REPORT TITLE:
Long-Term Care


DESCRIPTION:
Creates an income tax deduction for an individual for payment of
long-term care insurance premiums.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.542        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO LONG-TERM CARE TAX BENEFITS. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  This Act is a recommendation of the joint
 
 2 legislative committee on long-term care, as contained in its
 
 3 report to the legislature dated December 1, 1998.  This Act is a
 
 4 companion to a separate bill that amends the long-term care
 
 5 insurance law.
 
 6      The legislature believes that the State should encourage its
 
 7 residents to purchase long-term care insurance in order to
 
 8 provide a modicum of financial security in times of frailty or
 
 9 disability and that the ideal setting to provide long-term care
 
10 insurance is through the employment workplace.  The legislature
 
11 finds that while employers may claim an income tax deduction
 
12 under existing state and federal income tax laws for amounts they
 
13 pay for long-term care insurance premiums for their employees as
 
14 an employee benefit, individual employees may claim an income tax
 
15 deduction for the insurance premiums they pay under the federal,
 
16 but not state, income tax law. 
 
17      The purpose of this Act is to conform Hawaii income tax law
 
18 to the federal income tax law applying to individuals to allow a
 
19 state tax deduction for long-term care insurance premiums.  
 

 
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                                     H.B. NO.542        
                                                        
                                                        

 
 1      SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "235-2.4  Operation of certain Internal Revenue Code
 
 4 provisions.(a)  Section 63 (with respect to taxable income
 
 5 defined) of the Internal Revenue Code shall be operative for the
 
 6 purposes of this chapter, except that the standard deduction
 
 7 amount in section 63(c) of the Internal Revenue Code shall
 
 8 instead mean:
 
 9      (1)  $1,900 in the case of:
 
10           (A)  A joint return as provided by section 235-93, or
 
11           (B)  A surviving spouse (as defined in section 2(a) of
 
12                the Internal Revenue Code),
 
13      (2)  $1,650 in the case of a head of household (as defined
 
14           in section 2(b) of the Internal Revenue Code),
 
15      (3)  $1,500 in the case of an individual who is not married
 
16           and who is not a surviving spouse or head of household,
 
17           or
 
18      (4)  $950 in the case of a married individual filing a
 
19           separate return. 
 
20 Section 63(c)(4) shall not be operative in this State.  Section
 
21 63(c)(5) shall be operative, except that the limitation on basic
 
22 standard deduction in the case of certain dependents shall be the
 
23 greater of $500 or such individual's earned income.  Section
 

 
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                                     H.B. NO.542        
                                                        
                                                        

 
 1 63(f) shall not be operative in this State.
 
 2      (b)  Section 72 (with respect to annuities; certain proceeds
 
 3 of endowment and life insurance contracts) of the Internal
 
 4 Revenue Code shall be operative for purposes of this chapter and
 
 5 be interpreted with due regard to section 235-7(a), except that
 
 6 the ten per cent additional tax on early distributions from
 
 7 retirement plans in section 72(t) shall not be operative for
 
 8 purposes of this chapter.
 
 9      (c)  Section 121 (with respect to exclusion of gain from
 
10 sale of principal residence) of the Internal Revenue Code shall
 
11 be operative for purposes of this chapter, except that for the
 
12 election under section 121(f), a reference to section 1034
 
13 treatment means a reference to section 235-2.4(n) in effect for
 
14 taxable year 1997.
 
15      [(d)  Section 213 (with respect to medical, dental, etc.,
 
16 expenses) of the Internal Revenue Code shall be operative, except
 
17 that subsections (d)(1)(C) with respect to long-term care
 
18 services, (d)(1)(D) as it applies to long-term care insurance
 
19 contract premiums, (d)(7) as it applies to long-term care
 
20 insurance contract premiums, and (d)(10) as it applies to
 
21 eligible long-term care premiums shall not be operative in this
 
22 State.
 
23      (e)] (d)  Section 219 (with respect to retirement savings)
 

 
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 1 of the Internal Revenue Code shall be operative for the purpose
 
 2 of this chapter.  For the purpose of computing the limitation on
 
 3 the deduction for active participants in certain pension plans
 
 4 for state income tax purposes, adjusted gross income as used in
 
 5 section 219 as operative for this chapter means federal adjusted
 
 6 gross income.
 
 7      [(f)] (e)  Section 220 (with respect to medical savings
 
 8 accounts) of the Internal Revenue Code shall be operative for the
 
 9 purpose of this chapter, but only with respect to medical
 
10 services accounts that have been approved by the secretary of the
 
11 Treasury of the United States.
 
12      [(g)] (f)  In administering the provisions of sections 410
 
13 to 417 (with respect to special rules relating to pensions,
 
14 profit sharing, stock bonus plans, etc.), sections 418 to 418E
 
15 (with respect to special rules for multiemployer plans), and
 
16 sections 419 and 419A (with respect to treatment of welfare
 
17 benefit funds) of the Internal Revenue Code, the department of
 
18 taxation shall adopt rules under chapter 91 relating to the
 
19 specific requirements under such sections and to such other
 
20 administrative requirements under those sections as may be
 
21 necessary for the efficient administration of sections 410 to
 
22 419A.
 
23      In administering sections 401 to 419A (with respect to
 

 
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                                     H.B. NO.542        
                                                        
                                                        

 
 1 deferred compensation) of the Internal Revenue Code, Public Law
 
 2 93-406, section 1017(i), shall be operative for the purposes of
 
 3 this chapter.
 
 4      In administering section 402 (with respect to the taxability
 
 5 of beneficiary of employees' trust) of the Internal Revenue Code,
 
 6 the tax imposed on lump sum distributions by section 402(e) of
 
 7 the Internal Revenue Code shall be operative for the purposes of
 
 8 this chapter and the tax imposed therein is hereby imposed by
 
 9 this chapter at the rate determined under this chapter.
 
10      [(h)] (g)  Section 468B (with respect to special rules for
 
11 designated settlement funds) of the Internal Revenue Code shall
 
12 be operative for the purposes of this chapter and the tax imposed
 
13 therein is hereby imposed by this chapter at a rate equal to the
 
14 maximum rate in effect for the taxable year imposed on estates
 
15 and trusts under section 235-51.
 
16      [(i)] (h)  Section 469 (with respect to passive activities
 
17 and credits limited) of the Internal Revenue Code shall be
 
18 operative for the purposes of this chapter.  For the purpose of
 
19 computing the offset for rental real estate activities for state
 
20 income tax purposes, adjusted gross income as used in section 469
 
21 as operative for this chapter means federal adjusted gross
 
22 income.
 
23      [(j)] (i)  Sections 512 to 514 (with respect to taxation of
 

 
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 1 business income of certain exempt organizations) of the Internal
 
 2 Revenue Code shall be operative for the purposes of this chapter
 
 3 as provided in this subsection.
 
 4      "Unrelated business taxable income" means the same as in the
 
 5 Internal Revenue Code, except that in the computation thereof
 
 6 sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall
 
 7 apply, and in the determination of the net operating loss
 
 8 deduction there shall not be taken into account any amount of
 
 9 income or deduction which is excluded in computing the unrelated
 
10 business taxable income.  Unrelated business taxable income shall
 
11 not include any income from a prepaid legal service plan.
 
12      For a person described in section 401 or 501 of the Internal
 
13 Revenue Code, as modified by section 235-2.3, the tax imposed by
 
14 section 235-51 or 235-71 shall be imposed upon the person's
 
15 unrelated business taxable income.
 
16      [(k)] (j)  Section 521 (with respect to cooperatives) and
 
17 subchapter T (sections 1381 to 1388, with respect to cooperatives
 
18 and their patrons) of the Internal Revenue Code shall be
 
19 operative for the purposes of this chapter as to any cooperative
 
20 fully meeting the requirements of section 421-23, except that
 
21 Internal Revenue Code section 521 cooperatives need not be
 
22 organized in Hawaii.
 
23      [(l)] (k)  Sections 527 (with respect to political
 

 
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                                     H.B. NO.542        
                                                        
                                                        

 
 1 organizations) and 528 (with respect to certain homeowners
 
 2 associations) of the Internal Revenue Code shall be operative for
 
 3 the purposes of this chapter and the taxes imposed in each such
 
 4 section are hereby imposed by this chapter at the rates
 
 5 determined under section 235-71.
 
 6      [(m)] (l)  Section 641 (with respect to imposition of tax)
 
 7 of the Internal Revenue Code shall be operative for the purposes
 
 8 of this chapter subject to the following:
 
 9      (1)  The deduction for exemptions shall be allowed as
 
10           provided in section 235-54(b).
 
11      (2)  The deduction for contributions and gifts in
 
12           determining taxable income shall be limited to the
 
13           amount allowed in the case of an individual, unless the
 
14           contributions and gifts are to be used exclusively in
 
15           the State.
 
16      (3)  The tax imposed by section 1(e) of the Internal Revenue
 
17           Code as applied by section 641 of the Internal Revenue
 
18           Code is hereby imposed by this chapter at the rate and
 
19           amount as determined under section 235-51 on estates
 
20           and trusts.
 
21      [(n)] (m)  Section 644 (with respect to special rule for
 
22 gain on property transferred to trust at less than fair market
 
23 value) of the Internal Revenue Code shall be operative for the
 

 
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                                     H.B. NO.542        
                                                        
                                                        

 
 1 purposes of this chapter and the tax imposed therein is hereby
 
 2 imposed by this chapter at the rate determined under this
 
 3 chapter; except that the determination of the interest rate
 
 4 established under section 6621 of the Internal Revenue Code
 
 5 referred to in section 644(a)(2) of the Internal Revenue Code
 
 6 shall instead be the interest rate established under section 231-
 
 7 39(b)(4).
 
 8      [(o)] (n)  Section 667 (with respect to treatment of amounts
 
 9 deemed distributed by trusts in preceding years) of the Internal
 
10 Revenue Code shall be operative for the purposes of this chapter
 
11 and the tax imposed therein is hereby imposed by this chapter at
 
12 the rate determined under this chapter; except that the reference
 
13 to tax-exempt interest to which section 103 of the Internal
 
14 Revenue Code applies in section 667(a) of the Internal Revenue
 
15 Code shall instead be a reference to tax-exempt interest to which
 
16 section 235-7(b) applies.
 
17      [(p)] (o)  Section 685 (with respect to treatment of
 
18 qualified funeral trusts) of the Internal Revenue Code shall be
 
19 operative for purposes of this chapter, except that the tax
 
20 imposed under this chapter shall be computed at the tax rates
 
21 provided under section 235-51, and no deduction for the exemption
 
22 amount provided in section 235-54(b) shall be allowed.  The cost-
 
23 of-living adjustment determined under section 1(f)(3) of the
 

 
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                                     H.B. NO.542        
                                                        
                                                        

 
 1 Internal Revenue Code shall be operative for the purpose of
 
 2 applying section 685(c)(3) under this chapter.
 
 3      [(q)] (p)  Section 1212 (with respect to capital loss
 
 4 carrybacks and carryforwards) of the Internal Revenue Code shall
 
 5 be operative for the purposes of this chapter; except that for
 
 6 the purposes of this chapter the capital loss carryback
 
 7 provisions of section 1212 shall not be operative and the capital
 
 8 loss carryforward allowed by section 1212(a) shall be limited to
 
 9 five years.
 
10      [(r)] (q)  Subchapter S (sections 1361 to 1379) (with
 
11 respect to tax treatment of S corporations and their
 
12 shareholders) of chapter 1 of the Internal Revenue Code shall be
 
13 operative for the purposes of this chapter as provided in part
 
14 VII.
 
15      [(s)] (r)  Subchapter C (sections 6221 to 6233) (with
 
16 respect to tax treatment of partnership items) of chapter 63 of
 
17 the Internal Revenue Code shall be operative for the purposes of
 
18 this chapter.
 
19      [(t)] (s)  Subchapter D (sections 6240 to 6255) (with
 
20 respect to simplified audit procedures for electing large
 
21 partnerships) of the Internal Revenue Code shall be operative for
 
22 the purposes of this chapter, with due regard to chapter 232
 
23 relating to tax appeals.
 

 
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                                     H.B. NO.542        
                                                        
                                                        

 
 1      [(u)] (t)  Section 7518 (with respect to capital
 
 2 construction fund for commercial fishers) of the Internal Revenue
 
 3 Code shall be operative for the purposes of this chapter.
 
 4 Qualified withdrawals for the acquisition, construction, or
 
 5 reconstruction of any qualified asset which is attributable to
 
 6 deposits made before the effective date of this section shall not
 
 7 reduce the basis of the asset when withdrawn.  Qualified
 
 8 withdrawals shall be treated on a first-in-first-out basis."
 
 9      SECTION 3.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 4.  This Act, upon its approval, shall apply to
 
12 taxable years beginning after December 31, 1998.
 
13 
 
14                           INTRODUCED BY:  _______________________