Assigned to FIN                                                                                                                                  FOR COMMITTEE

 

 

 

ARIZONA STATE SENATE

Phoenix, Arizona

 

FACT SHEET FOR H.B. 2133

 

individual health insurance; tax incentive

 

Purpose

 

Authorizes Arizona residents to subtract the premium costs paid by the taxpayer for health insurance coverage during the taxable year for purposes of computing Arizona adjusted gross income.

 

Background

 

Currently, self-employed individuals are allowed to take a federal tax deduction on a portion of their premium costs for health insurance.  Self-employed individuals are allowed as a deduction an amount equal to the applicable percentage of the amount paid during the taxable year for the health insurance costs of the taxpayer, the taxpayer’s spouse and dependents.  Section 162(l)(1)(B) of the Internal Revenue Code establishes the applicable percentage.  For taxable year 2001, the applicable percentage is 50 percent.  The applicable percentage rate increases for years 2002-2006 and will be raised to 100 percent of the taxpayer’s health insurance costs beginning in year 2007.  Due to the fact that Arizona uses Federal Adjusted Gross Income as the starting point for state income tax purposes, the federal deduction flows through as a current state deduction.  However, this deduction only applies to self-employed individuals.

 

The Joint Legislative Budget Committee (JLBC) estimates that the income tax cost range could be between $14.4 million to $20.0 million; however, because of data limitations, JLBC indicates that this range is very speculative.  Overall, JLBC states that the overall cost of this bill cannot be determined due to the lack of reliable data.

 

Provisions

 

1.      Authorizes Arizona residents to deduct the amount of individual health insurance premium costs paid for by the taxpayer when computing Arizona adjusted gross income.

 

2.      Prohibits subtraction for any premium amount that is excluded or deducted in computing Arizona gross income.

 

3.      Applies the deduction for taxable year 2002 and thereafter.

 

4.      Makes technical and conforming changes.

 

House Action

 

WM                 2/13/01            DPA    7-1-2-0

FII                   2/28/01            DP       5-0-2-3

3rd Read           3/13/01                        53-4-3-0

 

 

Prepared by Senate Staff

April 4, 2001