CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

99

Introduced by Senator Grove

February 20, 2026

An act to add and repeal Sections 17054.6.5 and 17131.16.5 to the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor.

Vote: 2/3   Appropriation: yes   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

The Personal Income Tax Law allows various credits against the taxes imposed by that law. Existing law establishes the continuously appropriated Tax Relief and Refund Account and provides that payments required to be made to taxpayers or other persons from the Personal Income Tax Fund are to be paid from that account.

This bill would allow, for each taxable year beginning on or after January 1, 2027, and before January 1, 2032, a cost-of-living credit against those taxes to a qualified taxpayer, as defined, in a qualified amount, calculated as provided based on the taxpayer’s filing and residence status. The bill would require the amount of the credit exceeding the taxpayer’s liability to be credited against other amounts due, if any, and would require the balance to be paid from the Tax Relief and Refund Account and refunded to the taxpayer. By increasing the payments from the Tax Relief and Refund Account, a continuously appropriated fund, the bill would make an appropriation.

The Personal Income Tax Law generally defines “gross income” as income from whatever source derived and provides various exclusions from gross income.

This bill would, for taxable years beginning on or after January 1, 2027, and before January 1, 2032, provide an exclusion from gross income those amounts received as a refund under the above-described cost-of-living tax credit.

This bill would make legislative findings and declarations related to a gift of public funds and other related findings and declarations.

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

SECTION 1.

The Legislature finds and declares both of the following:

(a) California residents continue to face a cost-of-living crisis, with the state consistently ranking among the most expensive in the nation for essential goods, services, and housing.

(b) According to recent economic data, the “California Premium,” which refers to the additional cost to live in the state compared to the national average, has widened, necessitating targeted relief to ensure families can maintain financial stability.

SEC. 2.

Section 17054.6.5 is added to the Revenue and Taxation Code, to read:

17054.6.5.

(a) (1) For each taxable year beginning on and after January 1, 2027, and before January 1, 2032, there shall be allowed against the “net tax,” as defined in Section 17039, a cost-of-living credit to a qualified taxpayer in a qualified amount, as determined under subdivision (b).

(b) (1) Subject to paragraph (2), for purposes of this section, “qualified amount” shall be calculated as follows:

(A) In the case of a taxpayer who is a single individual or a spouse making a separate return, a credit in one of the following amounts:

(i) If the taxpayer has an adjusted gross income of seventy-five thousand dollars ($75,000) or less, then three hundred fifty dollars ($350) if the taxpayer has no dependents, or seven hundred dollars ($700) if the taxpayer has one or more dependents.

(ii) If the taxpayer has an adjusted gross income of more than seventy-five thousand dollars ($75,000) but less than one hundred twenty-five thousand and one dollars ($125,001), then two hundred fifty dollars ($250) if the taxpayer has no dependents, or five hundred dollars ($500) if the taxpayer has one or more dependents.

(iii) If the taxpayer has an adjusted gross income of one hundred twenty-five thousand one dollars ($125,001) or more but less than two hundred fifty thousand one dollars ($250,001), then two hundred dollars ($200) if the taxpayer has no dependents, or four hundred dollars ($400) if the taxpayer has one or more dependents.

(B) In the case of a taxpayer who is a head of household, a credit in one of the following amounts:

(i) If the taxpayer has an adjusted gross income of one hundred fifty thousand dollars ($150,000) or less, then three hundred fifty dollars ($350) if the taxpayer has no dependents, or seven hundred dollars ($700) if the taxpayer has one or more dependents.

(ii) If the taxpayer has an adjusted gross income of more than one hundred fifty thousand dollars ($150,000) but less than two hundred fifty thousand and one dollars ($250,001), then two hundred fifty dollars ($250) if the taxpayer has no dependents, or five hundred dollars ($500) if the taxpayer has one or more dependents.

(iii) If the taxpayer has an adjusted gross income of two hundred fifty thousand and one dollars ($250,001) or more but less than five hundred thousand and one dollars ($500,001), then two hundred dollars ($200) if the taxpayer has no dependents, or four hundred dollars ($400) if the taxpayer has one or more dependents.

(C) In the case of a taxpayer who is a surviving spouse, as defined in Section 17046, or spouses making a joint return, a credit in one of the following amounts:

(i) If the taxpayer has an adjusted gross income of one hundred fifty thousand dollars ($150,000) or less, then seven hundred dollars ($700) if the taxpayer has no dependents, or one thousand fifty dollars ($1,050) if the taxpayer has one or more dependents.

(ii) If the taxpayer has an adjusted gross income of more than one hundred fifty thousand dollars ($150,000) but less than two hundred fifty thousand and one dollars ($250,001), then five hundred dollars ($500) if the taxpayer has no dependents, or seven hundred fifty dollars ($750) if the taxpayer has one or more dependents.

(iii) If the taxpayer has an adjusted gross income of two hundred fifty thousand one dollars ($250,001) or more but less than five hundred thousand one dollars ($500,001), then four hundred dollars ($400) if the taxpayer has no dependents, or six hundred dollars ($600) if the taxpayer has one or more dependents.

(2) (A) Except as provided in subparagraph (B), spouses shall receive only one credit under this section. If the spouses file separate returns, the credit may be taken by either spouse or equally divided between them, except as follows:

(i) If one spouse was a resident for the entire taxable year and the other spouse was a nonresident for part or all of the taxable year, the resident spouse shall be allowed one-half the credit allowed to married persons and the nonresident spouse shall be permitted one-half the credit allowed to married persons, prorated as provided in subparagraph (C).

(ii) If both spouses were nonresidents for part of the taxable year, the credit allowed to married persons shall be divided equally between them subject to the proration provided in subparagraph (C).

(B) For spouses, if each spouse maintained a separate place of residence and resided in this state during the entire taxable year, each spouse will be allowed one-half the full credit allowed to married persons provided in paragraph (1).

(C) A taxpayer who is otherwise eligible to receive a credit under this section but who is a nonresident for any portion of the taxable year shall claim the credits set forth in paragraph (1) at the rate of one-twelfth of those credits for each full month that individual resided within this state during the taxable year.

(c) For purposes of this section, “qualified taxpayer” shall mean a taxpayer who was a resident of the state for at least six months during the taxable year prior to the taxable year for which the taxpayer seeks the credit under this section and who is a resident of the state at the time the taxpayer files for a credit under this section.

(d) If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall be paid from the Tax Relief and Refund Account and refunded to the taxpayer.

(e) The Franchise Tax Board may prescribe rules and regulations as necessary to administer this section.

(f) This section shall remain in effect only until December 1, 2032, and as of that date shall be repealed.

SEC. 3.

Section 17131.16.5 is added to the Revenue and Taxation Code, to read:

17131.16.5.

(a) For taxable years beginning on or after January 1, 2027, and before January 1, 2032, gross income does not include credit amounts refunded pursuant to Section 17054.6.5.

(b) This section shall remain in effect only until December 1, 2032, and as of that date shall be repealed.

SEC. 4.

The Legislature finds and declares that the addition of Section 17054.6.5 to the Revenue and Taxation Code by this act serves a public purpose of alleviating the cost-of-living crisis for state residents and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.