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SB-454 Personal Income Tax Law: deferred compensation: retirement account catch-up limits: contributions.(2023-2024)



Current Version: 04/25/23 - Amended Senate

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SB454:v98#DOCUMENT

Amended  IN  Senate  April 25, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 454

Introduced by Senator Ochoa Bogh

February 13, 2023

An act to amend Section 17085 of add Section 17501.8 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 454, as amended, Ochoa Bogh. Personal Income Tax Law: early distribution penalty: emergency distributions: domestic abuse. deferred compensation: retirement account catch-up limits: contributions.
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.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 17501.8 is added to the Revenue and Taxation Code, to read:

17501.8.
 (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 Analyst’s 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 212 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 212 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.