CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

99

TAX LEVY

Introduced by Assembly Member Calderon

February 5, 2026

An act to amend Section 17072 of, and to add Sections 17141.8 and 17207.15 to, the Revenue and Taxation Code, relating to natural disasters, to take effect immediately, tax levy.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various deductions from gross income in calculating adjusted gross income.

This bill, for taxable years beginning on or after January 1, 2027, and before January 1, 2032, would allow a deduction from adjusted gross income for amounts contributed by a qualified taxpayer, as defined, to a catastrophe savings account, in accordance with specified provisions. The bill would define “catastrophe savings account” to mean a savings account or money market account with a financial institution that, among other requirements, is established to pay for the qualified catastrophe expenses, as defined, of a qualified taxpayer establishing the account, as provided. The bill would subject a qualified taxpayer to a specified penalty if they use a distribution from a catastrophe savings account to cover an expense other than a qualified catastrophe expense.

The Personal Income Tax Law, in conformity with federal income tax law, generally defines “gross income” as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income.

This bill, for taxable years beginning on or after January 1, 2027, and before January 1, 2032, would provide an exclusion from gross income for interest earned by a catastrophe savings account, as specified.

Existing law requires any bill authorizing a new tax expenditure, as defined, to include tax credits, deductions, exclusions, or exemptions, to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements.

This bill would include findings and reporting requirements in compliance with this requirement.

This bill would take effect immediately as a tax levy.

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

SECTION 1.

Section 17072 of the Revenue and Taxation Code is amended to read:

17072.

(a) Section 62 of the Internal Revenue Code, relating to adjusted gross income defined, shall apply, except as otherwise provided.

(b) Section 62(a)(2)(D) of the Internal Revenue Code, relating to certain expenses of elementary and secondary school teachers, shall not apply.

(c) Section 62(a)(21) of the Internal Revenue Code, relating to attorneys attorney’s fees relating to awards to whistleblowers, shall not apply.

SEC. 2.

Section 17141.8 is added to the Revenue and Taxation Code, to read:

17141.8.

(a) For each taxable year beginning on or after January 1, 2027, and before January 1, 2032, gross income does not include interest earned by a catastrophe savings account established pursuant to Section 17207.15.

(b) This section shall become inoperative on December 1, 2032.

(c) Any interest that accrues to a catastrophe savings account after December 31, 2031, shall be included in gross income.

SEC. 3.

Section 17207.15 is added to the Revenue and Taxation Code, to read:

17207.15.

(a) For each taxable year beginning on or after January 1, 2027, and before January 1, 2032, there shall be allowed as a deduction the amount contributed by a qualified taxpayer to a catastrophe savings account established pursuant to this section.

(b) (1) The total amount that may be contributed to a catastrophe savings account per taxable year shall not exceed the following:

(A) In the case of a qualified taxpayer whose principal residence is insured, fifteen thousand dollars ($15,000).

(B) In the case of a qualified taxpayer whose principal residence is not insured, two hundred fifty thousand dollars ($250,000).

(2) If a qualified taxpayer contributes in excess of the limits provided in paragraph (1), the qualified taxpayer shall withdraw the amount of the excess contributions and include that amount in income for purposes of Section 17041 in the year of withdrawal.

(c) For purposes of this section, the following definitions apply:

(1) “Catastrophe savings account” means a savings account or money market account with a financial institution that meets all of the following requirements:

(A) Is designated as a catastrophe savings account by the account holder.

(B) Is established by a qualified taxpayer, or by qualified taxpayers who are spouses, for the exclusive benefit of a qualified taxpayer establishing the account.

(C) Is the only catastrophe savings account established by the qualified taxpayer.

(D) Is established by a residential property owner in this state for their principal residence.

(E) The written governing instrument creating the account provides for both of the following:

(i) All contributions to the account are required to be in cash.

(ii) The account is established to pay, pursuant to the requirements of this section, for the qualified catastrophe expenses of a qualified taxpayer establishing the account.

(2) “Qualified catastrophe expenses” means either of the following:

(A) Expenses paid or incurred due to damage to or loss of a homeowner’s principal residence caused by a wildfire, flood, or earthquake that has been declared by the Governor to be an emergency, including a qualified deductible of a homeowners insurance policy.

(B) Expenses paid or incurred by a homeowner to incorporate property-level mitigation efforts, as provided in subparagraph (B) of paragraph (1) of subdivision (d) of Section 2644.9 of Title 10 of the California Code of Regulations, to their principal residence.

(3) “Qualified deductible” means the deductible for the individual’s homeowner’s insurance policy for a homeowner’s principal residence.

(4) “Qualified taxpayer” means an individual, or a married couple if filing a joint return, who owns a principal residence in this state.

(d) A distribution from a catastrophe savings account shall be used to cover qualified catastrophe expenses. If a qualified taxpayer uses a distribution from a catastrophe savings account to cover an expense other than a qualified catastrophe expense, the qualified taxpayer shall be subject to a penalty of 2.5 percent of the amount improperly distributed.

(e) (1) For purposes of complying with Section 41, as it applies to the deduction allowed by this section, the Legislature finds and declares as follows:

(A) California is not immune from natural disasters such as wildfires, floods, and earthquakes.

(B) California must seek a multipronged approach to address natural disasters which includes public- and private-market options and personal responsibility.

(C) The promotion of financial resiliency benefits cities, counties, consumers, and policyholders.

(D) Catastrophe savings accounts are intended to assist consumers in paying for expenses incurred by, or related to, a major natural disaster.

(E) The catastrophe savings accounts would foster pre-event mitigation and postevent recovery from catastrophes by accumulating funds that can be used to supplement insurance coverage and offset the costs of remediation and repair.

(2) The performance indicators for the Legislature to use in determining if the deduction achieves its stated purpose include all of the following:

(A) The number of taxpayers allowed a deduction pursuant to this section.

(B) The average amount of the deduction allowed pursuant to this section.

(C) The total amount of deductions allowed pursuant to this section.

(3) (A) By May 1, 2029, and annually thereafter, the Franchise Tax Board shall submit a report to the Legislature, in accordance with Section 9795 of the Government Code, detailing the performance indicators listed in paragraph (2).

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

(f) This section shall become inoperative on December 1, 2032.

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.