SB 0420 - Fiscal Note

Fiscal Note - SB 0420 - Authorizes state income tax deduction for self-employed individual's health ins. costs if not deductible federally

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 1599-02

BILL NO.: SB 420

SUBJECT: Health Care; Insurance - Medical; Revenue Department; Taxation and Revenue - General; Taxation and Revenue - Income

TYPE: Original

DATE: March 22, 1999

---

FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	($6,131,562)	($6,394,913)	($6,714,575)
Total Estimated Net Effect on All State Funds	($6,131,562)	($6,394,913)	($6,714,575)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 3 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Revenue (DOR) states the number of taxpayers eligible for this credit is unknown at this time. The Division of Taxation and Collection would need one (1) temporary tax season employee ($6,067) for every 180,000 returns with this deduction. One (1) Tax Processing Technician I would be needed for every 20,000 additional income tax errors.

The proposal would require modifications to the income tax system. The Division of Taxation and Collections estimates the modifications, including programming changes, would require 1,038 hours of overtime at a cost of $31,213. Modifications to the income tax return and schedules would be completed with existing resources. State Data Center charges would increase due to the additional storage and fields to be captured. Funding in the amount of $6,755 would be requested for implementation costs and $1,673 for ongoing costs per year.

Office of Administration - Budget and Planning (COA) officials state that this proposal would allow Missouri self-employed taxpayers to deduct 100% of the money paid for health insurance coverage. COA states that according to "Statistics of Income" published by the IRS, tax returns of self-employed households deducted $2,601.1 million from their returns in 1995. COA also states that at the time, federal law allowed a 25% deduction. COA states the federal law allows a 60% deduction in tax year 1999, 2000, and 2001, 70% deduction in tax year 2002, and 100% deduction in tax year 2003 and thereafter. COA assumes Missouri constitutes 1.9% of this total, with an inflation rate of 5% each year, a Missouri marginal tax rate of 6%, and an effective date of January 1, 2000. COA estimates that the loss of revenue to the General Revenue Fund would be approximately $0 in FY 2000, $6,088,800 in FY 2001, and $6,393,240 in FY 2002.

This proposal would result in a decrease in Total State Revenues.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
Loss - General Revenue Fund
Deduction for health insurance premiums	($6,088,800)	($6,393,240)	($6,712,902)
Cost - Department of Revenue
Reprogramming costs	($42,762)	($1,673)	($1,673)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	($6,131,562)	($6,394,913)	($6,714,575)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	$0	$0	$0
FISCAL IMPACT - Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This proposal would allow a state income tax deduction for health insurance costs of a self-employed individual for himself, his spouse and dependents to the extent the amounts qualify for deduction under the Internal Revenue Code but which are not deducted on the taxpayer's federal return. Current federal law permits federal deduction for such costs equal to 60% in 1999, 2000, and 2001, 70% in 2002, and 100% in 2003 and thereafter. This proposal would permit the deductions of the remaining amounts of allowable health insurance costs if the

taxpayer does not deduct them on his or her federal income tax return. The remaining amounts could be taken as an itemized medical expense on the federal return, subject to the 7.5% of adjusted gross income floor. This proposal would require the taxpayer to deduct from the amount of any federal itemized deductions the amount claimed as a state deduction.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Department of Revenue

Office of Administration

Division of Budget and Planning

Jeanne Jarrett, CPA

Director

March 22, 1999