California establishes new earned income tax credit thresholds for 2023 tax year

On February 4, 2025, California Assembly Bill 398 was introduced in the California Legislature, aiming to amend the state's Earned Income Tax Credit (EITC) provisions. The bill seeks to enhance financial support for low-income individuals and families, particularly those with qualifying children, by adjusting the credit amounts and phaseout thresholds based on the earned income tax credit adjustment factor.

Key provisions of AB 398 include a recalibration of the earned income amounts and phaseout amounts for eligible individuals. For instance, individuals with no qualifying children will see their earned income amount set at $5,520, while those with three or more qualifying children will have an earned income amount of $14,305. The bill also proposes specific credit percentages and phaseout percentages, which vary depending on the number of qualifying children, with the aim of providing a more equitable financial benefit to families.

The introduction of this bill has sparked notable discussions among lawmakers and advocacy groups. Proponents argue that the adjustments are necessary to keep pace with inflation and the rising cost of living in California, thereby ensuring that low-income families receive adequate support. Critics, however, express concerns about the potential fiscal impact on the state budget and whether the adjustments will sufficiently address the needs of the most vulnerable populations.

Economically, AB 398 is expected to have significant implications. By increasing the EITC, the bill could stimulate consumer spending among low-income households, potentially benefiting local economies. Socially, it aims to alleviate poverty and reduce income inequality, particularly for families with children, which is a pressing issue in California.

As the bill progresses through the legislative process, experts anticipate further debates regarding its financial sustainability and effectiveness in achieving its intended goals. The outcome of AB 398 could set a precedent for future tax credit reforms in California, reflecting the state's ongoing commitment to supporting its low-income residents. The next steps will involve committee reviews and potential amendments before a vote is scheduled.