Report Title:

Long-term care; tax credit

Description:

Provides a refundable and non-refundable net income tax credit to encourage the purchase of long-term care insurance.

HOUSE OF REPRESENTATIVES

H.B. NO.

2414

TWENTY-THIRD LEGISLATURE, 2006

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO LONG-TERM CARE TAX CREDITS.

 

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

SECTION 1. 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. 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.

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 resolve the impending long-term care crisis, the department of health, at the direction of the governor, established a long-term care task force. The task force is comprised of individuals from various state agencies, including the department of health, department of taxation, and the department of commerce and consumer affairs, and from the long-term care insurance industry and healthcare sector.

The long-term care task force developed this proposed individual tax credit. The goals of this tax credit are to assist lower income taxpayers in purchasing long-term care insurance by providing a tax credit for a substantial portion of the average long-term care premiums and to provide an incentive for taxpayers with moderate incomes to purchase long-term care insurance.

This Act also makes conforming amendments to sections 431:10H-302 and 431:10H-304 of the Long-Term Care Insurance Act, article 10H of chapter 431, Hawaii Revised Statutes. Section 431:10H-302 of the Long-Term Care Insurance Act is amended to clarify that long-term care insurance policies sold are not required to conform to the long-term care tax credit. However, if the long-term care insurance policy does not provide coverage in accordance with the long-term care tax credit, the policy will not qualify for this state tax incentive.

The disclosure provisions in section 431:10H-304 of the Long-Term Care Insurance Act are amended to require that insurance companies include on the first page of long-term care insurance policies one of two specific, enumerated statements regarding whether the policy is intended to qualify for this state tax incentive under the long-term care tax credit.

The long-term care task force also developed the employer long-term care tax credit contained in this Act. The purpose of this tax credit is to encourage employers to purchase qualified long-term care insurance contracts for their employees and to ensure that qualified long-term care insurance contracts cover both home and community-based care in addition to coverage for long-term care in intermediate care facilities and skilled nursing facilities.

Employer provided long-term care insurance policies can substantially reduce insurance costs and can provide access to many more people because of relaxed underwriting.

The purpose of this Act is to provide individual and employer long-term care tax credits for long-term care premium costs.

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 for premium payments made during the taxable year for the purchase of a qualified long-term care insurance contract 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, except that a resident individual who has no income or 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 shall be as follows:

(1) For a resident husband and wife filing a joint return, an amount equal to the lesser of:

(A) $1,000 in aggregate; or

(B) The percentage of the total cost of long-term care insurance premium payments made during the taxable year based upon the husband's and wife's total adjusted gross income as follows:

Under $80,000 50.0 per cent

$80,000 and under $100,000 30.0 per cent

$100,000 and under $125,000 15.0 per cent

$125,000 and up to $150,000 5.0 per cent

over $150,000 0 per cent,

provided that a 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.

(2) The tax credit for all other individual resident taxpayers filing a return shall be an amount equal to the lesser of:

(A) $500; or

(B) The percentage of the total cost of long-term care insurance premium payments made during the taxable year based upon the taxpayer's total adjusted gross income as follows:

Under $40,000 50.0 per cent

$40,000 and under $50,000 30.0 per cent

$50,000 and under $62,500 15.0 per cent

$62,500 and up to $75,000 5.0 per cent

over $75,000 0 per cent.

(c) The credit applies to premium payments made during the taxable year for a qualified 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) The taxpayer's son or daughter;

(5) The taxpayer's stepson or stepdaughter;

(6) The taxpayer's father or mother; and

(7) The taxpayer's stepfather or stepmother.

(d) As used in this section:

"Activities of daily living" means eating, toileting, transferring, bathing, dressing, and continence.

"Chronically ill individual" means any individual who has been certified by a licensed healthcare practitioner as meeting one of the following conditions:

(1) Being unable to perform at least two activities of daily living without substantial assistance from another individual for a period of at least ninety days due to a loss of functional capacity;

(2) Having a level of disability similar to the disability set forth in the preceding paragraph; or

(3) Requiring substantial supervision to protect that individual from threats to health and safety due to a severe cognitive impairment for the preceding twelve-month period.

"Licensed health care practitioner" means any licensed physician, any registered professional nurse, licensed social worker, or any other professional as may be provided by rules adopted by the director of taxation.

"Maintenance or personal care services" means any care the primary purpose of which is the provision of needed assistance with any of the disabilities that render a person to be a chronically ill individual, including the protection from threats to health and safety due to a severe cognitive impairment.

"Qualified long-term care insurance contract" means a contract that:

(1) Provides insurance coverage solely for qualified long-term care services;

(2) Does not pay or reimburse expenses incurred for services or items to the extent that those expenses are reimbursable under title XVIII of the Social Security Act or would be so reimbursable but for the application of a deductible or coinsurance amount, unless:

(A) The expenses are reimbursable by medicaid as secondary payor; or

(B) The contract makes qualified per diem or other periodic payments without regard to expenses, as defined below.

(3) Is guaranteed renewable;

(4) Provides that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract shall be used only to reduce future premiums or increase future benefits; and

(5) Does not provide for a cash surrender value or any other money that may be paid, assigned, borrowed, or pledged as collateral for a loan.

"Qualified long-term care services" means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance or personal care services, which are:

(1) Required by a chronically ill individual; and

(2) Provided pursuant to a plan of care prescribed by a licensed healthcare practitioner.

(e) If a taxpayer claims any other tax credit or deduction under title 14, including a deduction under sections 162 and 213 of the Internal Revenue Code, to which Hawaii law conforms, for premiums paid for a long-term care insurance policy, no tax credit shall be claimed under this section for the same premium payments.

(f) For the purpose of this credit, the "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter. If the tax credits claimed by a resident taxpayer exceed the amount of income tax payment due from the resident taxpayer, the excess of credits over payments due shall be refunded to the resident 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.

(h) The director of taxation shall prepare any forms that may be necessary to claim a tax credit under this section. The director may also require the taxpayer to furnish information to ascertain the validity of the claims for a tax credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91."

SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Employer's tax credit for long-term care premiums paid for employees. (a) Subject to the limitations of this section, an employer subject to taxation under this chapter may claim a non-refundable tax credit for premium payments made by the employer during the taxable year to purchase a qualified long-term care insurance contract for its employees. The maximum tax credit per employee for whom qualified long-term care insurance is purchased shall be in the amount of the lesser of fifty dollars or fifty per cent of the qualified long-term care premiums paid annually for each employee.

(b) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year. If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit may be carried forward until exhausted.

(c) If a taxpayer claims any other tax credit or deduction under title 14, including a deduction under sections 162 or 213 of the Internal Revenue Code, to which state law conforms, for premiums paid on a long-term care insurance policy, no credit shall be claimed under this section for the same premium payments.

(d) 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 this provision shall constitute a waiver of the right to claim the credit.

(e) 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 deductions made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91.

(f) As used in this section:

"Activities of daily living" means eating, toileting, transferring, bathing, dressing, and continence.

"Chronically ill individual" means any individual who has been certified by a licensed healthcare practitioner within the preceding twelve-month period as meeting one of the following conditions:

(1) Being unable to perform at least two activities of daily living without substantial assistance from another individual for a period of at least ninety days due to a loss of functional capacity;

(2) Having a level of disability similar to the disability set forth in the preceding paragraph; or

(3) Requiring substantial supervision to protect that individual from threats to health and safety due to a severe cognitive impairment for the preceding twelve-month period.

"Home and community-based care" means care provided under qualified long-term care services that meet or exceed the requirements set forth in section 431:10H-219.

"Licensed health care practitioner" means any licensed physician, registered nurse, licensed social worker, or other professional as may be provided by rules adopted by the director of taxation.

"Maintenance or personal care services" means any care the primary purpose of which is the provision of needed assistance with any of the disabilities that render a person to be a chronically ill individual, including the protection from threats to health and safety due to a severe cognitive impairment.

"Qualified long-term care insurance contract" means a contract that:

(1) Provides insurance coverage solely for qualified long-term care services;

(2) Does not pay or reimburse expenses incurred for services or items to the extent that those expenses are reimbursable under title XVIII of the Social Security Act or would be so reimbursable but for the application of a deductible or coinsurance amount, unless:

(A) The expenses are reimbursable by medicaid as secondary payor; or

(B) The contract makes qualified per diem or other periodic payments without regard to expenses, as defined below.

(3) Is guaranteed renewable;

(4) Provides that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract shall be used only to reduce future premiums or increase future benefits;

(5) Does not provide for a cash surrender value or any other money that may be paid, assigned, borrowed, or pledged as collateral for a loan; and

(6) Provides coverage for home- and community-based care services that meets or exceeds fifty per cent of the coverage for treatment in an intermediate care facility and skilled nursing facility.

"Qualified long-term care services" means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which are:

(1) Required by a chronically ill individual; and

(2) Provided pursuant to a plan of care prescribed by a licensed health care practitioner."

SECTION 4. Chapter 241, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§241-   Employer's tax credit for long-term care premiums paid for employees. The employer's tax credit for long-term care premiums paid for employees provided under chapter 235 shall be operative for this chapter for taxable years beginning after December 31, 2005."

SECTION 5. Chapter 431, Hawaii Revised Statutes, is amended by adding to article 7 a new section to be appropriately designated and to read as follows:

"§431:7-   Employer's tax credit for long-term care premiums paid for employees. The employer's tax credit for long-term care premiums paid for employees provided under chapter 235 shall be operative for this chapter for taxable years beginning after December 31, 2005."

SECTION 6. Section 431:10H-302, Hawaii Revised Statutes, is amended to read as follows:

"[[]§431:10H-302[]] Individual long-term care insurance policy coverages. (a) Every individual long-term care insurance policy sold after June 30, 2000, shall provide coverage for one or more of the types of care enumerated under section 431:10H-301(c).

(b) An individual long-term care insurance policy sold after June 30, 2000, shall not be required to conform to Subtitle C of the Health Insurance Portability and Accountability Act of 1996, P.L. 104-191, as amended, and to Section 7702B of the Internal Revenue Code of 1986, as amended; provided that if it does not conform, then it shall not qualify for federal or state income tax benefits.

(c) An individual long-term care insurance policy sold after December 31, 2005, shall not be required to conform to section 235-__; provided that, if it does not conform, then it shall not qualify for any state income tax credit."

SECTION 7. Section 431:10H-304, Hawaii Revised Statutes, is amended to read as follows:

"[[]§431:10H-304[]] Disclosure of qualification for tax benefits. (a) Every policy that is intended to be a qualified long-term care insurance contract as provided in the federal Health Insurance Portability and Accountability Act of 1996, P.L. 104-191, as amended, shall be identified as such by prominently displaying and printing on page one of the policy form and the outline of coverage and in the application the following words: "This contract for long-term care insurance is intended to be a federally qualified long-term care insurance contract and may qualify you for federal and state tax benefits."

(b) Every policy that is not intended to be a qualified long-term care insurance contract as provided in the federal Health Insurance Portability and Accountability Act of 1996, P.L. 104-191, as amended, shall be identified as such by prominently displaying and printing on page one of the policy form and the outline of coverage and in the application the following words: "This contract for long-term care insurance is not intended to be a federally qualified long-term care insurance contract and is not intended to qualify you for federal and state tax benefits."

(c) Every policy that is intended to be a qualified long-term care insurance contract as provided in section 235-   shall be identified as such by prominently displaying and printing on page one of the policy form, on the outline of coverage, and in the application the following words: "This contract for long-term care insurance is intended to be a qualified long-term care insurance contract under section 235-__, Hawaii Revised Statutes, and may qualify you for state income tax credits."

(d) Every policy that is not intended to be a qualified long-term care insurance contract under section 235-__ shall be identified as such by prominently displaying and printing on page one of the policy form, on the outline of coverage, and in the application the following words: "This contract for long-term care insurance is not intended to be a qualified long-term care insurance contract under section 235-__, Hawaii Revised Statutes, and is not intended to qualify you for state income tax credits.""

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2005.

INTRODUCED BY:

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BY REQUEST