Report Title:

Long-Term Care; Principles and Policy; Tax Credit

Description:

Provides tax credit to resident taxpayers, regardless of adjusted gross income, for long-term care insurance premiums at lesser of $2,500 or 50 per cent of the amount of the insurance premium paid. If the tax credit is claimed, a medical expense deduction for long-term care insurance cost is prohibited. (SB1399 HD1)

THE SENATE

S.B. NO.

1399

TWENTY-SECOND LEGISLATURE, 2003

S.D. 2

STATE OF HAWAII

H.D. 1


 

A BILL FOR AN ACT

 

RELATING TO A LONG-TERM CARE TAX CREDIT.

 

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

SECTION 1. The legislature finds that the future of long-term care for Hawaii's senior and adult disabled populations is one of the most critical health issues facing Hawaii in the twenty-first century. The rapid growth of the elderly and disabled populations will result in extraordinary demands on the delivery of long-term care services.

While the majority of persons receiving long-term care are older adults, entire families are affected by the psychological, financial, and social costs of long-term care provided to those who are limited in the activities of daily living. To accommodate the demands of caregiving that grow as dependency increases over the years, caregivers reduce work hours, adjust or abandon career and personal goals, and retire earlier than intended, lowering their own pension and retirement benefit levels. Caregivers are apt to be in poorer health than members of the general population, and often need care in their advanced years. Caregivers must be assisted by creating a network of support services, including respite care and other support to alleviate the grinding responsibility of providing daily care for those who require it.

When nursing home care is necessary, Hawaii's families are burdened with average annual nursing home charges that exceed their ability to pay. In the case of elderly families, these charges are twice their average annual disposable income, threatening impoverishment upon those who are otherwise self-sufficient. Thus, it is not surprising that approximately eighty per cent of all nursing home residents are dependent on medicaid, an entitlement program for persons with limited income and assets.

Persons sixty years-of-age and older presently account for almost one-fifth of the adult population in the State. By 2020, they will constitute more than one-fourth of Hawaii's adult population. Nearly one-third of this segment alone is expected to have functional disabilities. Although families have expressed a preference for home- and community-based care, these services and nursing home beds are currently below requisite levels. The average cost for one year of nursing home care has been estimated to eventually be in excess of $200,000 per person.

However, nursing home care is only one component of the array of long-term care services that has been developed. Due to cost factors, it is likely that home- and community-based services will become more predominant. These services are provided in and outside the home and are appropriate for those who do not need to be institutionalized. In fact, an important function of home- and community-based services is to prevent institutionalization. Home- and community-based services consist of a number of different modalities, some or all of which may be used by the individual. These services include adult day health services, case management services, environmental modifications, homemaker services, personal care services, personal emergency response systems, respite care services, skilled nursing services, transportation services, and similar services.

While home- and community-based services can provide care that is less costly than institutional care, it is still expensive. Although the legislature believes in a free market economy, the private sector has not been able to develop adequate financing mechanisms that appeal to the general population. The insurance industry needs encouragement in providing home- and community-based service options in their long-term care coverage. Purchasers of such insurance also need to be informed of home- and community-based service options as an alternative to nursing home care. The general public must be effectively educated and encouraged to purchase long-term care insurance, possibly by being offered tax incentives in the form of deductions or credits.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235-   Long-term care tax credit. (a) When the provisions of subsection (g) are met, each resident individual taxpayer who files an individual income tax return for a taxable year, and who is not claimed or is not otherwise eligible to be claimed as a dependent by another taxpayer for Hawaii state individual income tax purposes, may claim a long-term care credit against the resident taxpayer's net individual income tax liability for the taxable year for which the individual's income tax return is being filed; provided that a resident individual who has no income taxable under this chapter, and who is not claimed or is not otherwise eligible to be claimed as a dependent by a taxpayer for Hawaii state individual income tax purposes may claim this credit.

(b) The tax credit for a resident individual taxpayer, including a resident husband and wife filing a joint return, shall be an amount equal to the lesser of the following amounts:

(1) $2,500; or

(2) Fifty per cent of the cost of any long-term care insurance premium payments made by the resident individual taxpayer for the taxable year in which the payments were made;

provided that a resident husband and wife filing separate tax returns for a taxable year for which a joint return could have been filed by them shall claim only the tax credit to which they would have been entitled under this section had a joint return been filed.

For the purposes of this section, "long-term care insurance" shall have the same meaning as in section 431:10H-104.

(c) If a deduction is taken under this chapter pursuant to section 213 (with respect to medical, dental, etc., expenses) of the Internal Revenue Code of 1986, as amended, no tax credit shall be allowed for that portion of the cost of long-term care insurance for which the deduction was taken.

(d) The credit applies to premium payments for a long-term care insurance contract that covers:

(1) The taxpayer;

(2) The taxpayer's dependent as defined in section 152 of the Internal Revenue Code of 1986, as amended;

(3) The taxpayer's spouse;

(4) A son or daughter of the taxpayer;

(5) A stepson or stepdaughter of the taxpayer;

(6) The father or mother of the taxpayer; or

(7) A stepfather or stepmother of the taxpayer.

(e) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

(f) All claims, including any amended claims, for tax credits under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(g) The long-term care tax credit may be claimed only upon a declaration by the governor. The governor shall issue a declaration allowing taxpayers to claim the long-term care tax credit when general fund tax collections at the close of each of two successive fiscal years exceed seven and a half per cent of general fund tax collections for each of the prior two fiscal years. The director of taxation shall notify the governor of general fund tax collections at the close of every year."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2002, and shall be repealed on January 1, 2007.