Natural disasters: catastrophe savings accounts: personal income tax.
AB 232
California Bills
20250AB__023298AMD INTRODUCED 2025-01-13 AMENDED_ASSEMBLY 2025-04-11 2025 AB AMD Introduced by Assembly Members Calderon and Gipson (Coauthor: Assembly Member Valencia) LEAD_AUTHOR ASSEMBLY Calderon LEAD_AUTHOR ASSEMBLY Gipson COAUTHOR ASSEMBLY Valencia
An act to amend
Section 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. natural disasters, to take effect immediately, tax levy Natural disasters: catastrophe savings accounts: personal income tax.
Existing law provides for the formation and regulation of state-organized banks and state-certified credit unions by the Department of Financial Protection and Innovation.</xhtml:p><xhtml:p>This bill, until January 1, 2030, would authorize a homeowner to establish one catastrophe savings account that, among other things, has the specified purpose of covering the amount of insurance deductibles and other uninsured portions of risks of loss from wildfire, flood, or earthquake.
The bill would require distributions from a catastrophe savings account to be used to cover qualified catastrophe expenses, defined as expenses paid or incurred due to damage to or loss of a homeowner’s primary residence caused by a wildfire, flood, or earthquake that has been declared by the Governor to be an emergency. The bill would impose penalties on homeowners who use a distribution to cover an expense other than a qualified catastrophe expense, unless specified exceptions apply.
The bill would require the penalty to be determined and collected by the Commissioner of Financial Protection and Innovation, and deposited in the Financial Protection Fund.</xhtml:p>"?> 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, 2026, and before January 1, 2031, 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 regular 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, 2026, and before January 1, 2031, would provide an exclusion from gross income for interest earned by a catastrophe savings account until December 1, 2030. 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.
MAJORITY NO YES NO YES NO YES NO NO NO NO The people of the State of California do enact as follows: <caml:Num>SECTION 1.</caml:Num><caml:ActionLine action="IS_ADDED" xlink:href="urn:caml:codes:FIN:caml#xpointer(%2Fcaml%3ALawDoc%2Fcaml%3ACode%2Fcaml%3ALawHeading%5B%40type%3D'DIVISION'%20and%20caml%3ANum%3D'21.'%5D)" xlink:label="fractionType: LAW_SPREAD||commencingWith: 60000" xlink:type="locator">Division 21 (commencing with
Section 60000) is added to the <caml:DocName>Financial Code</caml:DocName>, to read:</caml:ActionLine><caml:Fragment><caml:LawHeading id="id_33CEE732-0432-4DA7-BE45-DC3D958D8719" type="DIVISION"><caml:Num>21.</caml:Num><caml:LawHeadingVersion id="id_1D6A80C1-3930-47D0-8F0D-89B20683174B"><caml:LawHeadingText>Catastrophe Savings Accounts</caml:LawHeadingText></caml:LawHeadingVersion><caml:LawSection id="id_32584167-C540-408C-9992-DB8D3854F7E6"><caml:Num>60000.</caml:Num><caml:LawSectionVersion id="id_A60C033B-07C8-4E09-B52D-D3D4E867DAFC"><caml:Content><xhtml:p>For purposes of this division, the following
definitions apply:</xhtml:p><xhtml:p>(a)<xhtml:span class="EnSpace"/>“Catastrophe Savings Account” means a regular savings account or money market account established by a residential property insurance policyholder in this state to cover the deductible for a policy that covers wildfire, flood, or earthquake for the policyholder’s primary residence or by an individual to cover uninsured losses for the homeowner’s primary residence from a wildfire, flood, or earthquake.</xhtml:p><xhtml:p>(b)<xhtml:span class="EnSpace"/>“Qualified catastrophe expenses” mean expenses paid or incurred due to damage to or loss of a homeowner’s primary residence caused by a wildfire, flood, or earthquake that has been declared by the Governor to be an emergency.</xhtml:p></caml:Content></caml:LawSectionVersion></caml:LawSection><caml:LawSection id="id_8F0DEEC5-15F9-4761-99C9-7088B9257F9E"><caml:Num>60010.</caml:Num><caml:LawSectionVersion id="id_5AEA09F9-EA82-4A9F-9DF0-4E9B4B1A6504"><caml:Content><xhtml:p>(a)<xhtml:span class="EnSpace"/>A homeowner may establish no greater than one catastrophe savings account.
A catastrophe savings account shall be labeled as a catastrophe savings account, and the specified purpose of the account shall be to cover the amount of insurance deductibles and other uninsured portions of risks of loss from wildfire, flood, or earthquake.</xhtml:p><xhtml:p>(b)<xhtml:span class="EnSpace"/>(1)<xhtml:span class="EnSpace"/>A distribution from a catastrophe savings account shall be used to cover qualified catastrophe expenses.
If a homeowner uses a distribution from a catastrophe savings account to cover an expense other than a qualified catastrophe expense, the homeowner shall be subject to a penalty to be determined and collected by the Commissioner of Financial Protection and Innovation, and deposited in the Financial Protection Fund.</xhtml:p><xhtml:p>(2)<xhtml:span class="EnSpace"/>The penalty imposed by this subdivision shall not apply if either of the following apply at the time the distribution is made:</xhtml:p><xhtml:p>(A)<xhtml:span class="EnSpace"/>The homeowner no longer owns a primary residence.</xhtml:p><xhtml:p>(B)<xhtml:span class="EnSpace"/>The homeowner is at least years of age and did not obtain insurance on their primary residence.</xhtml:p><xhtml:p>(c)<xhtml:span class="EnSpace"/>A catastrophe savings account is not subject to attachment, levy, garnishment, or legal process in this state.</xhtml:p></caml:Content></caml:LawSectionVersion></caml:LawSection><caml:LawSection id="id_0C698EC2-B513-4D85-B4DB-78BDC7070E44"><caml:Num>60020.</caml:Num><caml:LawSectionVersion id="id_178FB5C3-32BB-419E-8632-275EFB82ECD8"><caml:Content><xhtml:p>This division shall become inoperative on January 1, 2030.</xhtml:p></caml:Content></caml:LawSectionVersion></caml:LawSection></caml:LawHeading></caml:Fragment></caml:BillSection>"?>
SECTION 1.
Section of the Revenue and Taxation Code is amended to read: 17072. (
a) Section 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 attorney’s fees relating to awards to whistleblowers, shall not apply. (
d) For each taxable year beginning on or after January 1, 2026, and before January 1, 2031,
Section 62(
a) of the Internal Revenue Code, relating to the general rule, is modified to provide that the deduction under
Section 17207.15 shall be allowed in determining adjusted gross income.
SEC.
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, 2026, and before January 1, 2031, 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, 2030. (
c) Any interest that accrues to a catastrophe savings account after December 1, 2030, shall be included as gross income.
SEC.
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, 2026, and before January 1, 2031, 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 in a taxable year shall not exceed the following: (A)<xhtml:span class="EnSpace"/>In the case of an individual whose qualified deductible is not more than one thousand dollars ($1,000), two thousand dollars ($2,000).</xhtml:p>"?> (B)</xhtml:p>"?> (
A) In the case of a qualified taxpayer whose primary residence is insured, fifteen thousand dollars ($15,000). (C)</xhtml:p>"?> (
B) In the case of a qualified taxpayer whose primary 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 in the year of withdrawal. (
c) For purposes of this section, the following
definitions apply: (1) “Catastrophe savings account” means a regular 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 primary 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 primary 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 of the California Code of Regulations, to their primary residence. (3) “Qualified deductible” means the deductible for the individual’s homeowner’s insurance policy for a homeowner’s primary residence. (4) “Qualified taxpayer” means an individual, or a married couple if filing a joint return, who owns a primary 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. (d)</xhtml:p>"?> (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 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, 2028, and annually thereafter, the Franchise Tax Board shall submit a report to the Legislature, in accordance with
Section 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. (e)</xhtml:p>"?> (
f) This
section shall become inoperative on December 1, 2031.
SEC. 4. This act provides for a tax levy within the meaning of