Personal Income Tax Law and Corporation Tax Law: credits: local news outlets: business expense deduction: excessive employee remuneration

The law provides financial support tied to retaining and adding local-news jobs. It also aligns California’s limit on deductions for excessive executive pay with newer federal rules for controlled corporate groups.

What the law does ​

• Provides credits of $20,000 for each of the first five continuing full-time qualifying journalists and $15,000 for each additional continuing full-time journalist.
• Provides an additional $15,000 for each new full-time journalism position and $7,500 for each qualifying part-time journalist.
• Makes the credits refundable after offsetting taxes and other amounts due, including for eligible tax-exempt local-news organizations.
• Limits eligibility to qualifying California local print, digital, and broadcast outlets that meet registration, ownership-disclosure, insurance, editorial-corrections-policy, and independence requirements.
• Requires the Franchise Tax Board to annually report credit use beginning April 1, 2029, and to issue guidance by January 1, 2028, for tax-exempt organizations claiming refundable credits.
• Applies federal controlled-group rules and the updated federal covered-employee definition to California’s $1 million limit on deductions for certain employee compensation.

Who it affects ​

• California local newspapers, news magazines, digital news outlets, and qualifying broadcast stations.
• California-resident journalists who perform qualifying local-news work in the state.
• Nonprofit local-news organizations eligible for California tax exemption.
• Businesses in controlled corporate groups subject to the executive-compensation deduction limit.

Context ​

The local-news credits apply to tax years beginning January 1, 2027, through December 31, 2031, and expire December 1, 2032.

Breakdown ​

Tax Credits for Local News Jobs ​

Beginning in 2027, the bill creates refundable state income-tax credits for qualifying taxpayers that employ qualifying journalists. The credit amounts vary by the journalist’s full-time or part-time status, number of journalists employed, and whether the job is a new journalism position. The bill also extends the credit and refund rules to certain tax-exempt organizations and requires public reporting and legislative guidance on administering the credit.

Key takeaways

• For tax years from 2027 through 2031, qualified taxpayers can receive a $20,000 credit for each of up to five qualifying journalists continuously employed full time.
• Taxpayers can receive a $15,000 credit for each additional qualifying journalist employed full time beyond the first five, and a $7,500 credit for each qualifying journalist employed part time.
• The bill provides an additional $15,000 credit for each qualifying journalist employed full time in a new journalism position.
• The credit is refundable, meaning that any amount exceeding a taxpayer’s tax liability must first be applied to other amounts owed and then paid to the taxpayer.
• Certain organizations exempt from income tax can qualify for the credit and its refund provisions.
• The Franchise Tax Board must publish annual credit-use information and report to the Legislature on how a refundable credit for federally tax-exempt organizations could be administered and enforced.

Executive Pay Deduction Limits ​

AB 2222 updates California tax law to match newer federal rules on limits for deducting high employee pay when a taxpayer belongs to a controlled group of related businesses. It also updates California’s definition of a covered employee. The bill includes contingent coordinating changes with AB 2319 that apply only if both bills become law and AB 2222 is enacted last.

Key takeaways

• The bill applies federal controlled-group rules to California’s $1 million limit on deductions for covered employee pay.
• Related businesses in a controlled group will be subject to the updated federal approach for applying the employee-pay deduction limit.
• The bill further aligns California’s definition of a covered employee with federal law.
• The bill does not allow businesses to deduct covered employee remuneration above $1 million as an ordinary business expense.
• Additional changes to two Revenue and Taxation Code sections take effect only if AB 2319 is also enacted and AB 2222 is enacted last.