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 |Add To My Favorites |Track Bill | Version: 02/21/25 - Introduced

 AB-1443 Personal income taxes: unemployment insurance: tips.(2025-2026)

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 Date Published: 02/21/2025 09:00 PM

AB1443:v99#DOCUMENTBill Start

 CALIFORNIA LEGISLATURE—
 2025–2026 REGULAR SESSION

 Assembly Bill

No. 1443

Introduced by Assembly Member Castillo

February 21, 2025

 An act to amend Sections 17215.1, 17551, 18631, 18663, and 19183 of, to add Section 17132.6 to, and to add and repeal Section 17131.18.5 of, the Revenue and Taxation Code, and to amend, repeal, and add Sections 940, 13009, and 13009.5 of, and to repeal and add Sections 927, 987.7, 13027, and 13055 of, the Unemployment Insurance Code, relating to taxation.

LEGISLATIVE COUNSEL'S DIGEST

AB 1443, as introduced, Castillo.
 Personal income taxes: unemployment insurance: tips.

The Personal Income Tax Law, in modified conformity with federal law, provides various exclusions from gross income in computing tax liability. Existing law requires employers to make specified payments and withholdings from wages paid for employment to, and to file reports of wages and make contributions for unemployment insurance and the employment training tax with, the Employment Development Department. The department is charged with administering the state’s payroll taxes.

This bill, for taxable years beginning on or after January 1, 2026, and before January 1, 2031, would exclude tips, as defined, from gross income for the purposes of the Personal Income Tax Law. The bill, on and after January 1, 2026, and until January 1, 2031, would also exclude tips from the definition of wages paid for employment for purposes of
 income tax withholding and for purposes of unemployment insurance and the employment training tax. This bill would also make related changes to other provisions.

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

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 17131.18.5 is added to the Revenue and Taxation Code, to read:

17131.18.5.

 (a) For taxable years beginning on or after January 1, 2026, gross income does not include tips.

(b) For purposes of this section, “tips” includes any gratuity provided by a customer or client of the employer’s business.

(c) (1) For purposes of complying with Section 41, the Legislature finds and declares as follows:

(A) The goal of the exclusion provided by this section is to assist individuals with retaining more of their earnings.

(B) The performance indicators for the Legislature to use in determining whether the exclusion
 achieves its goal shall be the number of returns claiming the exemption.

(2) (A) The Franchise Tax Board, no later than December 1, 2036, shall provide a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing, to the extent data is available, the number of returns claiming the exemption.

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

(C) The requirement for submitting a report imposed under subparagraph (A) shall become inoperative on December 1, 2040, pursuant to Section 10231.5 of the Government Code.

(d) This section shall remain in effect only until January 1, 2031, and as of that date is repealed, unless a later enacted statute that is
 enacted before January 1, 2031, deletes or extends that date.

SEC. 2.

 Section 17132.6 is added to the Revenue and Taxation Code, to read:

17132.6.

 For taxable years beginning on or after January 1, 2026, and before January 1, 2031, Section 102(a) of the Internal Revenue Code is modified to treat tips as property transferred by gift.

SEC. 3.

 Section 17215.1 of the Revenue and Taxation Code is amended to read:

17215.1.

 (a) Section 220(f)(5) of the Internal Revenue Code, relating to rollover contributions, shall not apply.

(b) For taxable years beginning on or after January 1, 2026, and before January 1, 2031, Section 220(b