BILL ANALYSIS
AB 71
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Date of Hearing: May 21, 2007
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles Calderon, Chair
AB 71 (Dymally) - As Amended: April 9, 2007
Majority vote. Tax levy. Fiscal Committee
SUBJECT : Personal income and corporation tax: Credits:
Employee health insurance
SUMMARY : Provides a tax credit to small employers that provide
health insurance for low and moderate wage employees.
Specifically, this bill :
1)Grants a tax credit, in varying percentages to taxpayers based
upon the number of qualified employees of a taxpayer's
business, based upon the cost of health insurance expenses.
2)Defines qualified employees as those not covered by the
insurance plan of a spouse and receiving annual compensation
of not more than $50,000, as adjusted annually for the federal
cost-of-living adjustment.
3)Limits the cost of health insurance that qualifies for the
credit for each employee to:
a) $4,000 for self-only coverage; and
b) $10,000 for family coverage.
4)Denies a deduction for the expenses taken into account for
purposes of this credit.
5)Provides an unlimited carryover period for any unused credit.
6)Takes effect immediately as a tax levy.
EXISTING LAW allows various tax credits designed to provide
relief to taxpayers incurring specified expenses or to influence
behavior that might not occur without the tax incentive.
FISCAL EFFECT : Pending
COMMENTS :
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1)According to the California Health Care Foundation, only 62%
of employers with three to nine employees offer health care
coverage. The same report shows that over 94% of employers
with 50 employees or more offer health care coverage. High
premiums for insurance (primarily related to minimal ability
to spread risks) was cited by more than 68% of the survey
respondents as the primary reason that small employers do not
provide health insurance.
2)The author intends to amend this bill to revise the existing
tax credit structure for small employers who provide health
insurance coverage for low to moderate wage employees. The
goal of this revised credit program is to provide a tax
incentive to small employers who are not covered by other
mandates or incentives, including any mandatory health care
laws enacted during this legislative session. The specific
elements of this bill, such as number of employees and amount
of the credit, would be coordinated with any other plan or
plans adopted by the Legislature.
3)Assemblymember Dymally wants to create an incentive that will
encourage more employers in the lowest percent of those
providing health care coverage - the small employers. In
order to keep the cost of health insurance coverage as low as
possible, this credit will be available only for health
insurance coverage for employees and their spouses. The
author intends that children of the qualified employees will
continue to be covered by Medi-Cal Healthy Families Program.
The specific provisions that Assemblymember Dymally intends to
include in the proposed amendments are:
a) A tax credit equal to 25% of the qualified health
insurance expenses for qualified employees. Specifically:
i) Qualified health insurance covers only the employee
and the employee's spouse.
ii) Credit is allowed on premium expenses, up $5,000 per
employee.
iii) Qualified employees are those reasonably expected to
earn not more than $50,000 per year, as adjusted for the
federal inflation rate for tax purposes. The income
limitations will be adjusted as necessary to be
AB 71
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consistent with the income limits provide for under the
Medi-Cal Health Families Program.
b) Allowed to qualified employers who are defined to
include only those:
i) With 10 or fewer employees.
ii) That pay at least 50% of the health insurance
coverage for all qualified employees.
c) Denial of a deduction for the costs that qualify for a
credit.
d) Carryover of unused credit for seven years.
4)Proponents state that certain groups of individuals are less
likely to have employer-provided health insurance and that the
number of firms that offer health benefits has declined since
2000. The decline in coverage is more prevalent in small
businesses. The ability of small businesses to offer adequate
health coverage is important to their success over the long
run as well as the general well-being of the California
economy.
5)Committee staff note that there are numerous proposals that
would require employers to provide health insurance for their
employees, or to pay into a state-controlled fund that will
acquire the health coverage for them. However, most proposals
contain an exception for small employers, determined as those
with less than a stated number of employees. The maximum
number of employees allowed for the definition of small
employer varies with the different proposals, but range from 2
to 10 employees. Committee staff remains available to assist
the Assemblymember for purposes of identifying the amendments
needed to accomplish this.
REGISTERED SUPPORT / OPPOSITION :
Support
California Black Chamber of Commerce
California State Employees Association
Opposition
AB 71
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None in file
Analysis Prepared by : Kimberly Bott / REV. & TAX. / (916)
319-2098