Long-Term Care Insurance; Tax Credit; Small Business
Grants tax credit to small businesses at the lesser of 50% of premiums or $500 per employee for purchase of long-term care insurance for its employees. Defines small business as businesses employing less than 100 full-time or part-time workers.
TWENTY-SECOND LEGISLATURE, 2004
STATE OF HAWAII
A BILL FOR AN ACT
relating to long-term insurance tax credit for small business.
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 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 providing long-term care to those who have difficulty carrying out 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 own 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.
One innovative approach that has not been explored involves focusing on the provision of long-term care insurance for employees in Hawaii, a state where small businesses employ the bulk of all workers. The purpose of this Act is to create an incentive for small businesses to purchase long-term care insurance for their employees by making available a tax credit for the payment of their long-term care insurance premiums.
SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§235- Small business long-term care insurance premium tax credit. (a) Each individual and corporate resident taxpayer subject to the tax imposed by this chapter and who owns a small business, as defined in this section, and files an individual or corporate net income tax return for a taxable year, regardless of adjusted gross income, may claim a small business long-term care insurance premium credit against the taxpayer's individual or corporate net income tax liability for the taxable year in which the credit is claimed and for which the income tax return is being filed; provided that an individual or corporation who has no income taxable under this chapter may claim this credit.
For the purposes of this section:
"Long-term care insurance" shall have the same meaning as in section 431:10H-104.
"Small business" means a for-profit enterprise consisting of fewer than one hundred full-time or part-time employees.
(b) The tax credit under this section, when claimed by:
(1) Either the individual resident taxpayer or by a husband and wife filing a joint return; 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; or
(2) A corporation, partnership, limited liability company, or other form of business entity;
may be claimed only once in the taxable year with respect to the small business, regardless of the number of owners under paragraph (1) or the number of partners or corporate officers under paragraph (2).
(c) The amount of the tax credit shall be an amount equal to the lesser of the following amounts:
(1) $500 for each employee; or
(2) Fifty per cent of any long-term care insurance premium payments made for each employee;
for the taxable year in which the payments were made.
(d) 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.
(e) 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.
(f) Every claim, including amended claims, for a tax credit 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 director of taxation shall prepare any forms that may be necessary to claim a credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claims for credits made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91."
SECTION 3. New statutory material is underscored.
SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2003.