Provides that employers shall notify employees of potential state and federal earned income tax credits

Summary of provisions

Section 1 of the bill would amend Tax Law 606(d)(6) to provide that: (1) employers with persons in their employ in New York State for whom they must furnish an annual wage summary must furnish to each such employee a notice that he or she may be eligible for a State or federal EITC; (2) the Department of Taxation and Finance shall promulgate guidance specifying the minimum requirements of such notice; (3) such notice must be furnished with, or within one week before or after, the annual wage summary; (4) such notice may be provided by hand delivery, electronic or regular mail; and (5) the employer may choose to provide notice only to those employees whose gross incomes do not equal or exceed $60,000, or the maximum income at which an employee may be eligible for the EITC, whichever is higher.

Section 2 of the bill would provide for an effective date of January 1, 2011.

Existing law

26 U.S.C. § 32 authorizes a federal EITC for eligible individuals and sets forth the amount of the credit.

Tax Law § 606(d) authorizes a State EITC for individuals who are eligi- ble for a federal EITC pursuant to 26 U.S.C. § 32, and provides that the State EITC will be calculated at 30% of the federal EITC.

Tax Law § 606(d)(6) provides that the Commissioner of the Department of Taxation and Finance must make effort's at least every three years to notify individuals of their potential eligibility for an EITC.

Justification

The federal EITC, enacted in 1975, is a refundable feder- al income tax credit for low to moderate income working individuals and families. The federal EITC was enacted in part to offset the burden of social security taxes and to provide an incentive to work. The EITC can result in a reduction of taxes owed, and when it exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. New York State enacted a companion EITC in 1994, which is available to individuals who qualify for the federal EITC and provides them with a State tax credit equal to 30 percent of the appli- cable federal EITC. Maximum credits range from $569 for an individual with no children to as much as $6,217 for a married couple with two or more children.

The EITC is one of the most effective tools in helping people escape poverty and transition from public assistance. For example, an individ- ual working full-time at $8.50 per hour and earning $1700.00 per year

could effectively realize more than a 25 percent increase in income, or an effective hourly rate of $11.39, after receipt of the state and federal EITC. The MC, when coupled with other supports available to low-income families, such food stamps and the low income home energy assistance program, can lift them out of poverty and off of public assistance.

Despite the effectiveness of this tool, it is estimated that as many as 20 percent of those eligible do not claim the credit. To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a return. This bill aims to ensure that all New York State taxpayers who are potential- ly eligible are informed of the EITC at or near the time that the annual wage statement is provided.

This bill also aims to give employers as much flexibility as possible in the content, form, and breadth of distribution. For administrative ease, many employers will choose to provide notice to all taxpayers; however, employers will have the option of providing notice only to those indi- viduals whose gross annual incomes do not exceed $60,000 or the maximum income at which an employee may be eligible for an EITC, whichever is higher. In addition, employers will have the option of providing notice by hand delivery, regular mail or electronically.

Budget implications

There are no significant fiscal impacts associated with this proposal.

Effective date

This bill would take effect January 1, 2011.