AB 1550

AB1550:v98#DOCUMENT

Bill Start

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Assembly Bill

No. 1550

An act to amend Sections 17073 and 17073.5 of, and to add Section 17201.8 to, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL'S DIGEST

AB 1550, as amended, Sanchez. Personal income taxes: deductions: tips: overtime compensation.

The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various deductions in calculating taxable income and allows a taxpayer to elect to take a standard deduction in lieu of itemizing deductions. Existing federal income tax law, for taxable years beginning before January 1, 2029, allows deductions in determining taxable income, as defined, for amounts equal to the qualified tips, as defined, and qualified overtime compensation, as defined, received by a taxpayer during the taxable year, not to exceed certain amounts, as specified.

This bill would, for taxable years beginning on or after January 1, 2026, and before January 1, 2029, conform to federal income tax law with regard to qualified tips and qualified overtime compensation, except as specified. compensation. The bill would, in that regard, allow the above-described deductions to be taken in addition to the standard deduction.

Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill also would include additional information required for any bill authorizing a new tax expenditure.

This bill would take effect immediately as a tax levy.

Digest Key

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

Bill Text

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

SECTION 1.

Section 17073 of the Revenue and Taxation Code is amended to read:

17073.

(a) Section 63 of the Internal Revenue Code, relating to taxable income defined, shall apply, except as otherwise provided.

(b) The deduction allowed by Section 17208.1, relating to interest on loans or financed indebtedness obtained from a publicly owned utility for the purchase and installation of energy efficient products or equipment, may not be treated as a miscellaneous itemized deduction under Section 67(a) of the Internal Revenue Code, relating to the 2-percent floor on miscellaneous deductions.

(c) For individuals who do not itemize deductions, the standard deduction computed in accordance with Section 17073.5 and the deductions allowed pursuant to Section 17201.8 shall be allowed as deductions in computing taxable income.

SEC. 2.

Section 17073.5 of the Revenue and Taxation Code is amended to read:

17073.5.

(a) A taxpayer may elect to take a standard deduction as follows:

(1) In the case of a taxpayer, other than a head of a household or a surviving spouse (as defined in Section 17046) or a married couple filing a joint return, the standard deduction shall be one thousand eight hundred eighty dollars ($1,880).

(2) In the case of a head of household or a surviving spouse (as defined in Section 17046) or a married couple filing a joint return, the standard deduction shall be three thousand seven hundred sixty dollars ($3,760).

(b) The standard deduction provided for in subdivision (a) shall be in lieu of all deductions other than those which are to be subtracted from gross income in computing adjusted gross income under Section 17072, except for the deductions allowed pursuant to Section 17201.8.

(c) (1) The provisions of this section shall be applied in lieu of the provisions of Sections 63(c) and 63(f) of the Internal Revenue Code, relating to standard deductions.

(2) Notwithstanding paragraph (1), Section 63(c)(5) of the Internal Revenue Code, relating to limitations on the standard deduction of certain dependents, and Section 63(c)(6) of the Internal Revenue Code, relating to certain individuals not eligible for the standard deduction, shall apply, except as otherwise provided. For purposes of this paragraph, the amount specified in Section 63(c)(5) of the Internal Revenue Code shall be adjusted for inflation in accordance with the provisions of Section 63(c)(4) of the Internal Revenue Code.

(d) For each taxable year beginning on or after January 1, 1988, the Franchise Tax Board shall recompute the standard deduction amounts prescribed in subdivision (a). That computation shall be made as follows:

(1) The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year.

(2) The Franchise Tax Board shall compute an inflation adjustment factor by adding 100 percent to that portion of the percentage change figure which is furnished pursuant to paragraph (1) and dividing the result by 100.

(3) The Franchise Tax Board shall multiply the standard deduction amounts in the preceding taxable year by the inflation adjustment factor determined in paragraph (2), and round off the resulting products to the nearest one dollar ($1).

(4) In computing the standard deduction amounts pursuant to this subdivision, the amount provided in paragraph (2) of subdivision (a) shall be twice the amount provided in paragraph (1) of subdivision (a).

SEC. 3.

Section 17201.8 is added to the Revenue and Taxation Code, to read:

17201.8.

(a) (1)For taxable years beginning on or after January 1, 2026, and before January 1, 2029, Section 224 of the Internal Revenue Code, relating to qualified tips, and Section 225 of the Internal Revenue Code, relating to qualified overtime compensation, as those sections read on January 1, 2026, shall apply, except as otherwise provided. apply.

(2)Section 224(e) of the Internal Revenue Code, related to social security number required, and Section 225(d) of the Internal Revenue Code, related to social security number required, shall not apply.

(b) (1) For purposes of complying with Section 41, the Legislature finds and declares the following:

(A) The specific goal of the deductions provided by this section are to help struggling workers retain more of their earnings.

(B) The performance indicators for the Legislature to use in determining whether the deductions achieve their goal shall be the number of taxpayers deducting tips or overtime compensation from income pursuant to this section, and the average dollar value of those amounts deducted from income.

(2) (A) Notwithstanding Section 10231.5 of the Government Code, the Franchise Tax Board, no later than December 1, 2029, shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers deducting tips or overtime compensation from income under this section and the average dollar value of those amounts deducted.

(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542.

SEC. 4.

This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.