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AB 386

Relating to: an agricultural purchase program and making an appropriation. (FE)

2025-2026 Regular Session Introduced by Mike Bare and 9 co-sponsors

AB 386 grants CA employers a tax credit up to $3,000 per qualified full-time employee for employer-paid student loans, capped at $25M yearly, plus gross income exclusion.

Failed to pass pursuant to Senate Joint Resolution 1
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WeVote Research Nonpartisan
Bill Summary · AB 386

AB 386 — Summary (Tangipa)

Personal Income Tax Law & Corporation Tax Law: credits for employer student loan payments

Purpose / Intent

AB 386 creates a limited, temporary state tax incentive to encourage employers to help employees repay student loans by (1) providing a refundable or nonrefundable tax credit (against personal or corporation tax) to qualifying business taxpayers for employer-paid student loan payments and (2) excluding employer-paid student loan payments from employee gross income for state tax purposes. The bill also adds required goal, performance indicator, and data collection language for this new tax expenditure.

Key provisions

  • Credit allowed: For eligible taxable years, qualified taxpayers may claim a credit equal to their qualified expenditures (employer student loan payments) up to $3,000 per qualified full‑time employee per taxable year (Section 17053.83).
  • Eligibility — qualified full‑time employee:
    • Employed at least six months in the taxable year and either: averages ≥35 hours/week, or is a salaried employee paid for full‑time employment under Labor Code §515.
    • Excludes employees who receive more than $125,000 in wages/salary from that qualified taxpayer in the taxable year.
  • Eligibility — qualified taxpayer: a business taxpayer whose employees do not perform jobs described in 20 U.S.C. §1087e(m)(3)(B) (federal statute referenced in the bill).
  • Definition: “Student loan” follows federal Internal Revenue Code §108.
  • Aggregate cap: Total credits allocated by tentative reservation are capped at $25,000,000 per calendar year.
  • Allocation process:
    • Taxpayers must request a tentative credit reservation from the Franchise Tax Board (FTB) in July each year (or within 30 days of taxable year start if after July).
    • FTB, in coordination with the Student Aid Commission, approves reservations and gives priority to applicants meeting certain criteria (veteran-, women-, minority-, or disabled‑owned businesses, and employers with ≤500 employees).
    • Applicants must provide information as prescribed by FTB.
  • Carryover and interaction with deductions:
    • Excess credit over net tax may be carried over to the next three taxable years.
    • If the credit is claimed, any trade/business deduction or other credit for the same qualified expenditure must be reduced by the amount of this credit.
  • Administrative authority: FTB may adopt rules/guidelines and regulations to implement the program; some FTB guidelines are exempt from the Administrative Procedure Act per the bill.
  • Gross income exclusion: The bill also excludes employer student loan payments from employee gross income for state tax purposes for the same effective period (see Section 17139.4 reference in digest).
  • Tax expenditure reporting: The bill includes required statement of goals, performance indicators (e.g., number of taxpayers receiving credits, total dollars allocated), and data collection requirements to satisfy Government Code §41 requirements.

Effective period and timing

  • Applicability in the bill text is stated for taxable years beginning on or after January 1, 2026 (and in amended language January 1, 2027) and before January 1, 2031 (and in amended language January 1, 2032). The bill text contains both year sets reflecting amendments; final operative dates will depend on enrolled/amended language.
  • The bill would take effect immediately as a tax levy.

Fiscal/administrative notes

  • The bill has an annual allocation cap of $25 million, so the maximum direct credit reservation authority is limited to that amount per calendar year.
  • The Assembly bill history shows referrals and amendments (introduced Feb 3, 2025; amended Apr 28, 2025; re‑referred Apr 29; in Rev. & Tax. committee and held under submission as of May 5, 2025). A fiscal committee review is required.

Who is affected

  • Employers (business taxpayers) that choose to make student loan payments on behalf of eligible full‑time employees and meet the “qualified taxpayer” definition.
  • Employees who receive employer student loan payments (subject to the $3,000 per‑employee cap and $125,000 wage limitation).
  • The Franchise Tax Board and the California Student Aid Commission (administration/coordination of reservations and reporting).
  • State revenues could be reduced to the extent credits are claimed (bounded by the $25M annual reservation cap).

Compiled from official sources — confirm details with the bill’s official record.

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