Amended in Senate March 24, 2014

Senate Bill No. 1035

Introduced by Senator Huff

February 18, 2014

An act to amend begin delete Section 17001 of end delete begin insert Sections 17072 and 19184 of, to amend and repeal Sections 17131.4, 17131.5, 17215.1, and 17215.4 of, and to add Sections 17138.5 and 17216 to, end insert the Revenue and Taxation Code, relating to taxation begin insert , to take effect immediately, tax levy end insert .

LEGISLATIVE COUNSEL’S DIGEST

SB 1035, as amended, Huff. Personal income begin delete tax. end delete begin insert taxes: health savings accounts. end insert

begin insert

The Personal Income Tax Law authorizes various deductions in computing income that is subject to tax under that law.

end insert begin insert

This bill would, for taxable years beginning on and after January 1, 2015, allow a deduction in connection with health savings accounts in conformity with federal law. In general, the deduction would be an amount equal to the aggregate amount paid in cash during the taxable year by, or on behalf of, an eligible individual, as defined, to a health savings account of that individual, as provided. This bill would, for taxable years beginning on and after January 1, 2015, also provide related conformity to that federal law with respect to the allowance of rollovers from Archer Medical Savings Accounts, health flexible spending arrangements, or health reimbursement accounts to a health savings account, and penalties in connection therewith.

end insert begin insert

This bill would take effect immediately as a tax levy.

end insert begin delete

The Personal Income Tax Law imposes tax upon the taxable income of California residents and on the taxable income of nonresidents derived from sources within the state.

end delete begin delete

This bill would make technical, nonsubstantive changes to those provisions.

end delete

Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . 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 Section 17072 of the end insert begin insert Revenue and Taxation Code end insert
begin insert is amended to read: end insert

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.

begin insert

(d) For taxable years beginning on or after January 1, 2015,
Section 62(a)(19) of the Internal Revenue Code, relating to health
savings accounts, shall apply, as modified by Section 17216.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 17131.4 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

17131.4.  

begin insert (a) end insert begin insert   end insert Section 106(d) of the Internal Revenue Code,
relating to contributions to health savings accounts, shall not apply.

begin insert

(b) This section shall apply to taxable years beginning on or
after January 1, 2005, and before January 1, 2015.

end insert begin insert

(c) This section shall remain in effect only until January 1, 2019,
and as of that date is repealed.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 17131.5 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

17131.5.  

begin insert (a) end insert begin insert   end insert Section 125(d)(2)(D) of the Internal Revenue
Code, relating to the exception for health savings accounts, shall
not apply.

begin insert

(b) This section shall apply to taxable years beginning on or
after January 1, 2005, and before January 1, 2015.

end insert begin insert

(c) This section shall remain in effect only until January 1, 2019,
and as of that date is repealed.

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 17138.5 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 17138.5. end insert   

For taxable years beginning on or after January 1,
2015, Section 106 of the Internal Revenue Code, as amended by
Section 302 of the Tax Relief and Health Care Act of 2006 (Public
Law 109-432), relating to health savings accounts, shall apply,
except as otherwise provided.

end insert

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 17215.1 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

17215.1.  

begin insert (a) end insert begin insert   end insert Section 220(f)(5) of the Internal Revenue Code,
relating to rollover contributions, shall not apply.

begin insert

(b) This section shall apply to taxable years beginning on or
after January 1, 2005, and before January 1, 2015.

end insert begin insert

(c) This section shall remain in effect only until January 1, 2019,
and as of that date is repealed.

end insert

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 17215.4 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

17215.4.  

begin insert (a) end insert begin insert   end insert Section 223 of the Internal Revenue Code,
relating to health savings accounts, shall not apply.

begin insert

(b) This section shall apply to taxable years beginning on or
after January 1, 2005, and before January 1, 2015.

end insert begin insert

(c) This section shall remain in effect only until January 1, 2019,
and as of that date is repealed.

end insert

begin insert

begin insert SEC. 7. end insert   

end insert

begin insert Section 17216 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 17216. end insert   

For taxable years beginning on or after January 1,
2015, all of the following apply:

(a) Section 223 of the Internal Revenue Code, relating to health
savings accounts, shall apply, except as otherwise provided.

(b) Section 223(e)(1) of the Internal Revenue Code shall be
modified by substituting the phrase “Section 17651” for the phrase
“Section 511 (relating to imposition of tax of unrelated business
income of charitable, etc., organizations),” contained therein.

(c) Section 223(f)(4)(A) of the Internal Revenue Code shall be
modified by substituting “2 1⁄2 percent” for “20 percent,”
contained therein.

end insert

begin insert

begin insert SEC. 8. end insert   

end insert

begin insert Section 19184 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

19184.  

(a) A penalty of fifty dollars ($50) shall be imposed
for each failure, unless it is shown that the failure is due to
reasonable cause, by any person required to file who fails to file
a report at the time and in the manner required by any of the
following provisions:

(1) Subdivision (c) of Section 17507, relating to individual
retirement accounts.

(2) Section 220(h) of the Internal Revenue Code, relating to
medical savings accounts for taxable years beginning on or after
January 1, 1997.

begin insert

(3) For taxable years beginning on or after January 1, 2015,
Section 223(h) of the Internal Revenue Code, relating to reports.

end insert begin delete

(3)

end delete

begin insert (4) end insert  Subdivision (b) of Section 17140.3 or subdivision (b) of
Section 23711 begin insert , end insert relating to qualified tuition programs.

begin delete

(4)

end delete

begin insert (5) end insert  Subdivision (e) of Section 23712, relating to Coverdell
education savings accounts.

(b) (1) Any individual who:

(A) Is required to furnish information under Section 17508 as
to the amount designated nondeductible contributions made for
any taxable year, and

(B) Overstates the amount of those contributions made for that
taxable year, shall pay a penalty of one hundred dollars ($100) for
each overstatement unless it is shown that the overstatement is due
to reasonable cause.

(2) Any individual who fails to file a form required to be filed
by the Franchise Tax Board under Section 17508 shall pay a
penalty of fifty dollars ($50) for each failure unless it is shown
that the failure is due to reasonable cause.

(c) Article 3 (commencing with Section 19031) of this chapter
(relating to deficiency assessments) shall not apply in respect of
the assessment or collection of any penalty imposed under this
section.

begin insert

begin insert SEC. 9. end insert   

end insert begin insert

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

end insert

begin delete

SECTION 1.  

Section 17001 of the Revenue and Taxation Code
is amended to read:

17001.  

This part shall be known and may be cited as the
“Personal Income Tax Law.”

end delete