Assigned to HEALTH & FIN                                                                              FOR CAUCUS & FLOOR ACTION

ARIZONA STATE SENATE

Forty-seventh Legislature, Second Regular Session

AMENDED

FACT SHEET FOR S.B. 1520

tax credit; long-term care insurance

Purpose

            Establishes an income tax credit, beginning January 1, 2007, for long-term care premium costs, subject to specified conditions and limits.  Prohibits taxpayers from claiming both an itemized deduction and a tax credit for the same expense. 

Background

            Long-term care refers to the services needed when an individual’s ability to care for himself or herself has been limited due to a chronic illness or disability.  Long-term care needs may be permanent or limited to a relatively short time.  Some individuals require constant care in an institution such as a nursing home, while others may need assistance with activities of daily living such as bathing or eating. 

            Long-term care insurance (LTCI) is one way of paying for these services. Like other insurance programs, consumers pay premiums that vary depending on their age and health status and on the level of coverage, benefits and options selected.  Benefits are claimed when long-term care services are needed, such as when a consumer must enter a nursing home, either permanently or temporarily.  According to the Kaiser Commission (Commission) on Medicaid and the Uninsured, as of 2005, approximately 10 million people need long-term care in the United States, including 6 million elderly and 4 million children and non-elderly adults.  The General Accounting Office estimated that in 2000, private insurance accounted for 11 percent of total payments for long-term care, while Medicaid and Medicare accounted for 45 and 14 percent, respectively. 

            The Department of Insurance (DOI) regulates long-term care insurance in Arizona.  DOI reports that, as of 2004, 92,798 individuals in Arizona have long-term care insurance (including both individual and group policies).  S.B. 1520 could provide incentives for additional people to purchase long-term care insurance.

            Current statute allows Arizona taxpayers who do not take a standard deduction to deduct specified items when computing taxable income.  Examples of deductions include certain expenses for medical care, interest on certain home mortgages, and certain charitable contributions.  Other deductions are specified in federal law.  S.B. 1520 prohibits taxpayers from claiming a deduction and taking a tax credit for the same expense.  This prohibition applies to all expenses for which a taxpayer is eligible to claim a deduction and a credit.

            The Joint Legislative Income Tax Credit Review Committee (Committee) reviews corporate and income tax credits every five years, pursuant to a schedule prescribed in statute (the Income Tax Credit Review Schedule).  After completing the review, the Committee determines whether the credit should be amended, repealed or retained.  In 2005, the Legislature amended the schedule for income tax credit review, resulting in multiple sections of that law.  S.B. 1520 blends the provisions of these multiple sections.

The fiscal impact of the bill to the state General Fund depends upon how many individuals take advantage of the credit and the amounts of the credits taken.

Provisions

1. Establishes, for taxable years beginning January 1, 2007, a nonrefundable income tax credit for long-term care premium costs paid by an Arizona resident for:

a. the taxpayer.

b. the taxpayer’s spouse, parent or parent-in-law.

c. any other dependent of the taxpayer, subject to specified restrictions.

2. Limits the amount of the credit to the lesser of ten percent of the premium costs paid or five hundred dollars per each person covered by the policy.

3. Prohibits the credit from exceeding the amount of tax otherwise due by the taxpayer, after all other applicable credits. 

4. Prohibits the credit from being refunded or carried forward to subsequent years.

5. Prohibits a taxpayer from claiming a credit for any premium amount that is excluded from Arizona gross income or deducted or subtracted in the calculation of the taxpayer’s Arizona adjusted gross income.

6. Allows a husband and wife that filed separate tax returns to split the credit, but limits the sum of the credits claimed by the husband and wife to the amount that would have been allowed if they filed a joint return.

7. Requires a long-term care policy to meet the requirements of the current statutes that regulate long-term care insurance.

8. Adds the credit established by the bill to the Income Tax Credit Review Schedule in 2011.

9. Makes technical changes to blend multiple laws, passed in the 2005 legislative session, governing the income tax credit review schedule and repeals the second version, which is no longer necessary.

10. Stipulates the purpose of the bill is to reduce the amount of state income taxes paid by Arizona residents who pay for long-term care insurance coverage.

11. Prohibits taxpayers from claiming both an itemized deduction and a tax credit for the same expense.

12. Becomes effective on the general effective date.

Amendments Adopted by Committee

· Prohibits taxpayers from claiming both a deduction and a credit for the same expense.

Senate Action

HEALTH        2/13/06     DP           6-0-1-0

FIN                 2/16/06     DPA        5-2-2-0

Prepared by Senate Research

February 16, 2006

BKL/ac