BILL ANALYSIS
AB 71
Page 1
Date of Hearing: January 14, 2008
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles Calderon, Chair
AB 71 (Dymally) - As Amended: June 12, 2007
VOTE ONLY
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal income and corporation taxes: 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)Allows a tax credit to a qualified small employer equal to 25%
of the amount paid during the taxable year for qualified
health insurance expenses for qualified employees.
2)Applies to each taxable year beginning on or after January 1,
201_ and before January 1, 201_.
3)Provides definitions for the following terms:
a) "Qualified small employer" means any small employer that
does both of the following:
i) Offers health insurance coverage to all qualified
employees, following any applicable waiting period set
forth in federal law.
ii) Pays at least 50% of the cost of health insurance
coverage for each qualified employee.
b) "Small employer" means an employer of more than 1 but
less than 11 full-time employees on average during the
taxable year.
c) "Qualified employee" means an employee of a qualified
small employer who performs more than 50% of his or her
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services within California in any calendar year and who is
reasonably expected to receive compensation of not more
than $50,000 during the calendar year. Specifically:
i) Excludes an employee that is provided health
insurance coverage under a spouse's health plan, any
other individual or group health plan, any federal
provision, or any other law.
ii) Excludes self-employed persons treated as employees.
iii) Includes leased employees.
d) "Compensation" is defined by reference to Internal
Revenue Code (IRC) Section 3401(a).
e) "Qualified health insurance expenses" means any amount
paid or incurred by a qualified small employer for health
insurance coverage during the taxable year. Specifically:
i) Limits the amount to $5,000 for each qualified
employee during the taxpayer year to the extent that it
is for coverage provided to any employee and the
employee's spouse.
ii) Excludes the incremental amounts paid for health
insurance coverage for a qualified employee's dependents
if the employer offers coverage for them.
iii) Excludes any amount paid or incurred for health
insurance coverage under a salary reduction arrangement.
f) "Health insurance coverage" is defined by reference to
IRC Section 9832(b)(1).
4)Provides for an annual adjustment to the maximum compensation
amount equal to that set out in the Medi-Cal/Healthy Families
Program.
5)Denies any other deduction or credit for any costs paid or
incurred for the taxable year for which this credit is
allowed.
6)Allows carryover of any unused credit for the next succeeding
seven years.
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7)Permits the Franchise Tax Board (FTB) to prescribe regulations
as may be necessary or appropriate to carry out the purposes
of this bill.
8)Remains in effect until December 31, 201_ and is repealed as
of that date.
9)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 : Assuming this bill goes into immediate effect,
FTB estimates revenue losses of $165 million in fiscal year (FY)
2008-09, and $225 million in FY 2009-10
Proposition 98 Fiscal Effect : Committee staff estimate a loss
in funding for K-14 schools of $-0- in FY 2008-09, and $30
million in FY 2009-10.
COMMENTS :
1)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 the Medi-Cal Healthy Families
Program.
2)The author intends this bill 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)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
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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.
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)Opponents state that this bill will provide a credit to many
employers that already provide health insurance to their
employees. Opponents state that this bill creates
inefficiency by giving substantial credits to employers that
already provide health insurance coverage. Opponents state
that, given the need to cover the uninsured and the limited
dollars available, much of the funds spent under this bill
will provide no benefit of increased coverage.
6)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 understand that this bill is
intended to create an incentive for those employers exempted
from mandatory coverage requirements, thereby requiring
coordination with the measure ultimately adopted, is any, for
consistency of application.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Nonprofits
California Black Chamber of Commerce
California State Employees Association
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National Federation of Independent Business
California Hispanic Chamber of Commerce
FCI Management Consultants
California Restaurant Association
Opposition
California Tax Reform Association
Analysis Prepared by : M. David Ruff / Kimberly Bott / REV. &
TAX. / (916) 319-2098