Amended in Assembly April 1, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1831

Introduced by Assembly Member Conway

February 18, 2014

An act to amend Section 17072 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 1831, as amended, Conway. begin delete Personal end delete begin insert California Health Insurance Fairness Act: personal end insert income tax: deduction: medical insurance.

The Personal Income Tax Law provides for various deductions in computing the income that is subject to the taxes imposed by that law including begin insert in modified conformity with federal tax law, end insert a deduction for that portion of medical expenses that is more than begin delete 10%, or for certain taxpayers end delete 7.5% begin delete , end delete of adjusted gross income. Self-employed individuals may deduct health insurance premiums for medical expenses incurred by the taxpayer in lieu of the itemized deduction for medical expenses.

This bill, for taxable years beginning on or after January 1, 2014, would allow a deduction from gross income under the Personal Income Tax Law for the amounts paid or incurred by a taxpayer during the taxable year for medical insurance for medical care, as defined, and for transportation for and essential to that medical care, as provided. The bill would not allow as an itemized begin delete deduction, and end delete begin insert deduction, an end insert amount allowed as a deduction from gross income as provided in the bill.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert This act shall be known, and may be cited, as the
California Health Insurance Fairness Act. end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert The Legislature finds and declares all of the following: end insert

begin insert

(a) In 2010, Congress passed the Affordable Care Act,
commonly known as “Obamacare,” which mandates that
individuals obtain health insurance. This mandate is known as the
individual mandate.

end insert begin insert

(b) Under Obamacare, all Californians are forced to obtain
health insurance by March of 2014.

end insert begin insert

(c) Under both federal and state tax laws, employer-paid
insurance benefits are excluded from taxation and paid for with
pretaxable income.

end insert begin insert

(d) According to the Kaiser Family Foundation, four million
Californians do not get their health insurance paid for by their
employers and, in order to meet the federal mandate, they will
have to obtain health insurance or face a penalty imposed by the
IRS of up to 1 percent of their 2014 income, 2 percent of their 2015
income, and 2.5 percent of their 2016 income. Tax penalties for
uninsured children are one-half of the penalty for an adult.

end insert begin insert

(e) Individuals and families with an income in 2014 that is
between 138 percent and 400 percent of the poverty level will be
able to purchase health insurance through Covered California
and will receive a tax subsidy to offset all or part of the health
insurance premium. If the individual’s or family’s income is less
than these percentages, that individual or family may qualify for
Medi-Cal.

end insert begin insert

(f) The Kaiser Family Foundation estimates that 52 percent of
Americans who buy individual insurance today would not be
eligible for subsidies to help offset the cost of health care. The 48
percent that do receive subsidies would receive an average of
$5,548 per year, which would only cover 66 percent of the cost.
Most individuals will face higher premiums and higher taxes to
pay for those subsidies that others will receive.

end insert begin insert

(g) Around 1.2 million Californians do not receive
employer-paid health insurance and are not eligible for Medi-Cal
or other taxpayer paid insurance programs and must purchase
their health insurance directly from an insurer. Individuals and
families must buy their health insurance with after-tax dollars if
they are ineligible for a subsidy or the subsidy does not cover the
full cost of the insurance, making their health insurance more
expensive.

end insert begin insert

(h) Under existing California law, a taxpayer is able to deduct
medical expenses, including the cost of purchasing health
insurance, that exceed 7.5 percent of their adjusted gross income.
Any medical expense below 7.5 percent of their income is not tax
deductible. Only taxpayers that itemize their deductions can take
the deduction. Because that threshold is so high, many taxpayers
do not get any tax benefit, thus making the cost of their insurance
more expensive.

end insert begin insert

(i) Bringing the threshold from 7.5 percent down to 0 percent
will level the playing field between those who receive insurance
from an employer and those purchasing it in the individual market.
It would also reduce the number of uninsured and, accordingly,
would reduce the costs associated with providing health care to
the uninsured.

end insert

begin delete SECTION 1. end delete
begin insert SEC. 3. end insert   

Section 17072 of the Revenue and Taxation Code is
amended to read:

17072.  

(a) Section 62 of the Internal Revenue Code, relating
to adjusted gross income defined, shall apply, except as otherwise
provided.

(b) Section 62(a)(2)(D) of the Internal Revenue Code, relating
to certain expenses of elementary and secondary school teachers,
shall not apply.

(c) Section 62(a)(21) of the Internal Revenue Code, relating to
attorneys fees relating to awards to whistleblowers, shall not apply.

(d) Section 62(a) of the Internal Revenue Code is modified to
additionally provide that the amount allowed as a deduction under
Section 213(d)(1)(D) of the Internal Revenue Code shall be allowed
as a deduction for purposes of computing adjusted gross income,
except as otherwise provided.

(1) For purposes of this subdivision, Section 213(d)(1)(D) of
the Internal Revenue Code is modified to provide that the phrases
“(including amounts paid as premiums under part B of title XVIII
of the Social Security Act, relating to supplementary medical
insurance for the aged)” and “or for any qualified long-term care
insurance contract (as defined in section 7702B(b))” shall not
apply.

(2) Any amount allowed as a deduction under this subdivision
shall not be allowed as an itemized deduction under Section 63 of
the Internal Revenue Code, relating to taxable income defined, as
applicable, for purposes of this part.

(3) This subdivision shall apply to taxable years beginning on
or after January 1, 2014.

begin delete SEC. 2. end delete
begin insert SEC. 4. end insert   

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.