FISCAL NOTE
Date Requested: February 12, 2025
Time Requested: 09:47 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1161 |
Introduced |
SB183 |
|
|---|
| CBD Subject: |
Health |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to deduct payment of medical expenses from state tax payment.
According to our interpretation, the legislation, if passed, would create a modification decreasing federal adjusted gross income for certain medical payments made by an individual. The bill lists the following eligible medical payments: medical premiums, payment of medicine, visits to medical providers, mileage to and from medical providers, and copay payments for medical insurance. There are no definitions of the eligible medical payments which could lead to differing interpretations. There could also be some confusion as the list of eligible medical payments does not include all the medical expenses allowed by the federal government on Schedule A.
According to National Health Expenditure data from the Centers for Medicare & Medicaid Services (CMS), in 2023, out of pocket costs for medical expenditures in the United States averaged 10.6 percent of National Health Expenditures or 12.6 percent of National Personal Health Care Expenditures. It should be noted that certain employee payments for medical insurance and flexible medical spending and health savings accounts are already excluded from income tax under current law.
According to the Bureau of Economic Analysis (BEA), in 2023, per capita personal consumptions expenditures for healthcare averaged $12,070 for the United State and $14,048 for West Virginia. The same data set indicated that in West Virginia expenditures for eligible medical payments as outlined in the legislation would be roughly $6,700 per capita. As West Virginia has a higher proportion of participants in Medicaid and other health care assistance programs, it is likely that the out of pocket percentage would be significantly lower than the national average. Though it is not possible to determine the impact of all pertinent variables, available information indicates that the cost of this legislation could be in excess of $60 million per fiscal year. No effective date is given; therefore, the legislation would be effective for tax years beginning on and after January 1, 2026.
Compliance costs for taxpayers and tax administrators will be high given the nature of medical finance accounting and the amount of documentation which will be necessary to support the modification claims. Additional administrative costs incurred by the State Tax Department will be $129,800 in FY2026 and $99,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
129,800 |
99,000 |
| Personal Services |
0 |
99,000 |
99,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
3,300 |
0 |
| Other |
0 |
27,500 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the legislation, if passed, would create a modification decreasing federal adjusted gross income for certain medical payments made by an individual. The bill lists the following eligible medical payments: medical premiums, payment of medicine, visits to medical providers, mileage to and from medical providers, and copay payments for medical insurance. There are no definitions of the eligible medical payments which could lead to differing interpretations. There could also be some confusion as the list of eligible medical payments does not include all the medical expenses allowed by the federal government on Schedule A.
According to National Health Expenditure data from the Centers for Medicare & Medicaid Services (CMS), in 2023, out of pocket costs for medical expenditures in the United States averaged 10.6 percent of National Health Expenditures or 12.6 percent of National Personal Health Care Expenditures. It should be noted that certain employee payments for medical insurance and flexible medical spending and health savings accounts are already excluded from income tax under current law.
According to the Bureau of Economic Analysis (BEA), in 2023, per capita personal consumptions expenditures for healthcare averaged $12,070 for the United State and $14,048 for West Virginia. The same data set indicated that in West Virginia expenditures for eligible medical payments as outlined in the legislation would be roughly $6,700 per capita. As West Virginia has a higher proportion of participants in Medicaid and other health care assistance programs, it is likely that the out of pocket percentage would be significantly lower than the national average. Though it is not possible to determine the impact of all pertinent variables, available information indicates that the cost of this legislation could be in excess of $60 million per fiscal year. No effective date is given; therefore, the legislation would be effective for tax years beginning on and after January 1, 2026.
Compliance costs for taxpayers and tax administrators will be high given the nature of medical finance accounting and the amount of documentation which will be necessary to support the modification claims. Additional administrative costs incurred by the State Tax Department will be $129,800 in FY2026 and $99,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to deduct payment of medical expenses from state tax payment.
The bill would benefit from greater clarity.
The bill uses the terms “deduction” and “exemption” interchangeably. It establishes either a deduction or exemption for, “All payments by an individual of medical premiums, payment of medicine, visits to medical providers, mileage to and from medical providers, and copay payments for medical insurance.” Rather than a “deduction” or “exemption,” the proper nomenclature would be a “reducing modification” to federal adjusted gross income.
The Tax Commissioner has rulemaking authority, which will be needed since the bill lacks any definition for key terms such as “medical provider,” “medical premiums,” and “medicine.” The bill does not include an effective date, which may result in amended returns for past years. Documentation for claiming the reducing modification could be massive.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov