(April 5, 2012) A California Chamber of Commerce-supported “job creator” bill that encourages job growth through freeing small businesses to invest in business growth instead of spending limited resources on health care expenses will be considered by the Assembly Revenue and Taxation Committee next week.
AB 1510 (Garrick; R-Carlsbad) entitles individuals, including the self employed, to a state tax deduction for contributions to a Health Savings Account (HSA) in conformity with federal tax law. This bill is part of CalChamber’s 2012 Renew Agenda and will help position California for economic recovery.
Health Savings Account
Currently, many self-employed individuals purchase high-deductible health plans because they offer an affordable option for health coverage. In order to pay for near-term medical expenses and save for future longer-term medical costs, the individual can choose to contribute earnings before taxes in an HSA.
Federal tax law allows these contributions to be tax-free, but California tax law does not. Therefore, the individual pays taxes on the amount contributed to his/her HSA to pay for medical expenses.
State tax conformity for HSAs will free up limited resources for small businesses to invest in and grow the business, which collectively will help California's economy emerge from the recession.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 amended the Internal Revenue Code to allow for deposit of tax-free savings into an HSA for medical expenses. Up to 100% of the deductible amount of an accompanying high-deductible health insurance policy may be contributed to an HSA by either the account holder or the employer, or both. Funds are completely portable and may be carried over from year to year during a participant's lifetime.
Given the skyrocketing cost of health care, high-deductible health plans combined with an HSA offer consumers another option and flexibility when making health care coverage choices.
HSAs empower individuals to take charge of their health care purchasing decisions. Allowing this tax-deductible option could encourage the uninsured to purchase health coverage and therefore would reduce the number of uninsured, and accordingly, reduce costs associated with providing health care to the uninsured. Reducing health care costs will make health care insurance more affordable for all.
Conforms with Federal Law
California is one of four states that currently taxes contributions to HSAs. Of those four states one, Pennsylvania, allows a tax exemption for employee contributions, but not employer contributions to an HSA.
Consumers in the rest of the country enjoy both federal and state tax-free contributions to HSAs. In order for California consumers to take full advantage of this health care option in the market, California must update its Revenue and Taxation Code to conform to federal law. AB 1510 would ensure that the citizens of California enjoy these same rights and privileges as 46 other states.
CalChamber believes that AB 1510 is a simple conformity measure, bringing California in line with federal HSA provisions. Furthermore, it allows businesses to direct more resources toward growth and job creation. Given the current health care crisis and impending federal changes, the state should be creating options for people to save for future health care cost unknowns. This bill creates one such option.
AB 1510 will be considered by the Assembly Revenue and Taxation Committee on April 9. Contact your Assembly representative and committee members and ask them to support AB 1510.
Staff Contact: Marti Fisher