AB 386 California Assembly · 2025-2026 Regular Session

Personal Income Tax Law: Corporation Tax Law: credits: student loan payments.

Summary

(1) The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. This bill, for taxable years beginning on or after January 1, 2027, and before January 1, 2032, would allow a credit against those taxes to a qualified taxpayer for student loan payments, as defined, made by the qualified taxpayer on behalf of a qualified full-time employee, as defined, not to exceed $3,000 per employee during the taxable year. The bill would define qualified taxpayer for this purpose to mean a taxpayer whose employees do not perform jobs described by specified federal law. The bill would limit the aggregate amount of credits allocated to $25,000,000 per year, and would require the Franchise Tax Board, in coordination with the Student Aid Commission, to allocate the credit through tentative credit reservations, as described. (2) The Personal Income Tax Law, in modified 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 student loan payments made by a qualifying employer, as defined, on behalf of a qualified taxpayer, as defined, that is a full-time employee. (3) Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals the tax expenditure will achieve, detailed performance indicators, and data collection requirements. This bill would include additional information required for any bill authorizing a new tax expenditure. (4) This bill would take effect immediately as a tax levy.

Issues: ✗ Budget & Taxes

Bill status failed 1 of 4 stages cleared

Introduction

Feb 2025

Committee Review

Floor Vote

Governor

Introduced Feb 3, 2025 Last action Feb 2, 2026

Maddy AI version diff · 2 comparisons

What changed between versions

04/28/25 - Amended Assembly → AB386 · 1 edit

MINOR

No substantive policy changes were made between these two versions. The diff reflects only a change in document formatting: the old version uses a traditional legislative layout with line numbers and page headers, while the new version is a web-based rendering of the same bill text with navigation elements. All amendment marks (showing proposed changes to years, terminology, and structure) remain identical.

TECHNICAL

The document was reformatted from a traditional legislative layout (with line numbers, page headers, and column formatting) to a web page rendering with navigation menus, search tools, and share links. No policy language was added, removed, or altered.

02/03/25 - Introduced → 04/28/25 - Amended Assembly · 7 edits · Apr 28, 2025

MODERATE

The amended version of AB 386 shifts the effective dates one year later (2027-2032 instead of 2026-2031), adds an income cap of $125,000 on employees eligible for the student loan payment credit, introduces a six-month minimum employment requirement, and adds individual income limits ($250,000/$125,000) for the gross income exclusion. It also requires the Franchise Tax Board to coordinate with the Student Aid Commission and ties the credit amount to a tentative credit reservation issued by the board.

TIMELINE

All effective dates shifted one year later: the credit and exclusion now apply to taxable years beginning on or after January 1, 2027 (previously 2026) and before January 1, 2032 (previously 2031). The sunset/repeal date moves from December 1, 2031 to December 1, 2032.

ELIGIBILITY

New 'qualified full-time employee' definition requires the employee to have been employed for at least six months during the taxable year AND excludes any employee who receives more than $125,000 in wages or salary from the qualified taxpayer during the taxable year.

The gross income exclusion (Section 17139.4) now only applies to individual taxpayers with adjusted gross income not exceeding $250,000 for joint filers, heads of household, or surviving spouses, and $125,000 for all other individuals.

DEFINITION

A new definition of 'student loan' is added, incorporating the meaning from Section 108 of the Internal Revenue Code. The term 'qualified expenditure' is also refined to specify payments are 'towards repayment of a student loan.'

The 'qualified taxpayer' definition for the business credit changes from 'a business' to 'a business taxpayer,' and the priority categories for application approval are reorganized (veteran-owned, women-owned, employers with 500 or fewer employees, minority-owned, disabled-owned).

ENFORCEMENT

The Franchise Tax Board must now approve tentative credit reservations in coordination with the Student Aid Commission, and qualified taxpayers must request a credit reservation during July (or within 30 days of their taxable year start if it begins after July). The credit amount is tied to the tentative credit reservation issued by the board.

A new provision allows the Franchise Tax Board to prescribe regulations (in addition to rules, guidelines, and procedures) to carry out the purposes of the section.

Floor votes

How they voted

No floor votes recorded yet.

Full legislative history

Actions timeline

Total actions

Key actions

Committee

Amendments

Feb 2, 2026

Lower · Passed

From committee: Filed with the Chief Clerk pursuant to Joint Rule 56.

lower

May 5, 2025

Lower · Passed

In committee: Set, first hearing. Held under submission.

lower

Apr 29, 2025

Committee

Re-referred to Com. on REV. & TAX.

lower

Apr 28, 2025

Introduced

From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended.

lower

Mar 17, 2025

Committee

In committee: Set, first hearing. Referred to REV. & TAX. suspense file.

lower

Feb 18, 2025

Committee

Referred to Com. on REV. & TAX.

lower

Feb 4, 2025

Lower · Passed

From printer. May be heard in committee March 6.

lower

1 primary · 0 co-sponsors