California revises tax credit eligibility for undocumented individuals under new legislation

California Assembly Bill 398, introduced on February 4, 2025, aims to reform the state's Earned Income Tax Credit (EITC) to enhance financial support for low-income individuals and families, particularly those earning minimum wage. The bill seeks to address economic disparities exacerbated by rising living costs and aims to provide a more equitable tax relief system.

One of the key provisions of AB 398 is the recalibration of the EITC phaseout percentages, ensuring that taxpayers with an earned income of $30,000 will receive a credit amounting to zero. This adjustment is designed to create a more gradual phaseout of benefits, allowing individuals to retain some financial support as their income increases. Additionally, the bill mandates annual adjustments to the credit amounts based on changes to the minimum wage, which is currently set at $15 per hour. This linkage to wage increases is intended to keep the EITC relevant and responsive to economic conditions.

The bill also expands eligibility for the EITC to undocumented individuals, provided they meet certain criteria. This provision has sparked notable debate, with proponents arguing that it acknowledges the contributions of undocumented workers to the economy, while opponents express concerns about the implications for state resources and tax equity.

Economically, AB 398 is poised to have significant implications for California's low-income population. By increasing the EITC, the bill aims to alleviate poverty and stimulate local economies through increased consumer spending. Experts suggest that this could lead to a more robust economic recovery, particularly in communities hardest hit by the pandemic.

As the bill progresses through the legislative process, it faces scrutiny from various stakeholders. Advocates for low-income families are pushing for swift passage, while some lawmakers are calling for amendments to address concerns about fiscal sustainability and the potential impact on state budgets.

In conclusion, California Assembly Bill 398 represents a critical step towards enhancing financial support for low-income residents in the state. Its potential to reshape the EITC landscape could lead to broader economic benefits, but it will require careful consideration of its fiscal implications and the diverse perspectives surrounding its provisions. As discussions continue, the outcome of this bill will be closely watched by both supporters and critics alike.