AB 1428 imposes a temporary, targeted surtax on very large personal and corporate incomes and directs the proceeds into a new state fund to finance grants for licensed child care facilities. The grants are explicitly limited to lowering fees charged to families and expanding capacity by hiring additional staff.
The bill aims to use a dedicated revenue stream to reduce parent costs and increase child care slots while providing an employer exemption that rewards firms that offer on-site care or fully reimburse employees. It also creates a continuously appropriated fund and directs the Treasurer to operate a grants program targeted at licensed providers.
At a Glance
What It Does
For taxable years beginning on or after January 1, 2026 and before January 1, 2031, the bill imposes a 0.5 percent surtax on the portion of income above $10,000,000 for both personal income and corporate taxes. All net revenues (after reimbursing the Franchise Tax Board for administration) flow into the Affordable Childcare Reimbursement Fund, which is continuously appropriated to the State Treasurer to award grants to licensed child care facilities.
Who It Affects
High-income taxpayers and corporations with taxable income exceeding $10 million that employ one or more employees; licensed child care facilities that meet California Child Day Care Facilities Act licensing requirements (grant recipients); and employers who provide on-site childcare or reimburse employees (eligible for tax exemption).
Why It Matters
The measure creates a dedicated and continuously appropriated funding stream for childcare without routing money through the annual budget process, alters employer incentives by exempting providers of employee childcare, and restricts grant uses to fee reduction and capacity increases rather than broader infrastructure or quality investments.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
AB 1428 adds parallel surtaxes to California’s Personal Income Tax and Corporation Tax laws that apply for a defined, temporary period. The surtax targets the portion of taxable income above a high threshold and is written to capture income whether it’s reported by an individual, a pass-through interest, or a corporation, with slight drafting differences to cover partnerships and multi-member entities.
The statutory language sets both a start and an end window for taxable years and includes a hard repeal date for the operative sections.
The bill conditions the surtax’s application on employment: it applies only to taxpayers or corporations that employ one or more employees. Two carve-outs remove the surtax where the employer either provides childcare during working hours or fully reimburses employees for necessary childcare services.
Those exemptions create a direct policy lever—encouraging employers to offer childcare benefits rather than simply paying the surtax.All revenues from the surtax, minus an administrative reimbursement to the Franchise Tax Board, are deposited into a newly created Affordable Childcare Reimbursement Fund. That fund is continuously appropriated to the State Treasurer, who must use it to make grants to facilities licensed under the California Child Day Care Facilities Act.
The statute specifies that grants may only be used to lower what licensees charge families or to increase the number of available spaces by hiring staff—it does not authorize grants for capital projects, facility renovation, or provider operating subsidies beyond hiring.Implementation timing matters: grants become available beginning in the 2027–28 fiscal year, giving the Administration and the Treasurer a period to design application and oversight systems. The sections creating the tax and the fund are written to expire in late 2031, making this a temporary, dedicated revenue-and-spend program rather than a permanent tax change.
The Five Things You Need to Know
The surtax rate is 0.5 percent and applies only to the portion of taxable income above $10,000,000 for taxable years beginning on or after January 1, 2026 and before January 1, 2031.
The surtax applies only to taxpayers (including individuals tied to partnerships or LLCs) and corporations that employ one or more employees; employers are exempt if they provide on-site child care during work hours or fully reimburse employees for necessary care.
The bill establishes the Affordable Childcare Reimbursement Fund; all surtax revenue—after reimbursing the Franchise Tax Board for administration—must be deposited there and is continuously appropriated to the State Treasurer for grants.
Grants under the program are restricted to licensed child care facilities (per the California Child Day Care Facilities Act) and may be used exclusively to lower fees charged to families or to increase service capacity by hiring additional employees.
The tax sections are written to be operative only through late 2031: surtaxes apply for taxable years beginning before January 1, 2031, and the statutory provisions are repealed as of December 1, 2031.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Short title — 'California Affordable Child Care Act'
This short section simply assigns the act a public name. Practically, a short title does not change implementation but frames the legislative purpose for regulators and courts that later interpret statutory intent.
Findings and legislative declaration
The Legislature sets out data points about child population, workforce participation, provider pay, and economic losses attributed to childcare constraints. These findings are helpful for administrative rulemaking and for justifying the targeted program design, but they do not create enforceable rights or program mechanics.
Temporary surtax on very large personal incomes with employer-based carve-outs
Adds a PIT surtax that targets the portion of an individual’s income above the dollar threshold and explicitly includes individuals who derive income through partnerships, LLCs, or similar enterprises. It conditions the tax on the taxpayer employing at least one employee, and creates two exemptions where employers either provide child care during working hours or fully reimburse employees for necessary child care. The provision contains a built-in sunset clause that repeals the section after the statutory end date.
Creates a continuously appropriated fund and prescribes grant purposes
Establishes the fund in the State Treasury, requires deposit of surtax revenues net of Franchise Tax Board administrative reimbursement, and makes the money continuously appropriated to the State Treasurer. It limits eligible grantees to facilities licensed under two specific chapters of the Health and Safety Code and constrains allowable expenditures to lowering parent fees or expanding slots via hiring additional employees. Grants begin in fiscal year 2027–28, which puts a practical deadline on agency rulemaking and program design.
Mirrors the PIT surtax for corporations with the same exemptions and sunset
Imposes a parallel surtax on corporations for income above the threshold, conditions the tax on the corporation employing one or more employees, and adopts the same two exemptions for providing on-site childcare or fully reimbursing employees. The corporate provision likewise includes a repeal date, making the corporate surtax temporary.
This bill is one of many.
Codify tracks hundreds of bills on Finance across all five countries.
Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Licensed child care facilities that secure grants: they can lower family fees or hire staff to expand capacity without tapping other operating revenues, improving short-term affordability and access.
- Parents and families using licensed care: if grants are deployed as intended, families may see lower out-of-pocket costs or increased availability of slots in licensed programs.
- Child care workers and prospective hires: because grants may be used to fund additional employees, providers who expand can create new jobs and reduce vacancies in the sector.
- Employers already providing on-site childcare or full reimbursement: those employers avoid the surtax, creating a competitive advantage and a direct policy incentive to offer employee childcare benefits.
Who Bears the Cost
- High-income taxpayers and corporations with taxable income above $10 million that employ at least one employee: they bear the surtax unless they qualify for an exemption.
- Tax professionals and payroll departments: they will face added compliance tasks to determine surtax liability, track eligibility for exemptions, and coordinate reporting with the Franchise Tax Board.
- Franchise Tax Board (administration) and the Treasurer's office (grant administration): both agencies must design implementation systems and oversight; although FTB receives reimbursement for administration, program setup and interagency coordination add workload and complexity.
Key Issues
The Core Tension
The bill balances two competing policy goals: raising dedicated near-term revenue from very large taxpayers to expand access and lower parent costs, while limiting program design to narrow, short-term uses and creating exemptions that shift employer behavior—resulting in trade-offs between administrative simplicity, effective long-term investment in the childcare sector, and opportunities for avoidance or unintended consequences.
The bill’s design raises several operational and policy questions that will drive implementation complexity. First, applying a surtax to the appropriate base across entity types is tricky: the text tries to capture individuals who receive income via partnerships or LLCs, but determining the point at which aggregated pass-through income exceeds the $10 million threshold will require clear rules and data sharing.
Second, the employment condition and the carve-outs for employer-provided care or full reimbursement create new compliance paths and potential gaming. Firms may restructure labor or benefits packages to avoid the tax, or adopt minimal reimbursement schemes that meet the statutory exemption without materially improving employee access to care.
There is also a tension between restricted grant uses and broader sector needs. Limiting grants to fee reductions and hiring can rapidly increase slots and lower family costs, but it excludes capital investments, facility upgrades, and longer‑term wage enhancements that are central to provider stability.
Continuous appropriation of the fund speeds deployment but bypasses annual budgetary review, reducing legislative oversight over program design and making it harder to adjust the program if revenues fall short. Finally, the temporary nature of the surtax and the likely volatility of revenue from a small group of very large taxpayers raise questions about program sustainability beyond the sunset date.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.