BILL ANALYSIS �
AB 2606
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Date of Hearing: May 13, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2606 (Dababneh) - As Amended: March 20, 2014
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal Income Tax Law: credit: long-term care
SUMMARY : Allows a credit equal to $500 multiplied by the number
of "applicable individuals" for whom the taxpayer is an
"eligible caregiver" during the taxable year. Specifically,
this bill :
1)Allows, for taxable years beginning on or after January 1,
2015, and before January 1, 2020, a credit equal to $500
multiplied by the number of "applicable individuals" for whom
the taxpayer is an "eligible caregiver" during the taxable
year.
2)Defines an "applicable individual" as an individual who has
been certified before the due date for filing the tax return,
without extensions, for the taxable year by a "physician" as
being "an individual with long-term care needs" for a period
of time that is at least 180 consecutive days and a portion of
that time occurs within the taxable year.
3)Specifies that an "applicable individual" shall not include an
individual otherwise meeting these requirements unless within
the preceding 39 month period "ending on the due date" above,
a physician has certified that the individual meets those
requirements.
4)Defines a "physician" by reference to Internal Revenue Code
(IRC) Section 1935x(r)(1).
5)Defines "an individual with long-term care needs" as an
individual who meets any of the following criteria:
a) The individual is at least six years of age and meets
either of the following requirements:
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i) The individual is unable to perform at least three
activities of daily living, as defined in IRC Section
7702B(c)(2)(B), without substantial assistance from
another individual due to a loss of functional capacity;
or,
ii) The individual requires substantial supervision to
protect that individual from threats to health and safety
due to severe cognitive impairment and is unable to
perform at least one activity of daily living, as defined
in IRC Section 7702B(c)(2)(B), or the individual is
unable to engage in age appropriate activities, to the
extent provided by the Franchise Tax Board (FTB) in
consultation with the Secretary of the California Health
and Human Services Agency.
b) The individual is at least two years of age but less
than six years of age and is unable to perform without
substantial assistance from another individual due to a
loss of functional capacity at least two of the following
activities: eating, transferring, or mobility.
c) The individual is under two years of age and requires
specific durable medical equipment by reason of a severe
health condition or requires a skilled health care
practitioner trained to address the individual's condition
to be available if the individual's parents or guardians
are absent.
6)Provides that a taxpayer shall be treated as an "eligible
caregiver" for each taxable year for any of the following
applicable individuals:
a) The taxpayer;
b) The taxpayer's spouse; or,
c) Any individual for whom the taxpayer is allowed a credit
under Revenue and Taxation Code Section 17054(d) for the
taxable year.
7)Provides that the "eligible caregiver" requirements are met if
an applicable individual has as his or her principal place of
abode the home of the taxpayer and either of the following:
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a) In the case of an applicable individual who is an
ancestor or descendant of the taxpayer (or the taxpayer's
spouse), the applicable individual is a member of the
taxpayer's household for over half the taxable year; or,
b) In the case of any other applicable individual, the
applicable individual is a member of the taxpayer's
household for the entire taxable year.
8)Provides that only one taxpayer shall be treated as an
eligible caregiver for an applicable individual. If more than
one taxpayer qualifies as an eligible caregiver for an
applicable individual for taxable years ending with or within
the same calendar year, the taxpayer who will not claim the
applicable individual shall file a written declaration, in the
form prescribed by the FTB, stating that he or she will not
claim the applicable individual for the credit.
9)Provides that, if no declaration is filed, the taxpayer with
the highest federal modified adjusted gross income (AGI), as
defined in IRC Section 32(c)(2), shall be treated as the
eligible caregiver.
10)Provides that a credit shall not be allowed unless the
taxpayer includes the name and taxpayer identification number
of the eligible individual, along with the identification
number or national provider identifier of the certifying
physician, on the tax return for the taxable year.
11)Requires the taxpayer to retain the physician certification
for three years and to make the certification available to the
FTB upon request during that period.
12)Provides that a credit shall not be allowed for any eligible
caregiver whose AGI for the taxable year is $100,000 or more
in the case of a married couple filing jointly, and $50,000 in
the case of all other individuals.
13)Sunsets automatically on December 1, 2020.
14)Takes immediate effect as a tax levy.
EXISTING LAW allows various tax credits under the Personal
Income Tax Law. These credits are generally designed to
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encourage socially beneficial behavior or to provide relief to
taxpayers who incur specified expenses.
FISCAL EFFECT : The FTB estimates General Fund revenue losses of
$1.4 million in fiscal year (FY) 2014-15, $2.7 million in FY
2015-16, and $3.1 million in FY 2016-17.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Providing long-term care for family members, both the
elderly and children in need, is a significant challenge
for a large number of American families. As our population
continues to age this need will only become more acute.
The cuts to In-Home Support Services (IHSS) in recent years
and the implementation of the Coordinated Care Initiative
have increased the demands on family. While modest, this
$500 tax cut will help offset some of the burden on these
vulnerable families.
2)Proponents of this bill:
With the continued increase in health care costs coupled
with the fact that individuals are living longer lives,
long-term care insurers have continued to struggle with
keeping premium rates from increasing. Managing premiums
and paying out claims has become so challenging that many
insurers are leaving the long-term care market. In order
to address these pressing issues it is important that
California find creative solutions in order to stabilize
the market.
AB 2606 would create a financial incentive for family
members and other individuals to act as an eligible
caregiver for the elderly population by creating a $500 tax
credit for each applicable individual they care for. The
bill would also limit this tax credit to eligible
caregivers with incomes below $100,000.
This type of model is an important step toward making
long-term care more stable and affordable for individuals.
Since insurers must pay benefits over an increasingly
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longer period of time, this bill will help mitigate sharp
increases in premiums at a time when the insured can least
absorb it.
3)The FTB notes the following implementation concerns in its
staff analysis of this bill:
a) "Typically, credits involving areas for which the
department lacks expertise are certified by another agency
or agencies that possess the relevant expertise. The bill
would require the FTB, in consultation with the Secretary
of California Health and Human Services Agency, to
prescribe certain health related matters such as, age
appropriate activities and substantial supervision to
protect an individual from threats to health and safety.
Because the FTB lacks the expertise, knowledge, or
experience to make these determinations, it is recommended
that this bill be amended to exclude the FTB from this
requirement."
b) "Because the bill fails to specify otherwise, an
individual that provides no care for the applicable
individual could be eligible for the credit. If this is
contrary to the author's intent this bill should be
amended."
4)Committee Staff Comments
a) What is a "tax expenditure" ? Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
Treasury officials began arguing that these features of the
tax law should be referred to as "expenditures," since they
are generally enacted to accomplish some governmental
purpose and there is a determinable cost associated with
each (in the form of foregone revenues).
b) How is a tax expenditure different from a direct
expenditure ? As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater economic
certainty, but it can also result in tax expenditures
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remaining a part of the tax code without demonstrating any
public benefit. Second, there is generally no control over
the amount of revenue losses associated with any given tax
expenditure. Finally, it should also be noted that, once
enacted, it takes a two-thirds vote to rescind an existing
tax expenditure absent a sunset date. This effectively
results in a "one-way ratchet" whereby tax expenditures can
be conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority
vote.
c) What would this bill do ? For each taxable year
beginning on or after January 1, 2015, and before January
1, 2020, this bill would allow a credit equal to $500
multiplied by the number of applicable individuals for whom
the taxpayer is an eligible caregiver during the taxable
year. Most people who require long-term support services
rely on family members, friends, and other unpaid
caregivers to help with daily activities such as eating,
bathing, and dressing. Moreover, adequate family support
is a key factor enabling many seniors to remain in their
homes. This support, however, often comes at a significant
personal and economic cost to the caregivers themselves.
This tax credit, in turn, is intended to provide a small
measure of economic relief to those individuals shouldering
this responsibility. According to the AARP, in 2009, more
than 5.8 million family caregivers in California provided
care to an adult with limitations in daily activities at
some point during the year. The economic value of the 3.85
million hours of uncompensated labor provided was estimated
at approximately $47 billion.
d) Prior legislation :
i) AB 2871 (Correa), Chapter 105, Statutes of 2000,
enacted a similar tax credit for eligible caregivers.
Specifically, AB 2871 allowed a credit equal to $500
multiplied by the number of applicable individuals for
whom the taxpayer was an eligible caregiver. The credit
applied to taxable years beginning on or after January 1,
2000, and before January 1, 2005.
ii) AB 298 (Berg), of the 2005-06 Regular Session, was
subsequently introduced to extend the tax credit to
taxable years beginning before January 1, 2011. AB 298
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died in the Senate Committee on Revenue and Taxation, and
the credit was thus allowed to expire.
This Committee's analysis of AB 298 noted that the
Legislative Analyst's Office (LAO) reviewed information
from the FTB on caregiver credit utilization, and reported
that credits totaling nearly $2.4 million were claimed for
the 2003 tax year. Moreover, in 2003, over 75% of the
claimants reported AGI in excess of $50,000. Very few
taxpayers receiving the credit (263 out of 5,768 taxpayers)
had AGI of $25,000 or less. Finally, the LAO report
concluded that the credit operated more as a "reward" for
care provided rather than an "incentive" to induce more
people to engage in caregiving.
e) Technical amendments :
i) The reference to IRC Section 1935x(r)(1) on page 3,
line 10, should be replaced with IRC Section 213(d)(4).
ii) On page 3, line 12, strike "any the" and insert "any
of the".
iii) On page 3, line 19, strike "following" and insert
"following applies".
iv) On page 3, in line 23, strike "over half the taxable
year" and insert "more than one-half the taxable year".
v) On page 3, in lines 36 and 37, this bill currently
makes reference to the highest federal modified AGI, as
defined in IRC Section 32(c)(2). IRC Section 32(c)(2),
however, currently defines the term "income" for purposes
of the Earned Income Tax Credit. The absence of an
appropriate definitional cross-reference could lead to
disputes with taxpayers and would likely complicate the
administration of this credit.
vi) On page 4, in line 6, strike "eligible individual"
and insert "applicable individual".
vii) On page 4, in line 12, strike "three years and",
strike lines 13 and 14, and insert "four years from the
date the return claiming the credit was filed and shall
make that certification available to the Franchise Tax
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Board upon request during that period."
REGISTERED SUPPORT / OPPOSITION :
Support
AARP
Association of California Caregiver Resource Centers
California Advocates for Nursing Home Reform
City and County of San Francisco Advisory Council to Aging and
Adult Services Commission
Variable Annuity Life Insurance Company
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098