BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Gilbert Cedillo, Chair
SB 121 - Margett
Amended: As Introduced
Hearing: April 23, 2003 Tax Levy Fiscal: Yes
SUBJECT: Allows a credit for amounts paid or incurred for
long-term care insurance or long-term care
expenses.
EXISTING LAW
EXISTING FEDERAL LAW and CALIFORNIA CONFORMING LAW allows a
deduction for the unreimbursed medical expenses for
qualified long-term care services provided to the taxpayer,
the taxpayer's spouse, or the taxpayer's dependents. This
deduction is only allowed to the extent that the expenses
exceed 7.5% of the taxpayer's adjusted gross income.
Long-term care insurance premiums are deductible on a
graduated scale based on the individual's age before the
close of the taxable year. The minimum amount is $200 for
an individual 40 years or younger and $2,500 for an
individual 70 years and older.
EXISTING STATE LAW also allows a tax credit to eligible
caregivers. The credit is $500 for each qualifying
individual who has been certified to need long-term care.
A qualifying individual may be the taxpayer, spouse of the
taxpayer, or a qualifying dependent. The credit is not
allowed to married couples filing jointly with an adjusted
gross income of $100,000 or more or to other individuals
with adjusted gross income of $50,000 or more. This credit
is allowed for taxable years beginning on or after January
1, 2000, and before January 1, 2005.
THIS BILL
SB 121-Margett
Page
Allows a credit equal to 30% of the cost of long-term care
or long-term care insurance for a taxpayer or the
taxpayer's parent. Provides that the credit shall not
exceed $300 for each taxpayer or $600 for taxpayers filing
jointly.
Defines "long-term care insurance" by reference to federal
law as any insurance that provides protection for long-term
care services. Qualified long-term care services means
services necessary to diagnose, prevent, cure, treat,
mitigate, rehabilitate, and maintain or provide personal
services to a chronically ill individual.
Defines "Parent" as including any natural, biological, or
adoptive mother or father of the taxpayer.
Requires a long-term care facility or home care giver to
provide the taxpayer with written verification of the
payments made by the taxpayer for long-term care, the
individual receiving the care, and the time period covered.
Provides that any credit that exceeds the taxpayer's tax
liability may be carried forward indefinitely.
FISCAL EFFECT:
According to FTB, significant revenue losses would result,
possibly on the order of $150 million annually beginning in
2003-04. Due to data limitations, however, it was only
possible to provide generalized estimates for each category
of long-term care. The estimate assume that the proposed
credit is in addition to any other existing tax benefits
for costs incurred for long-term care or long-term care
insurance.
COMMENTS:
A. Purpose of the bill
According to the author, with rising health care and
SB 121-Margett
Page
nursing home costs, California's seniors are seeking ways
to manage their long-term care costs. One way to
accomplish this is to encourage the purchase of long-term
care insurance by offering a tax credit. This bill would
help seniors protect their assets.
B. Long Term Care Costs
According to the author's office, the majority of the
general public is not aware their health care insurance
does not cover the costs of long term care (those that do,
provide only temporary assistance) and many seniors do not
learn of the uncovered costs, such as residential
facilities and personal assistance until their health care
claims are denied and the expenses have to paid out of
pocket.
According to the author's office, the average cost of care
in a nursing home in California is approximately $51,000 a
year with the average length of stay five-years.
C. How Many People?
According to the Department of Aging, there are about
100,000 individuals in long-term care facilities in
California. Medicare or private insurance covers
approximately one-third of these individuals; Medi-Cal
covers the others.
Supporters of the measure state that long-term care
insurance provides an alternative to publicly funded
programs such as Medicaid and Med-Cal, and can cover home
health care to assist in such personal care tasks as
bathing and eating, as well as nursing home, assisted
living facility and hospice care services.
D. Anyone Would Be Able to Claim the Credit
Expenditures for insurance or for care services that are
eligible for this credit would not be limited to California
residents-an individual in any state or country that has a
California income tax liability could claim the credit.
However, it would be unconstitutional to restrict this
SB 121-Margett
Page
credit to California residents. Since insurance is sold
internationally, there may not be an effective way to limit
the credit for the insurance part of the bill. The bill
could be amended to require that expenditures for care
services be limited to those services administered in
California.
E. Double Dipping?
This bill would allow taxpayers in certain circumstances to
claim this new credit as well as both the existing eligible
caregiver credit and the deduction for medical expenses.
Taxpayers are not generally allowed multiple tax benefits
for the same expense. To prevent the same expenses from
being claimed for both the credit and the deduction, the
author may wish to make this credit in lieu of the
deduction.
F. No Sunset/ No Carryover Period
This bill does not specify a repeal date or limit the
number of years for the carryover period. Credits
typically are enacted with a repeal date to allow the
Legislature to periodically review their effectiveness.
Recent credits have been enacted with a carryover period
limitation since experience shows credits are typically
used within eight years of being earned
G. FTB Implementation Concerns
FTB notes the following implementation concerns that would
have to be addressed in order to administer the credit:
The language that requires the long-term care facility or
home care giver to provide the taxpayer with written
verification needs to be provided to FTB upon request.
This bill uses an undefined term; "long-term care
services." The absence of a definition for this term could
lead to disputes with taxpayers and would complicate the
administration of this credit.
SB 121-Margett
Page
The FTB interprets this credit as a per taxpayer credit,
rather than a per eligible Person (taxpayer, spouse,
parents) credit. If a taxpayer were paying long-term care
insurance for themselves, their spouse, and both of their
parents, they would only be eligible for a $300 maximum
credit ($600 if joint return). However, since it is not
clear that this credit would be per taxpayer, the author
may wish to consider clarifying the intent of the bill.
Support and Opposition
Support: Coalition of California Insurance
Professionals
Health Insurance Association of America
Oppose:California Tax Reform Association
------------------------------
Consultant: Gayle Miller
04/21/:3 15:49