Personal Income Tax Booklet 2020 (REV 01-21) Page 5
Worker Status: Employees and Independent Contractors – Some
individuals may be classified as independent contractors for federal
purposes and employees for California purposes, which may also cause
changes in how their income and deductions are classified. For more
information, see the instructions for Schedule CA (540).
Minimum Essential Coverage Individual Mandate – For taxable years
beginning on or after January 1, 2020, California requires residents and
their dependents to obtain and maintain minimum essential coverage
(MEC), also referred to as qualifying health care coverage. Individuals
who fail to maintain qualifying health care coverage for any month
during taxable year 2020 will be subject to a penalty unless they qualify
for an exemption. For more information, see specific line instructions
for Form 540, lines 64, 77, and 92, or get the following new health care
forms, instructions, and publications:
• Form FTB 3849, Premium Assistance Subsidy
• Form FTB 3853, Health Coverage Exemptions and Individual Shared
• Form FTB 3895, California Health Insurance Marketplace Statement
• Publication 3849A, Premium Assistance Subsidy (PAS)
• Publication 3895B, California Instructions for Filing Federal Forms
1094-B and 1095-B
• Publication 3895C, California Instructions for Filing Federal Forms
1094-C and 1095-C
Rental Real Estate Activities – For taxable years beginning on or after
January 1, 2020, the dollar limitation for the offset for rental real estate
activities shall not apply to the low income housing credit program.
For more information, see R&TC Section 17561(d)(1). Get form
FTB 3801-CR, Passive Activity Credit Limitations, for more information.
R&TC Section 41 Reporting Requirements – Beginning in taxable
year 2020, California allows individuals and other taxpayers operating
under the personal income tax law to claim credits and deductions
of business expenses paid or incurred during the taxable year in
conducting commercial cannabis activity. Sole proprietors conducting
a commercial cannabis activity that is licensed under California
Medicinal and Adult-Use Cannabis Regulation and Safety Act should file
form FTB 4197, Information on Tax Expenditure Items. The FTB uses
information from form FTB 4197 for reports required by the California
Legislature. Get form FTB 4197 for more information.
Net Operating Loss Suspension – For taxable years beginning on
or after January 1, 2020, and before January 1, 2023, California has
suspended the net operating loss (NOL) carryover deduction. Taxpayers
may continue to compute and carryover an NOL during the suspension
period. However, taxpayers with net business income or modified
adjusted gross income of less than $1,000,000 or with disaster loss
carryovers are not affected by the NOL suspension rules.
The carryover period for suspended losses is extended by:
• Three years for losses incurred in taxable years beginning before
January 1, 2020.
• Two years for losses incurred in taxable years beginning on or
after January 1, 2020, and before January 1, 2021.
• One year for losses incurred in taxable years beginning on or
after January 1, 2021, and before January 1, 2022.
For more information, see R&TC Section 17276.23, and get form
FTB 3805V, Net Operating Loss (NOL) Computation and NOL and
Disaster Loss Limitations – Individuals, Estates, and Trusts.
Excess Business Loss Limitation – The federal CARES Act made
amendments to IRC Section 461(l) by eliminating the excess business
loss limitation of noncorporate taxpayers for taxable year 2020 and
retroactively removing the limitation for taxable years 2018 and 2019.
California does not conform to those amendments. For taxable year
2020, complete form FTB 3461, California Limitation on Business
Losses, if you are a noncorporate taxpayer and your net losses from
all of your trades or businesses are more than $259,000 ($518,000 for
married taxpayers filing a joint return). For more information, get form
FTB 3461 and the instructions for Schedule CA (540).
Program 3.0 California Motion Picture and Television Production
For taxable years beginning on or after January 1, 2020,
California R&TC Section 17053.98 allows a third film credit,
program 3.0, against tax. The credit is allocated and certified by the
California Film Commission (CFC). The qualified taxpayer can:
• Offset the credit against income tax liability.
• Sell the credit to an unrelated party (independent films only).
• Assign the credit to an affiliated corporation.
• Apply the credit against qualified sales and use taxes.
For more information, get form FTB 3541, California Motion Picture and
Television Production Credit, form FTB 3551, Sale of Credit Attributable
to an Independent Film, go to ftb.ca.gov and search for motion picture,
or go to the CFC website at lm.ca.gov and search for incentives.
Business Credit Limitation – For taxable years beginning on or after
January 1, 2020, and before January 1, 2023, there is a $5,000,000
limitation on the application of business credits for taxpayers. The total
of all business credits including the carryover of any business credit for
the taxable year may not reduce the “net tax” by more than $5,000,000.
Business credits should be applied against “net tax” before other credits.
Business credits disallowed due to the limitation may be carried over.
The carryover period for disallowed credits is extended by the number
of taxable years the credit was not allowed. For more information, get
Schedule P (540), Alternative Minimum Tax and Credit Limitations –
Natural Heritage Preservation Credit – The Natural Heritage
Preservation Credit expired on June 30, 2020. All qualified contributions
must be made on or before that date. For more information, get form
FTB 3503, Natural Heritage Preservation Credit.
New Donated Fresh Fruits or Vegetables Credit – For taxable years
beginning on or after January 1, 2020, and before January 1, 2022,
the list of qualified donation items has been expanded to include raw
agricultural products and processed foods. For more information, get
form FTB 3814, New Donated Fresh Fruits or Vegetables Credit.
Other Important Information
Loophole Closure and Small Business and Working Families Tax
Relief Act of 2019 – The Tax Cuts and Jobs Act (TCJA) signed into law
on December 22, 2017, made changes to the IRC. California R&TC does
not conform to all of the changes. In general, for taxable years beginning
on or after January 1, 2019, California conforms to the following TCJA
• California Achieving a Better Life Experience (ABLE) Program
• Student loan discharged on account of death or disability
• Federal Deposit Insurance Corporation (FDIC) Premiums
• Excess employee compensation
• Excess business loss
Like-Kind Exchanges – The TCJA amended IRC Section 1031
limiting the nonrecognition of gain or loss on like-kind exchanges
to real property held for productive use or investment. California
conforms to this change under the TCJA for exchanges initiated after
January 10, 2019. However, for California purposes, with regard to
individuals, this limitation only applies to:
• A taxpayer who is a head of household, a surviving spouse, or
spouse filing a joint return with adjusted gross income (AGI) of
$500,000 or more for the taxable year in which the exchange begins.
• Any other taxpayer filing an individual return with AGI of $250,000 or
more for the taxable year in which the exchange begins.
Get Schedule D-1, Sales of Business Property, for more information.
California requires taxpayers who exchange property located in
California for like-kind property located outside of California under
IRC Section 1031, to file an annual information return with the FTB. For
more information, get form FTB 3840, California Like-Kind Exchanges,
or go to ftb.ca.gov and search for like kind
Young Child Tax Credit – For taxable years beginning on or after
January 1, 2019, the refundable YCTC is available to taxpayers who
also qualify for the California EITC and who have at least one qualifying
child who is younger than six years old as of the last day of the taxable
year. The maximum amount of credit allowable for a qualified taxpayer
is $1,000. The credit amount phases out as earned income exceeds the
threshold amount of $25,000, and completely phases out at $30,000.
For more information, see the instructions for line 76 of Form 540,
California Resident Income Tax Return and get form FTB 3514.
Net Operating Loss Carrybacks – For taxable years beginning on or
after January 1, 2019, net operating loss carrybacks are not allowed.
Alimony – California law does not conform to changes made by the
TCJA to federal law regarding alimony and separate maintenance
payments that are not deductible by the payor spouse, and are not
includable in the income of the receiving spouse, if made under any
divorce or separation agreement executed after December 31, 2018, or
executed on or before December 31, 2018, and modified after that date
(if the modification expressly provides that the amendments apply). See
Schedule CA (540) specific line instructions for more information.