"Franchise Tax Board Medical Expenses"
Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 1178 (Portantino) Hearing Date: 08/12/2010 Amended: 08/05/2010 As proposed to be amended Consultant: Mark McKenzie Policy Vote: Rev&Tax 3-1 _____________________________________________________________________ BILL SUMMARY: AB 1178 would make numerous changes to state tax laws to conform to recent federal tax law changes enacted by recent health care reform legislation (the Patient Protection Affordable Care Act and the Health Care and Education Reconciliation Act of 2010). _____________________________________________________________________ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund Grant exclusion: therapeutic $1,100 $1,400 $800 General discovery project credits Exclusion of student loan $600 $350 $350 General forgiveness: health profs. Adoption assistance programs $2,700 $2,200 $800 General Benefits for adult children $15,000 $16,000 $19,000 General Archer MSA distributions ($150) ($300) ($300) General Non-deductability of fee on ($3,800) ($12,000) ($14,000) General pharmaceutical companies Hospital insurance tax ($2,400) General exclusion ____________________________________________________________________ Total Net revenue loss $15,450 $7,650 $4,250 General _____________________________________________________________________ STAFF COMMENTS: SUSPENSE FILE. The general purpose of conforming to numerous changes in federal law is to simplify both the preparation of California income tax returns and the administration of state income tax laws. Conformity changes can also have significant impacts on state revenues, and decisions to conform, conform with modifications, or non-conform are often deliberately designed to result in a net revenue loss or to achieve relative revenue neutrality in order to avoid a 2/3 vote of the Legislature as a tax increase. In March of 2010, the U.S. Congress enacted, and President Obama signed, comprehensive health care reform legislation: The Patient Protection and Affordable Care Act (PPACA), (Public Law 111-148, March 23, 2010); and The Health Care and Education Reconciliation Act of 2010 (HCERA), (Public Law 111-152, March 30, 2010). Page 2 AB 1178 (Portantino) AB 1178 would conform to the following 14 pro visions of the PPACA and the HCERA: (PPACA 9023) Exclusion of grants provided in lieu of a tax credit for a therapeutic discovery project; (PPACA 10908) Exclusion for assistance provided to participants in state student loan repayment programs for certain health professionals; (PPACA 10909) Increase in the exclusion of employer-provided adoption assistance; (PPACA 9021) Exclusion of health benefits provided by Indian tribal governments; (HCERA 1004) Exclusion of income for medical benefits for adult childre n under the age of 27; (HCERA 1409) Codification of the economic substance doctrine; (PPACA 9003) Revisions to the definition of qualified medicine (prescribed drugs and insulin) for a Health Reimbursement Arrangement (HRA), a Flexible Spending Arrangement (FSA), or an Archer Medical Savings Account (MSA); (PPACA 9004) Increase to the additional tax on distributions from Archer MSAs not used for qualified medical expenses to 12.5 percent.; (PPACA 9008) Denial of a deduction of the annual fee on branded prescription pharmaceutical manufacturers and importers; (PPACA 9022) Nondiscrimination safe harbors for small businesses establishing cafeteria plans; (PPACA 9005, 10902 & HCERA 1403) Limitation on the dollar amount of flexible spending arrangement (FSA) contributions under cafeteria plans; (PPACA 9015) Denial of a deduction of the additional hospital insurance tax imposed on employees; (PPACA 1515) Allows small businesses to have exchange options in their cafeteria plans; (PPACA 10108) Exclusion of the value of free choice vouchers from income. Staff notes that full descriptions of each of the conformity items in this bill are included in the Franchise Tax Board’s (FTB’s) report titled “Summary of March, 2010 Federal Health Care Acts.” Staff notes that this bill was approved by the Senate Revenue and Taxation Committee on August 11, 2010. The author agreed to amendments to delete provisions that would: (1) conform to federal tax treatment of Health Savings Accounts, and (2) increase the adjusted gross income threshold for deducting medical expenses. Due to legislative deadlines, the author committed to taking the amendments in this Committee.