ASSEMBLY, No. 840

 

STATE OF NEW JERSEY

 

210th LEGISLATURE

 

PRE-FILED FOR INTRODUCTION IN THE 2002 SESSION

 

 

Sponsored by:

Assemblyman JACK CONNERS

District 7 (Burlington and Camden)

Assemblyman HERBERT CONAWAY, JR.

District 7 (Burlington and Camden)

 

Co-Sponsored by:

Assemblyman R.Smith

 

 

 

SYNOPSIS

    Provides a refundable gross income tax credit for certain prescription drug expenses.

 

CURRENT VERSION OF TEXT

    Introduced Pending Technical Review by Legislative Counsel.

 


An Act providing a refundable gross income tax credit for certain prescription drug expenses, supplementing Title 54A of the New Jersey Statutes and amending N.J.S.54A:3-3.

 

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

    1. (New section) a. A taxpayer shall be allowed a credit against the tax otherwise due pursuant to this act for the applicable percentage, determined pursuant to subsection b. of this section, of the amount by which eligible prescription drug expenses paid during the taxable year exceed 2% of the taxpayer's gross income. Eligible prescription drug expenses are expenses for presciption drugs for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents. In the case of a nonresident, gross income means gross income that the nonresident would have reported if the taxpayer had been subject to tax during the entire taxable year as a resident.

    b. (1) The applicable percentage for the purposes of calculating the credit allowed pursuant to subsection a. of this section for married individuals filing a joint return and individuals filing as head of household or surviving spouse for federal income tax purposes shall be as follows:

 

             If gross income is:                                         The applicable

                                                                                     percentage is:

             Not over $40,000                                           100%

             Over $40,000 but not over $60,000               75%

             Over $60,000 but not over $80,000               50%

             Over $80,000 but not over $100,000             25%

             Over $100,000                                               5%

 

    (2) The applicable percentage for the purposes of calculating the credit allowed pursuant to subsection a. of this section for married individuals filing separately for federal income tax purposes shall be as follows:

             If gross income is:                                         The applicable

                                                                                     percentage is:

             Not over $20,000                                           100%

             Over $20,000 but not over $30,000               75%

             Over $30,000 but not over $40,000               50%

             Over $40,000 but not over $50,000               25%

             Over $50,000                                                 5%


    (3) The applicable percentage for the purposes of calculating the credit allowed pursuant to subsection a. of this section for unmarried individuals other than those filing as head of household or as a surviving spouse for federal income tax purposes shall be as follows:

 

             If gross income is:                                         The applicable

                                                                                     percentage is:

             Not over $30,000                                           100%

             Over $30,000 but not over $45,000               75%

             Over $45,000 but not over $60,000               50%

             Over $60,000 but not over $75,000               25%

             Over $75,000                                                 5%

 

    (4) The director shall, for taxable years beginning in calendar years after the calendar year in which this section first takes affect, annually recompute the gross income amounts provided by paragraphs (1), (2) and (3) of this subsection by multiplying each gross income amount by the Social Security benefit cost-of-living adjustment for the calendar year in which the taxable year begins. Notwithstanding the gross income amounts provided in the tables in this subsection, each taxpayer shall use the gross income amounts as computed by the director for the applicable taxable year. The director shall round the recomputed gross income amounts to the next highest multiple of $10.

    c. (1) For a resident taxpayer, the amount of the credit allowed pursuant to subsection a. of this section may be applied against the tax otherwise due under this act. If the credit exceeds the amount of tax otherwise due, that amount of excess shall be an overpayment for the purposes of N.J.S.54A:9-7.

    (2) For a taxpayer who is not a resident, the amount of the credit otherwise allowed pursuant to subsection a. of this section shall be proportionalized to the taxpayer's income from sources within this State by multiplying that amount by a fraction, the numerator of which is the taxpayer's income from sources within this State determined in accordance with the provisions of N.J.S.54A:5-7 and N.J.S.54A:5-8 and the denominator of which is that taxpayer's gross income for the taxable year as if such taxpayer were a resident. The amount of the credit allowed may be applied against the tax otherwise due under this act, but if the credit exceeds the amount of tax otherwise due, that amount of excess shall not be an overpayment.

 

    2. N.J.S.54A:3-3 is amended to read as follows:

    54A:3-3. Medical expenses. (a) Each taxpayer shall be allowed to deduct from the taxpayer's gross income medical expenses for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents with respect to such expenses that were paid during the taxable year and to the extent that such medical expenses exceed 2% of the taxpayer's gross income. In the case of a nonresident, gross income shall mean gross income which such nonresident would have reported if the taxpayer had been subject to tax during the entire taxable year as a resident.

    (b) Special Rule for Decedents.

    (1) Treatment of expenses paid after death. Expenses for the medical care of the taxpayer which are paid out of the taxpayer's estate during the one-year period beginning with the day after the day of the death shall be treated as paid by the taxpayer at the time incurred.

    (2) Limitation. Paragraph (1) shall not apply if the amount paid is not allowable as a deduction in computing medical expense deductions for federal income tax purposes.

    (c) Disallowance of amounts allowed for other purposes. Any expenses allowed as a deduction of expenses for household and dependent care services necessary for gainful employment shall not be allowed as an expense paid for medical care for purposes of this section. Any amounts paid or distributed out of a medical savings account that are excluded from gross income pursuant to section 5 of P.L.1997, c.414 (C.54A:6-27) shall not be allowed as an expense paid for medical care for purposes of this section. Any expenses for prescription drugs used in the calculation of a credit pursuant to section 1 of P.L. , c. (C. ) (now pending before the Legislature as this bill) shall not be allowed as an expense paid for medical care for purposes of this section.

(cf: P.L.1997, c.414, s.2)

 

    3. This act shall take effect immediately and apply to taxable years ending after enactment.

 

 

STATEMENT

 

    This bill provides a refundable New Jersey gross income tax credit for certain taxpayer prescription drug expenses.

    Prescription drug expenditures are one of the fastest growing components of total health care costs. While our national leaders debate whether to extend prescription drug benefits to Medicare recipients and our State has already decided to extend prescription drug benefits to Medicaid recipients, the great majority of the uninsured and underinsured population in between has a difficult time paying for prescription drugs. Fewer employers are offering health benefits to retirees, HMO's are controlling expenses by decreasing prescription drug benefits, and co-pays for the insured are increasing.

    It seems paradoxical that in a health care system that subsidizes extraordinary hospitalization costs for the uninsured through "charity care" funding, assistance in obtaining the prescription drugs that might preclude the need for major medical and hospitalization expenses is relatively unavailable.

    This bill provides a gross income tax credit that will help New Jersey residents and New Jersey taxpayers meet prescription drug expenses. The credit is linked in amount to the prescription drug expenses of the taxpayer and to the income of the taxpayer, so that the calculation of credit takes into consideration the extraordinary needs of the taxpayer and the ability of the taxpayer to pay those expenses. The amount of the credit is equal to a percentage of the amount by which taxpayer expenses for prescription drugs during a year exceeds 2% of the taxpayer's gross income for the year. The percentage of costs allowed as a credit decreases as the income of the taxpayer increases. For married taxpayers filing jointly, as single heads of household or as surviving spouses with incomes for the year of $40,000 or less, the amount of credit is equal to 100% of the amount by which the prescription drug costs exceed 2% of annual income. That percentage of costs decreases as income increases, so that taxpayers with incomes over $40,000 but not more than $60,000 are allowed a credit equal to 75% of those excess costs, taxpayers with incomes over $60,000 are allowed 50% of costs, over $80,000 are allowed 25% of costs and over $100,000 are allowed 5% of costs. Married taxpayers filing separately are allowed credits under cutoffs at half the income levels allowed to married couples filing jointly, and a separate schedule is allowed to single taxpayers.

    The credit provided by this bill may be applied directly against the taxpayer's tax liability to reduce the amount of tax paid. This bill provides a refundable credit for New Jersey resident taxpayers. Any amount of credit for prescription drug costs that exceeds the amount of taxes that a resident taxpayer would otherwise owe is refundable to the taxpayer, to provide direct relief of extraordinary prescription drug expenditures.