The state of California has made the following tax law changes for tax year 2023:
- New Employment Credit Expansion – For taxable years beginning on or after January 1, 2023, and before January 1, 2026, the New Employment Credit is expanded for qualified taxpayers engaged in semiconductor manufacturing or semiconductor research and development, lithium production, manufacturing of lithium batteries, or electrical airplane manufacturing. For more information, get form FTB 3554, New Employment Credit Booklet.
- Soundstage Filming Tax Credit – For taxable years beginning on or after January 1, 2022, California law allows the Soundstage Filming Tax Credit to reduce net tax below the TMT. For more information, get form FTB 3541.
- California Hope, Perseverance, and Empowerment (HOPE) for Children Trust Account Program – For taxable years beginning on or after January 1, 2023, California law allows an exclusion from gross income for any funds deposited, any investment returns accrued, and any accrued interest in a HOPE trust account and for any funds from a HOPE trust account that is withdrawn or transferred by an eligible youth. For more information, see Schedule CA (540) instructions and R&TC Section 17141.5.
- Interagency Council on Homelessness Payment Exclusion – For taxable years beginning on or after January 1, 2023, California law allows an exclusion from gross income for payments received pursuant to the California Welfare and Institutions Code Section 8257 by members of the Interagency Council on Homelessness, its advisory committee, or its working groups who are or have been homeless. For more information, see Schedule CA (540) instructions and R&TC Section 17131.13.
- Kincade and Zogg Wildfires Exclusion– For taxable years beginning on or after January 1, 2020, and before January 1, 2028, California law allows a qualified taxpayer an exclusion from gross income for any amount received in a settlement from Pacific Gas and Electric (PG&E) for claims relating to the 2019 Kincade Fire or the 2020 Zogg Fire. If a qualified taxpayer included income for an amount received from these settlements in a prior taxable year, the taxpayer can file an amended tax return for that year within the normal stature of limitations. For more information, see Schedule CA (540) instructions and R&TC Sections 17139.2 and 17139.3.
- High Road Cannabis Tax Credit – For taxable years beginning on or after January 1, 2023, and before January 1, 2028, a High Road Cannabis Tax Credit (HRCTC) will be available to a qualified taxpayer that is a licensed commercial cannabis business that meets specified criteria. The HRCTC is allowed in an amount equal to 25 percent of the total amount of the qualified taxpayer’s qualified expenditures in the taxable year not to exceed $250,000 per taxable year. Any credits not used in the taxable year may be carried forward up to eight years. A qualified taxpayer must request a tentative credit reservation from the FTB during the month of July for each taxable year or within 30 days of the start of their taxable year if the qualified taxpayer’s taxable year begins after July. For more information, go to ftb.ca.gov and search for hrctc.
- Discharge of Student Fees – For taxable years beginning on or after January 1, 2023, and before January 1, 2027, California law allows an exclusion from gross income for any amount of unpaid fees due or owed by a student to a community college that was discharged pursuant to California Education Code Section 32527. For more information, see Schedule CA (540) instructions and R&TC Section 17131.21.
- Reporting Requirements– Taxpayers may need to file form FTB 4197, Information on Tax Expenditure Items, with the FTB to report tax expenditure items as part of the FTB’s annual reporting requirements under R&TC Section 41. To determine if you have an R&TC Section 41 reporting requirement, see the R&TC Section 41 Reporting Requirements section or get form FTB 4197.
- Timeliness Penalty Abatement– For taxable years beginning on or after January 1, 2022, an individual taxpayer may elect to request a one-time abatement of a failure-to-file or failure-to-pay timeliness penalty either orally or in writing, if the taxpayer was not previously required to file a California personal income tax return or has not previously been granted abatement under R&TC Section 19132.5, the taxpayer has filed all required returns as of the date of the request for abatement, and the taxpayer has paid, or is in a current arrangement to pay, all tax currently due. For more information, see R&TC Section 19132.5.
- Young Child Tax Credit Expansion– For taxable years beginning on or after January 1, 2022, California expanded the YCTC eligibility to include an eligible individual with a qualifying child who would otherwise have been allowed the California EITC but that the individual has earned income of zero dollars or less, does not have net losses in excess of $33,497 in the taxable year, and does not have wages, salaries, tips, and other employee compensation in excess of $32,490 in the taxable year. For more information, get form FTB 3514, or go to ftb.ca.gov and search for yctc.
- Foster Youth Tax Credit– For taxable years beginning on or after January 1, 2022, the refundable FYTC is available to an individual and/or spouse/RDP age 18 to 25, who is allowed the California EITC for the taxable year and was in foster care while 13 years of age or older. The maximum amount of credit allowable for each eligible taxpayer is $1,117. The credit amount phases out as earned income exceeds the threshold amount of $25,775, and completely phases out at $30,932. For more information, see specific line instructions for Form 540, line 77, and get form FTB 3514, see R&TC Section 17052.2, or go to ftb.ca.gov and search for fytc.
- Federal Acts – In general, the R&TC does not conform to the changes under the following federal acts. California taxpayers continue to follow the IRS as of the specified date of January 1, 2015, with modifications. For specific adjustments due to the following acts, see Schedule CA (540) instructions. • Inflation Reduction Act of 2022 (enacted on August 16, 2022) • American Rescue Plan Act (ARPA) of 2021 (enacted on March 11, 2021) • Consolidated Appropriations Act (CAA), 2021 (enacted on December 27, 2020) • Coronavirus Aid, Relief, and Economic Security (CARES) Act (enacted on March 27, 2020) • Setting Every Community Up for Retirement Enhancement (SECURE) Act (enacted on December 20, 2019)
You can read more about the changes to California Tax Law here.