC section 24329, California conforms to the treatment of disaster relief payments as of the “specified date” of 01/01/2015. As a result, the federal section to treat East Palestine Train Derailment payments as disaster relief payments does not apply under the Corporation Tax Law.

The estimated revenue impact to conform to the above federal provisions would result in the following loss:

The provision amends 50 U.S.C. section 4001 to provide that for purposes of tax residency, the spouse of a servicemember would not lose or acquire a residence or domicile with respect to the spouse being absent or present in any U.S. tax jurisdiction when the spouse has joined the servicemember in compliance with the servicemember’s military orders regardless of whether the residence or domicile is the same for the servicemember and the spouse.

In addition, for any taxable year of the marriage, a servicemember and their spouse may elect to use for purposes of taxation regardless of the date on which their marriage occurred, any of the following:

• The residence or domicile of the servicemember.
• The residence or domicile of the spouse.
• The permanent duty station of the servicemember.

This provision expands automatic enrollment in retirement plans (401(k) or 403(b)). An arrangement or agreement meets the automatic enrollment requirements if such arrangement or agreement is an eligible automatic contribution arrangement and meets the following three requirements:

• Allows for permissible withdrawals from an eligible automatic contribution arrangement.
• Has a minimum contribution percentage:
  • No less than three percent and no more than 10 percent,
  • That provides an automatic increase in the contribution percentage of 1 percent to at least 10 percent but no more than 15 percent effective for the first day of each plan year after a completed year of participation unless the participant elects no contributions made or at a different percentage, and
  • for certain plans ending before 01/01/2025, initially provides a maximum percentage of 10 percent for an arrangement that does not meet the safe harbor requirements.
• Allows automatically contributed amounts to be invested under Department of Labor (DOL) regulations, if the participant makes no investment election.

Automatic enrollment would not apply to certain plans, such as a SIMPLE 401(k) plan, cash or deferred arrangement plan or annuity contracts established before 12/29/2022, government or church plans, any qualified cash or deferred arrangement, or any annuity contract purchased under a plan while the employer maintaining the plan is in existence for less than three years or has less than 10 employees. For multiple employer plans, the automatic enrollment is applied separately to each employer.

This provision would increase the nonrefundable income tax credit for small employer pension plan startup costs from 50 percent to 100 percent for employers with less than 50 employees. Employers with between 51 and 100 employees would continue to be eligible for the 50 percent credit.

This provision provides an additional nonrefundable employer contribution income tax credit. The credit is increased by an amount equal to the applicable percentage of employer contributions to an eligible employer plan not to exceed $1,000 per employee. For an employer with more than 50 employees, the credit is reduced by a specified formula. The applicable percentage is 100 percent in the first and second taxable year after the plan is established and reduced to 75 percent in the third year, 50 percent in the fourth year, 25 percent in the fifth year, with no credit available in the sixth year.

The credit is not allowed for an employee who receives wages over $100,000. No deduction is allowed for the portion of qualified startup costs paid or incurred for the taxable year equal to the amount of the credit.

This provision would remove the nonrefundable tax credit (Saver’s Credit) and replace it with a Saver’s Match. Individuals who contribute to a retirement savings plan (other than rollover contributions) would receive a federal match of 50 percent of the employee’s contributions, up to $2,000 per individual. If the match is more than zero but less than $100, the individual would receive a credit against tax. The match would be deposited into the individual’s retirement plan.

The requirements to receive the match remain the same as the existing tax credit, such as a modified adjusted gross income (phase out, available to individuals who are 18 or over, and excludes individuals who are full-time students, or claimed as a dependent on another taxpayer’s return, or individuals who are nonresident aliens.

The match is available with respect to contributions to certain qualified cash or deferred arrangements, or certain annuity contracts that are purchased under a salary reduction agreement. The match is not available for contributions to a Roth IRA.

The provision amends IRC section 403 to allow 403(b) plans to participate in multiple employer plans (MEPs). A 403(b) MEP would not be treated as failing merely because one or more participating employers fail to take actions required for 403(b) plans if the plan otherwise satisfies rules similar to those provided under IRC section 413, regarding employer failures.

The provision also amends the Employee Retirement Income Security Act of 1974 (ERISA) to add 403(b) MEP plans.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC section 403. As a result, the federal relief for multiple employer plans automatically applies under California law.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC sections 401 and 403. As a result, the federal provision to allow de minimis financial incentives automatically applies under California law.

California does not conform to the federal 15 percent excise tax imposed under IRC section 4975 for prohibited transactions.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

The provision adds an additional limitation to the non-recognition treatment under IRC section 1042. This provision allows no more than 10 percent of the amount realized on certain sales of S-Corporation stock to a S-Corporation employee stock ownership plan (ESOP) to be eligible for non-recognition treatment.

The provision also modifies the term “domestic C corporation” to “domestic corporation”.

The provision would create two types of retirement plans for qualified employers with no retirement plan: a starter 401(k) deferral-only arrangement and a safe harbor deferral-only plan.

The starter 401(k) deferral-only arrangement is a cash or deferral arrangement that meets specified automatic deferral requirements, contribution limitations, and notice requirements. These requirements would be considered met if eligible employees are treated as having elected to have the employer make elective contributions in an amount equal to a qualified percentage of compensation. Employees could opt out of the election.

The safe harbor deferral-only plan has similar requirements as the starter 401(k) deferral-only arrangement for automatic deferral requirements, contribution limitations, and notice requirements.

The special rules for top-heavy plans would not apply to 401(k) deferral-only arrangements or safe-harbor deferral-only plans.

California’s PITL and CTL provides that federal changes to IRC section 401(k), 403(b), and 416 apply without regard to taxable year to the same extent as applicable for federal income tax purposes. In other words, the PITL and CTL automatically conform to federal changes made to IRC section 401(k), 403(b), and 416. As a result, the federal requirement automatically applies under California law.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC section 402A. As a result, the federal provision automatically applies under California law.

California conforms to IRC section 72(t), additional tax on early distributions from qualified plans as applicable for federal purposes for the same taxable year using a rate of 2 ½ percent in lieu of the federal tax rate. (RTC section 17085(c)(1).) Withdrawals from the pension-linked emergency savings account would not be subject to a California early withdrawal tax if they are not subject to the federal additional tax on early distributions.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

The provision would remove certain barriers of the availability of annuities in qualified plans and IRS under the required distributions test and allow commercial annuities to provide one or more payment types on or after the annuity start date:

• those increased by a constant percentage rate of less than five percent annually,
• those provided as a lump sum payment that meet certain time requirements,
• those that are provided as a dividend or similar distribution as determined by the issuer, or
• as a final payment upon death.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC sections 402, and 414. As a result, the federal provision automatically applies under California law.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC sections 401 and 411. As a result, the federal provision automatically applies under California law.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code. As a result, to the extent the disability retirement payments are not taxable under this Part of the Internal Revenue Code, those federal provisions automatically apply under California law.

However, California conforms, under the PITL, relating to items that are specifically excluded from gross income in RTC section 17131, as of the “specified date” of 1/1/2015. California does not conform to the gross income exclusion for disability retirement payments for first responders and these payments would be taxable.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC section 414. As a result, the federal provision automatically applies under California law.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

The provision allows transfers, rollovers, or distributions from a qualified retirement plan or annuity contract to another qualified retirement plan or annuity contract that are made in equal periodic payments to be exempt from the 10 percent additional tax on early distributions.

Information reporting requirement penalties for failure to file correct information returns and failure to furnish correct payee statements would not be imposed under the following rules:

• if a person makes a return or report regarding the distribution for an annuity plan or retirement plan,
• for the distribution made following a rollover, transfer, or exchange that is exempt from the additional tax on early distributions,
• in making the return or report, the person relies on the certification provided by the taxpayer that the distribution met the early withdrawal exception and exchange requirements, and
• the person does not have knowledge that the distributions do not satisfy those requirements.

California conforms to IRC section 72(t), additional tax on early distributions from qualified plans tax as applicable for federal purposes for the same taxable year using a rate of 2 ½ percent in lieu of the federal tax rate. (RTC section 17085(c)(1).) The equal periodic payment rule for early distributions would not be subject to a California early withdrawal tax if they are not subject to the federal additional tax on early distributions.

California generally conforms to IRC section 6724 for reasonable cause waiver, definition, and special rules, as of 1/1/2015 with modifications, but does not conform to the modifications made under this section.

Consolidated Appropriations Act, 2023, Repeal of Direct Payment Requirement on Exclusion from Gross Income of Distributions from Governmental Plans for Health and Long-Term Care Insurance

Tax-Favored Withdrawals from Retirement Plans

The Federal law imposes an additional tax on early distributions from qualified retirement plans. The Consolidated Appropriations Act (CAA), 2021 (Section 302) provided an exception to the early withdrawal tax by allowing special disaster-related rules for retirement funds. The CAA, 2021 provisions were temporary, and this federal provision makes some of those rules permanent.

Specifically, the provision waives the 10 percent early withdrawal tax for qualified disaster distributions (QDD), in connection with a federally declared disaster, up to $22,000 from a qualified retirement plan. The distribution is taxed ratably over a three-year period, unless the taxpayer elects otherwise, and may be recontributed within three years, with repayments receiving direct rollover treatment.

A qualified individual is defined as having a principal place of abode at any time during the incident period that is located in a qualified disaster area and has suffered an economic loss as a result of the qualified disaster.

Recontributions of Withdrawals for Home Purchases

This provision allows individuals who received qualified distributions to recontribute those qualified distributions into an eligible retirement plan to which a rollover contribution could be made. The provision also waives the 10 percent early withdrawal tax for such qualified distributions. A qualified distribution must be: (1) a qualified first-time homebuyer distribution; (2) which was used to purchase or construct a principal residence in a qualified disaster area, but which was not used due to the qualified disaster in the area; and (3) must have been received during the period beginning on a date which is 180 days before the first day of the incident period and ending on the date which is 30 days after the last day of the incident period. The repayment period (known as the “applicable period”) runs from the period beginning on the first day of the incident period and ends 180 days after the applicable date with respect to such disaster.

Loans from Qualified Plans

The provision also enables qualified individuals (as described above) to receive retirement plan loans in amounts up to the lesser of $100,000 or the present value of the nonforfeitable accrued benefit of the employee under the plan. Repayment on these loans may be suspended for a period of up to one year if repayment of the loan normally would be due during the period beginning on the first day of the disaster incident period and ending 180 days from the last day of such incident period.

Tax-Favored Withdrawals from Retirement Plans

California conforms to IRC section 72(t), additional tax on early distributions from qualified plans as applicable for federal purposes for the same taxable year using a rate of 2 ½ percent in lieu of the federal tax rate. (RTC section 17085(c)(1).) The qualified disaster distribution would not be subject to a California early withdrawal tax if they are not subject to the federal additional tax on early distributions.

Recontributions of Withdrawals for Home Purchases

Under RTC sections 17501, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC section 402. Additionally, RTC section 17082 conforms to IRC section 72(t) regarding additional tax on early distributions from qualified plans as applicable for federal purposes for the same taxable year using a rate of 2 ½ percent in lieu of the federal tax rate. Therefore, the federal changes made by this provision with respect to recontribution of withdrawals for home purchases automatically applies under California law.

Loans from Qualified Plans

RTC section 17081 conforms to IRC section 72(p) regarding loans from qualified plans as of the specified date of 1/1/2015, and generally treats loans from a qualified employer plan as a distribution unless specified conditions are met. Therefore, the amendments to IRC section 72(p) for loans from qualified plans would not apply for California purposes.

RTC section 17085(f) conforms to Section 2202(b) of the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act), PL 116-136 relating to qualified retirement plan loans from certain retirement plans for coronavirus-related relief.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC section 408. Therefore, the federal changes made by this provision automatically applies under California law.

California conforms to IRC section 72(t)(6), additional tax on early distributions from simple retirement accounts as applicable for federal purposes for the same taxable year using a rate of 6 percent in lieu of the federal tax rate (RTC section 17085(c)(2)). The distributions from simple retirement plans would not be subject to a California early withdrawal tax if they are not subject to the federal additional tax on early distributions.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC sections 401 and 403. Additionally, under RTC section 17551(c)(1), California automatically conforms to the federal changes made to IRC section 457. Therefore, the federal changes made by this provision automatically applies under California law.

California conforms to IRC section 72(t), additional tax on early distributions from qualified plans as applicable for federal purposes for the same taxable year using a rate of 2 ½ percent in lieu of the federal tax rate. (RTC section 17085(c)(1).) The qualified long-term care distributions would not be subject to a California early withdrawal tax if they are not subject to the federal additional tax on early distributions.

RTC section 18631(b) provides that a copy of certain federal information returns can be required to be filed with FTB at the time and in the manner as required by forms and instructions. The new federal information return requirement set forth in Section 334 (creating IRC section 6050Z) automatically applies under California law. (RTC section 18631(c)(25))

California generally conforms to IRC sections 6724 for reasonable cause waiver, definition, and special rules, as of 1/1/2015 with modifications, but does not conform to the modifications made under this section.

This provision eliminates the prohibition against a simplified employee pension or a simple retirement account being designated as a Roth IRA.

Rules Relating to Simplified Employee Pensions

The provision specifies that, contributions made pursuant to a simplified employer pension to an individual retirement plan designated as a Roth IRA are included in gross income and distributions are excluded from gross income. This provision provides that an individual retirement plan designated as a Roth IRA will not be treated as a simplified employee pension unless the employee elects to do so.

Rules Relating to Simple Retirement Accounts

This provision provides that an individual retirement plan designated as a Roth IRA will not be treated as a simple retirement account unless the employee elects to do so. Current federal law prohibits a rollover contribution to a Roth IRA unless it is a qualified rollover contribution. In the case of any payment or distribution out of a simple retirement account with respect to the election described above and to which the 25 percent increased early distribution penalty applies, “qualified rollover contribution” only includes a payment or distribution paid into an account from another simple retirement account.

This provision, which applies to pass-through entity contributions, disallows a qualified conservation contribution deduction if the amount of such contribution exceeds 2.5 times the sum of each partner’s relevant basis in such partnership unless the pass-through entity provides a statement on their return that they made the contribution and provides information as required by the Secretary. An exception is provided if after a 3-year holding period and if the contributing partnership’s interests are held by an individual and member of the family of such individual, or if the contributions are to preserve certified historic structures.

Additionally, the provision expands accuracy-related penalties to include underpayment from the disallowance of the deduction explained above, adds reporting requirements, and allows donors the opportunity to amend an easement deed per the published safe harbor deed language. The reasonable cause exception for underpayments will not apply if it is due to the disallowance of the deduction explained above.

Under the PITL, California generally conforms to the federal charitable contribution rules under IRC section 170 as of the specified date of 1/1/2015, and as a result, does not conform to the provisions related to the deduction limitation for qualified contribution made by a pass-through entity or the exception to the holding period.

Under the CTL, California does not conform to IRC section 170, but instead has standalone law that is generally similar to federal law allowing corporations a deduction for charitable contributions. There are no similar CA provisions that disallow contribution deductions that exceed partnership basis. Thus, California would not conform to these provisions under the CTL.

Under the Administration of Franchise and Income Tax Law, California has modified conformity to IRC 6662, as it existed as of the specified date of 1/1/2015. California does not conform to the changes related to the accuracy-related penalty.

Under RTC sections 17501 and 24601, California automatically conforms to the federal changes made to Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, which includes IRC section 420. Therefore, the federal changes made by this provision automatically applies under California law.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

California does not conform to the advanced manufacturing investment credit.

California law conforms, under the Corporation Tax Law (CTL), to the federal AMT as of the “specified date” of 1/1/2015, with modifications, but California does not conform to the changes made to corporate AMT by this section.

Additionally, California does not conform to the changes made by this section to rules and adjustments related to net operating losses and credits, etc.

FTB does not administer excise taxes.

California does not conform to IRC 36B, relating to refundable credits for qualified health plan under the Affordable Care Act, nor to Subtitle K, Group Health Plan Requirements, of the IRC.

California has a standalone program providing a California Premium Assistance Subsidy (PAS) to applicable return filers that use the IRC section 36B eligibility requirements, with modifications. The California PAS provides financial assistance to pay the premiums for a qualified health plan through the California health insurance marketplace. This federal change does not impact the California PAS program. However, the extension of the increased federal PTC for these taxable years keeps the California PAS amount at zero for taxable years beginning before January 1, 2026.

California does not conform to the renewable electricity production credit.

• Qualified Fuel Cell
• Solar Energy
• Equipment used to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, excepting use to heat a swimming pool.
• Geothermal
• Equipment used to produce, distribute, or use energy derived from a geothermal deposit used to generate power up to the electrical transmission stage.
• Fiber-Optic Solar
• Equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight or electrochromic glass which uses electricity to change its light transmittance properties in order to heat or cool a structure.
• Qualified Small Wind Energy
• Waste Energy Recovery
• Energy storage technology
• Qualified biogas property
• Microgrid controllers
• Combined Heat and Power System
• Thermal Energy Property

California does not conform to the federal energy credit.

California does not conform to the federal energy credit.

California does not conform to the carbon oxide sequestration credit.

California does not conform to the zero-emission nuclear power production credit.

• Biodiesel and renewable diesel
• Biodiesel mixture
• Alternative fuel
• Alternative fuel mixture

California does not conform to these credits. Additionally, FTB does not administer excise taxes.

California does not conform to the second generation biofuel producer credit.

California does not conform to the sustainable aviation fuel credit. Additionally, FTB does not administer excise taxes.

California does not conform to the clean hydrogen production credit, renewable electricity production credit, federal energy credit, or the hydrogen excise tax credit.

The provision increases the energy efficient home improvement credit for any taxable year in an amount equal to 30 percent of the sum of the amount paid or incurred for qualified energy efficient improvements and the amount of residential energy property expenditures paid or incurred by the taxpayer. The amount of the credit is also increased for amounts paid for a home energy audit not to exceed $150. The lifetime limitation is removed and replaced with an annual limitation not to exceed $1,200 for any taxable year.

The provision requires property placed in service to be produced by a qualified manufacturer and the taxpayer must include the product identification number of qualified energy efficiency improvements property on the tax return for the taxable year to receive the credit.

The provision also makes modifications to the definition of qualified energy property that is eligible for the credit.

California does not conform to the energy efficient home improvement credit.

• 26 percent for property placed in service after 12/31/2019 and before 1/1/2022
• 30 percent for property placed in service in after 12/31/2021 and before 1/1/2033
• 26 percent for property placed in service after 12/31/2032 and before 1/1/2034
• 22 percent for property placed in service after 12/31/2033 and before 1/1/2035

California does not conform to the residential clean energy credit.

This provision is not applicable under California Law.

Under the PITL, California specifically does not conform to the federal deduction for energy efficient commercial buildings, and the deduction has not been incorporated under the CTL.

California law conforms, under the Corporation Tax Law (CTL), to federal rules related to corporate distributions and adjustments under IRC section 312, as of 1/1/2015. However, California does not conform to the federal changes under the Inflation Reduction Act that allows the IRC 179D deduction in computing the earnings and profits of a REIT corporation.

California does not conform to the new energy efficient home credit.

California does not conform to the clean vehicle credit.

California does not conform to the credit for previously-owned clean vehicles.

California does not conform to the commercial clean vehicles credit.

California does not conform to the alternative fuel vehicle refueling property credit.

California does not conform to the advanced energy project credit.

California does not conform to the advanced manufacturing production credit.

FTB does not administer an excise tax or the laws related to this section.

California does not conform to the clean electricity production credit.

California does not conform to the clean electricity investment credit.

The PITL, generally conforms to the Modified Accelerated Recovery System (MACRS) in IRC section 168 as of a specified date of 1/1/2015, with modifications, but does not conform to this provision.

Under the CTL, California does not conform to federal MACRS depreciation. Instead, the CTL is generally in substantial conformity to the pre-1981 federal asset depreciation range (ADR) rules, which generally allow property to be depreciated based on its useful life. The CTL does not conform to this provision.

California does not conform to the clean fuel production credit.

California does not conform to the election to treat certain energy or fuel credits as a payment against income tax or to allow the transfer of certain energy or fuel credits to an unrelated taxpayer.

FTB does not administer excise taxes.

Under the PITL and CTL, California generally conforms to the federal research credit as of the specified date of 1/1/2015, with modifications. California modifies the general credit to be 15 percent of qualified expenses (instead of the federal rate of 20 percent of qualified expenses) and modifies the university “basic research” credit to be 24 percent of qualified expenses (instead of the federal rate of 20 percent of qualified expenses). Qualified research and basic research include only research conducted in California.

California specifically does not conform to the alternative simplified credit. Instead, California conforms to the former federal alternative incremental credit, with modifications.

FTB does not conform to the election to apply research credit against payroll taxes. Additionally, FTB does not administer payroll taxes.

California conforms, under the PITL, to the deductibility of certain taxes and other provisions related to the deductibility of taxes under IRC section 164, as of the “specified date” of 1/1/2015, with modifications. Specifically, California does not allow a deduction for state or local income taxes. California does not conform to the limited deduction applicable to individuals for state and local real and personal property taxes and state, local, and foreign income, war profits, and excess profits taxes for taxable years beginning after 12/31/2017, and before 1/1/2026.

Under the PITL and CTL, California conforms to IRC section 461 as of the specified date of 1/1/2015, with modifications.

California has modified conformity to IRC section 461(l), relating to limitation on excess business losses on noncorporate taxpayers, for taxable years beginning after 12/31/2018. For California purposes, losses are treated as an excess business loss carryover to the following taxable year as opposed to a net operating loss carryover under IRC section 172.

California law conforms, under the Corporation Tax Law (CTL), to the federal AMT as of the “specified date” of 1/1/2015, with modifications, but California does not conform to the changes made to corporate AMT by this section.

California conforms, under the PITL, relating to the deductibility of taxes and other provisions related to the deductibility of taxes under IRC section 164, as of the “specified date” of 1/1/2015, with modifications. Specifically, California does not allow a deduction for state or local income taxes. California does not conform to the limited deduction applicable to individuals for state and local real and personal property taxes and state, local, and foreign income, war profits, and excess profits taxes for taxable years beginning after 12/31/2017, and before 1/1/2027.

Under the Personal Income Tax Law (PITL), California does not conform to IRC section 142 or 146, regarding interest on governmental obligations. For California purposes, bond interest from certain sources such as California state bonds, municipal bonds issued by a county, city, town, or other local government in the state, or housing authority bonds for projects in the state, including private activity bond interest is not taxed. Under the Corporation Tax Law (CTL), California requires all interest received from federal, state, municipal, or other bonds to be included in gross income. California does not conform to the new designation for tax exempt facility bonds issued for qualified broadband projects.

Tax exempt facility bonds are administered through the California State Treasurer’s Office who would be responsible for monitoring the volume cap. Therefore, the volume cap does not impact Franchise Tax Board.

This section adds “qualified carbon dioxide capture facilities,” as defined, to the list of tax exempt facility bonds when net proceeds are used to provide for qualified carbon dioxide capture facilities. Seventy-five (75) percent of a tax exempt facility bond issued for qualified carbon dioxide capture facilities would not count towards the authority’s volume cap. The sale of carbon dioxide produced by a qualified carbon dioxide facility owned by a government unit would not be considered private business use and does not need to meet the 10 percent test for a private activity bonds.

The carbon dioxide sequestration credit would be reduced for projects financed by tax exempt private activity bonds. The amount of credit would be reduced by the amount which is the product of the amount and the lesser of half or a fraction generally determined by:

• The numerator which is a sum of the taxable year and all prior taxable years used to finance the project and
• The denominator which is the aggregate amount of the additions to the capital account for the taxable year and all prior taxable years.

Under the Personal Income Tax Law (PITL), California does not conform to IRC section 142 or 146, regarding interest on governmental obligations. For California purposes, bond interest from certain sources such as California state bonds, municipal bonds issued by a county, city, town, or other local government in the state, or housing authority bonds for projects in the state, including private activity bond interest is not taxed. Under the Corporation Tax Law (CTL), California requires all interest received from federal, state, municipal, or other bonds to be included in gross income. California does not conform to the new designation for tax exempt facility bonds issued for qualified carbon dioxide capture facilities.

Tax exempt facility bonds are administered through the California State Treasurer’s Office who would be responsible for monitoring the volume cap. Therefore, the volume cap does not impact Franchise Tax Board.

California does not conform to IRC section 45Q, relating to the carbon oxide sequestration credit, and thus does not conform to the reduction of that credit.

This section extends the deadline for certain acts, such as filing a tax return, paying income tax, filing a claim for refund, or filing a petition with a Tax Court, for qualified taxpayers affected by federally declared disasters to be 60 days after the later of: the earliest incident or the date the declaration was issued.

If there are multiple declarations issued within the 60-day period, a separate period for each declaration will determined using the later of: the earliest incident or the date the declaration was issued.

This section also revises the definition of “disaster area” to be an area that the President provides financial assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

This section allows an extension for filing a petition with the Tax Court or an appeal from the Tax Court for taxpayers who are serving in the Armed Forces or in support of the military in a combat zone, in a contingency operation, or hospitalized due to injury while serving in a combat zone or contingency operation.

This section would also allow an extension for filing an erroneous refund suit.

This section adds "significant fires” to the list of federally declared disasters and defines this term to mean any fire where financial assistance is provided under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

The title of the section is amended to be “Federally Declared Disasters, Significant Fire” to expand and identify the types of disasters that qualify for tax postponement.

This section restores the gross income exclusion for amounts of money or property received from any person (whether or not a shareholder) by regulated public water or sewage disposal utilities. A "contribution to the capital of the taxpayer" is eligible for the exclusion, if the amount is:

1. Any contribution in aid of construction or any contribution by any governmental entity providing protection, preservation or enhancement of drinking water or sewerage disposal services,
2. Any contribution in aid of construction of property other than water or sewerage disposal facilities, must meet the expenditure rule, and
3. The amount, or property acquired or constructed with the amount, is not included in the taxpayer’s rate base for ratemaking purposes.

Any deduction or credit would be disallowed for any expenditure provided as a contribution in aid of construction eligible for this exclusion. Additionally, a property’s adjusted basis of any property acquired with contributions in aid of construction must be adjusted to zero.

The section also restores the statute of limitation period and removes the requirement for the Secretary of the Treasury to issue regulations or other guidance to implement these rules, including regulations or other guidance for determining whether any contribution is a contribution in aid of construction.

California automatically conforms to IRC section 430 under RTC section 17501(b), including this section’s extended amortization for single employer plans.

ERISA Preemption

Additionally, federal ERISA sections specifically preempt state laws relating to certain employee benefit plans in California.

This section expands the definition of broker to include a person who, for consideration, provides regular service of carrying out the transfer of digital assets on behalf of another person. A digital asset acquired on or after 1/1/2023 is identified as a specified security that will require a broker to provide an information return. This section defines a digital asset as a digital representation of value that is recorded and secured on a cryptographically secured distributed ledger or any similar technology, as specified by the Secretary of the Treasury.

Information reporting would be required for cash receipts of more than $10,000 for any person engaged in a trade or business and who, in the course of that trade or business received more than $10,000 in one transaction (or 2 or more related transactions) of any digital asset. A penalty would not be imposed for a digital asset information returns if failure to file is due to reasonable cause and not willful neglect. A broker that transfers a digital asset to an unassociated broker, or an address the broker has reason to know is also a broker, is required to file an information return with information about the transfer.

A broker would be required to file an information return for the gross proceeds of a digital asset on a return required to be filed, or statement required to be furnished, after 12/31/2023.

California does not conform to IRC sections requiring information returns be filed, but instead provides in RTC section 18631 that a copy of certain federal information returns, including the information return for the proceeds from broker and barter exchanges and returns relating to cash received in a trade or business, are required to be filed with FTB upon request.

California generally conforms to IRC sections 6724 for reasonable cause waiver, definition, and special rules, as of 1/1/2015 with modifications, but does not conform to the modifications made under this section.

This section generally modifies the termination date from 1/1/2022 to 10/1/2021 for the Employee Retention Credit (ERC) used to reduce federal employment taxes for employers subject to closure due to Covid-19. Under this section, the credit applies to wages paid after 06/30/2021 and before 10/1/2021, unless the eligible employer is a recovery startup business. For recovery startup businesses the credit would still apply to wages paid after 06/30/2021 and before 1/1/2022.

This section also makes clarifying changes to the definition of a recovery startup business.

This section appropriates $21.55 billion in funding to states, territories, and tribes to grant financial assistance for rent, utilities, and other household related expenses to an eligible household. Grantees may allocate funds to eligible households, which includes a household that:

• Has one or more individuals that qualified for unemployment benefits or experienced a reduction in household income, incurred significant costs, or experienced other financial hardship during or due, directly or indirectly, to the coronavirus pandemic.
• Has one or more individuals that can demonstrate a risk of experiencing homelessness or housing instability.
• Is a low-income family, as defined in section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 1437a(b)).

Funding is available to assist with rental payments for up to 18 months. This section also sets aside $2.5 billion for high-need grantees, which are areas with very low-income renter households paying more than 50 percent of income on rent or living in substandard or overcrowded conditions. Grantees may use excess funds for affordable rental housing and eviction prevention activities.

The section also extends the 2021 funds allocated under section 501 of the Consolidated Appropriations Act (CAA), PL 116-260, from 12/31/2021 to 9/30/2022.

California generally conforms to IRC section 61 as of the specified date of 1/1/2015, with modifications. California does not conform to the Emergency Rental Assistance program modifications under this section.

Senate Bill 91 (Stats. 2021, Ch. 2) established the State Rental Assistance Program to allocate federal rental assistance funds provided pursuant to the federal Emergency Rental Assistance program describe above, and uses the federal definition of eligible household.

California exempts the assistance payments provided by the federal Emergency Rental Assistance program, under section 501 of the CAA, from California taxable income for taxable years beginning on or after 1/1/2021, and provides that forgiveness of rent liability is not included in taxable income for taxable years beginning on or after 1/1/2020 and before 1/1/2025.

The section allocates an additional $7.25 billion towards Paycheck Protection Program (PPP) funding under the existing PPP sections, and expands eligibility under the PPP program for First Draw and Second Draw PPP loans.

The section expands PPP eligibility to include an "additional covered nonprofit entity," which includes certain Code 501(c) nonprofit organizations that employ no more than 500 employees per physical location. An additional covered nonprofit entity is eligible for a PPP loan if the organization employs no more than 300 employees; does not receive more than 15 percent of its receipts from lobbying activities; lobbying activities do not comprise more than 15 percent of the organization's total activities; and the cost of lobbying activities does not exceed $1,000,000 during the most recent tax year that ended prior to 2/15/2020.

The section also expands PPP eligibility to Internet-only news publishers and Internet-only periodical publishers that employ no more than 500 employees or the size standard established by the SBA administrator for the organization's North American Industry Classification code, per physical location of the publishing organization. These organizations must make a good faith certification that loan proceeds will be used to support expenses at the part of the business concern or organization that supports local or regional news.

California conforms to IRC section 61, as of the specified date of 1/1/2015, with modifications. California does not conform to IRC section 265, regarding expenses and interest relating to tax-exempt income, but instead has stand-alone language that disallows certain deductions related to tax-exempt income.

For taxable years beginning on or after 1/1/2019, California amended sections 17131.8 and 24308.6 (AB 1577 Stats. 2020 Ch. 39 and AB 80 Stats. 2021 Ch. 17) to partially conform to the CARES Act and the CAA relating to:

• Exclusions from gross income for PPP loan forgiveness and certain EIDL loan forgiveness,
• The allowance of deductions for expenses paid with the forgiven loan amounts not included in income under such sections, and
• The allowance of tax basis increases and not requiring tax attribute reduction as a result of those forgiven loan amounts being excluded from gross income.

For PPP loans forgiven, these sections do not apply to ineligible entities, which are defined as:

• A publicly-traded company, the securities of which are listed on a national securities exchange, and
• An entity that does not meet the gross receipts requirement by demonstrating at least a 25 percent reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter. Special rules apply to entities that were not in business during certain quarters in 2019.

Taxpayers with loans forgiven under the Economic Injury Disaster Loan (EIDL) Grant or Targeted EIDL Advance, are not required to meet these qualifications to deduct expenses.

California conforms to IRC section 61, as of the specified date of 1/1/2015, with modifications.

For taxable years beginning on or after 1/1/2019, California amended sections 17131.8 and 24308.6 (AB 1577 Stats. 2020 Ch. 39 and AB 80 Stats. 2021 Ch. 17) to conform to the CARES Act and the CAA relating to:

• Exclusions from gross income for PPP loan forgiveness and certain EIDL loan forgiveness,
• The allowance of deductions for expenses paid with the forgiven loan amounts not included in income under such sections, and
• Allowing tax basis increases and not requiring tax attribute reduction as a result of those forgiven loan amounts being excluded from gross income.

Taxpayers with loans forgiven under the Economic Injury Disaster Loan (EIDL) Grant or Targeted EIDL Advance, are not required to meet these qualifications to deduct expenses.

This section establishes the Restaurant Revitalization Fund and appropriates $28.6 billion for the SBA to provide grants to an eligible entity. During the covered period, grants can be used for certain expenses incurred as a direct result of, or during, the COVID–19 pandemic. The specific expenses generally include payroll costs, principal or interest on mortgage payments, rent payments, utilities, maintenance expenses, supplies, food and beverage expenses, covered supplier costs, operational expenses, paid sick leave, and other expenses SBA determines to be essential to maintaining the eligible entity.

Eligible entities can receive a grant amount equal to their "pandemic-related revenue loss," which is defined as the eligible entity's gross receipts during 2020 minus their gross receipts during 2019, if the sum is more than $0. Different rules apply for eligible entities not in operation for all of 2019 that opened during 2020, or had incurred certain expenses but had not opened by the time of application. The aggregate grant amount cannot exceed $10 million to an eligible entity and any affiliated businesses of the eligible entity, and is limited to $5 million per physical location of the eligible entity. Eligible entities that do not use all grant funds or permanently cease operations on or before the last day of the covered period will be required to return any funds not used for allowable expenses.

The Tax Cuts and Jobs Act enacted a business loss limitation, restricting a noncorporate taxpayer’s losses to $250,000 ($500,000 in the case of a joint return) for tax years 2018 through 2025. Excess business losses are disallowed for the taxable year and are carried forward and treated as part of the taxpayer's NOL carryforward in subsequent taxable years. An excess business loss for the taxable year is the excess of aggregate deductions of the taxpayer attributable to the taxpayer's trades and businesses, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount.

Section 2304 of the CARES Act temporarily suspended this loss limitation, allowing taxpayers to deduct excess business losses arising in taxable years 2018 through 2020. This section extends the limit on excess business losses for one year, through taxable years beginning before January 1, 2027.

Under the PITL and CTL, California conforms to IRC section 461 as of the specified date of January 1, 2015, with modifications.

California has modified conformity to IRC section 461(l), relating to limitation on excess business losses on noncorporate taxpayers, for taxable years beginning after December 31, 2018. For California purposes, losses are treated as an excess business loss carryover to the following taxable year as opposed to a net operating loss carryover under IRC section 172.

This section allows assistance-eligible individuals (AEIs) to receive 100% premium assistance for COBRA premiums for any period of COBRA coverage during the period beginning on 4/1/2021 and ending on 9/30/2021. AEIs are individuals whose loss of coverage results from a reduction in hours or an involuntary termination of employment and who elect COBRA coverage. For tax years ending after 3/11/2021, AEIs are not eligible for the health coverage tax credit (HCTC) for any period of coverage in which they receive a COBRA premium assistance. COBRA premium assistance amounts are not be included in gross income.

Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as a refundable overpayment. In addition, any amount of credit increase under this section is subject to the same denial of double benefit, and therefore gross income inclusion, as provided in sections 7001 and 7003 of the CAA.

Individuals receiving premium assistance who become eligible for coverage under a group health plan or Medicare must notify the plan providing COBRA premium assistance. If the individual fails to notify the plan, they may be subject to a penalty of $250 for each failure to notify, or in the case of a fraud a penalty equal to the greater of $250 or 110 percent of the premium assistance improperly received after eligibility for COBRA premium assistance ended.

Under the section, all US residents with adjusted gross income (AGI) of up to $75,000 for individuals filing as single, $112,500 for head of household filing status, and $150,000 for married individuals filing joint returns, who are not a dependent of another taxpayer, and have a valid social security number, are eligible for a rebate of $1,400, except for married individuals filing a joint return who are eligible for a rebate of $2,800. In addition, taxpayer’s are eligible for a rebate of $1,400 for each dependent.

The rebate amount is phased out completely at an AGI of $80,000 for individuals filing as single, $120,000 for head of household filing status, and $160,000 for married individuals filing joint returns.

California does not conform to the federal section that allows 2021 recovery rebates to individuals. The federal recovery rebate is treated as an advance refundable credit, so it is not included in income for state or federal purposes. (See FTB Legal Ruling 2001-3.)

California has authorized its own stimulus programs called the Golden State Stimulus I (GSS I) and GSS II.

Senate Bill 88 (Stats. 2021, Ch. 8), as amended by Assembly Bill 88 (Stats. 2021, Ch. 12), authorizes the California State Controller to make a one-time GSS I tax refund payment to qualified recipients in the amount of either $600 or $1,200. A qualified recipient shall not receive more than one payment.

Senate Bill 139 (Stats. 2021, Ch. 71) authorizes the California State Controller to make a one-time GSS II tax refund payment to qualified recipients an amount ($500, $600, $1,000, or $1,100) depending on their qualifications. A qualified recipient shall not receive more than one payment.

• Increases the credit amount to $3,000, and to $3,600 in the case of a child under age six at end of the calendar year;
• Allows credit eligibility for children aged 17 and under at the end of the 2021 year;
• Phases out the credit amount for individuals with modified adjusted gross income (AGI) above:
  • $150,000 for married filing joint filing status;
  • 112,500 for head of household filing status;
  • $75,000 for all other filing statuses;
• The credit is refundable for taxpayers living in the US for more than half of the taxable year.
• Requires the Secretary of the Treasury to establish a program for making periodic advance payments to taxpayers of up to 50 percent of the estimated credit amount between July 2021 and December 2021.
• Requires an online portal to allow opting out of advance payments, or to provide information to make modifications to the credit amount.

The IRS will make payments to US territories with mirror code tax systems for tax years beginning after 12/31/2020, that equal the loss in revenue caused by the territory’s child tax credit mirror code tax systems for the taxable year. However, the child tax credit will not be allowed under the IRC to a territory resident if the mirror code tax systems allows a child tax credit against income taxes of the territory.

For taxable years beginning after 12/31/2020, a Puerto Rico bona fide resident may claim a fully refundable child tax credit by filing a return with the IRS. However, advance child tax credit payments are not available to Puerto Rico residents.

Under certain circumstances, the IRS will estimate and make payments to the American Samoa equal to the estimated aggregate benefits that American Samoa residents would have been allowed as a child tax credit if a mirror code tax system had been in effect in the taxable year. In addition, American Samoa bona fide residents may claim a fully refundable child tax credit by filing a return with IRS, under rules similar to those discussed above for Puerto Rico.

California does not conform to the federal child tax credit. Also, California does not have child tax credit payment sections relating to US territories, Puerto Rico, and the American Samoa.

California has a refundable Young Child Tax Credit (YCTC). The YCTC is allowed to an eligible individual who has been allowed the California Earned Income Tax Credit (EITC), has at least one qualifying child for the EITC, and has one qualifying child under the age of six years old as of the last day of the year. The maximum amount of the refundable credit is $1,000 and phases in at $25,000 of earned income and phases out at $30,000.

For the 2021 tax year, in the case of a taxpayer with no qualifying children, the minimum age to qualify for the Earned Income Tax Credit (EITC) is reduced from 25 to 19. However, if the individual is a specified student (or, in the case of a married individual, if both the individual and the individual’s spouse are specified students), the minimum age is reduced from 25 to 24. The section further reduces the minimum age to 18 for any qualified former foster youth or qualified homeless youth.

The section also temporarily removes the upper age limit on the credit for taxpayers with no qualifying children. Therefore, taxpayers 65 and older without qualifying children may claim the credit in 2021.

This section also increases the federal credit and phase out percentages and the earned income and phase out amounts for those that do not have a qualifying child.

This section also requires the Secretary of the Treasury to develop and implement procedures to use information returns under IRC section 6050S to check the status of individuals as specified students.