Long-Term Care; Tax Credit
Provides tax credit to resident taxpayers for long-term care insurance premiums at lesser of $1,000 or 50% 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. Requires the department of taxation to report to the legislature annually. Repeals measure in five years. (SD1)
TWENTY-SECOND LEGISLATURE, 2004
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO LONG-TERM CARE.
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 population 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 being placed 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 with impoverishment 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) 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) $1,000; 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.
(c) The long-term care tax credit shall apply to taxpayers with an adjusted gross income of $60,000 per husband and wife filing a joint return, and $36,000 for an individual taxpayer.
For the purposes of this section, "long-term care insurance" shall have the same meaning as in section 431:10H-104.
(d) 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.
(e) 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.
(f) If the tax credits claimed by a resident individual taxpayer exceed the amount of income tax payment due from the resident individual taxpayer, the excess of credits over payments due shall be refunded to the resident individual taxpayer; provided that tax credits properly claimed by a resident individual who has no income tax liability shall be paid to the resident individual; and provided further that no refunds or payment on account of the tax credit allowed by this section shall be made for amounts less than $1.
(g) 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."
SECTION 3. The department of taxation shall report to the legislature annually, beginning no later than twenty days prior to the convening of the 2005 regular session, on the number of taxpayers claiming the tax credit and the total cost of the tax credit to the State during the preceding tax year.
SECTION 4. New statutory material is underscored.
SECTION 5. This Act shall take effect on July 1, 2004; provided that section 2 shall apply to taxable years beginning after December 31, 2003; and provided further that this Act shall be repealed on June 30, 2009.