CA SB38

Establishes a refundable earned income tax credit (EITC) for eligible individuals beginning January 1, 2015, based on the federal EITC amount multiplied by an adjustment factor determined annually in the Budget Act (with a default factor of zero percent unless otherwise specified).

Sets California-specific credit and phaseout percentages: 7.65% for individuals with no qualifying children, 34% for those with one qualifying child, and 40% for those with two or more qualifying children (45% for three or more children).

Allows excess credits exceeding tax liability to be refunded from the Tax Relief and Refund Account, and exempts refunds from counting as income for purposes of determining welfare benefits eligibility.

Modifies the estimated tax penalty rules to prevent penalties when the EITC adjustment factor decreases year-over-year, and adds a penalty for tax preparers' failure to be diligent in determining EITC eligibility.

Makes an appropriation from the continuously appropriated Tax Relief and Refund Account to fund the refundable credit and requires the Franchise Tax Board to have budget authority for oversight and audit of the credit.