Text of RI HB 7679 (2006)

2006 -- H 7679 SUBSTITUTE A AS AMENDED ======= LC01560/SUB A/2 ======= STATE OF RHODE ISLAND IN GENERAL ASSEMBLY JANUARY SESSION, A.D. 2006 ____________ A N A C T RELATING TO PUBLIC OFFICERS AND EMPLOYEES Introduced By: Representative Robert A. Watson Date Introduced: February 16, 2006 Referred To: House Finance It is enacted by the General Assembly as follows: 1-1 SECTION 1. Chapter 36-12 of the General Laws entitled "Insurance Benefits" is hereby 1-2 amended by adding thereto the following section: 1-3 36-12-15. Domestic partner income loan program. – (a) Legislative findings: The 1-4 general assembly hereby finds that: 1-5 (1) The department of administration is responsible for the administration of state health 1-6 care benefits programs for state employees; 1-7 (2) In 2001, the general assembly amended section 36-12-1 to allow for the provisions of 1-8 health care benefits for domestic partners of state employees; 1-9 (3) The state was only recently advised that said amendment resulted in certain 1-10 unanticipated federal tax implications for some state employees; 1-11 (4) Under federal tax law, the fair market value of health insurance coverage for domestic 1-12 partners of state employees is considered to be imputed income to affected state employees unless 1-13 said domestic partner otherwise qualifies under applicable federal laws and regulations as the 1-14 state employee's dependent for health care purposes; 1-15 (5) Because said tax ramifications were unanticipated, the state did not inform the 1-16 affected employees of those ramifications until November 2005; 1-17 (6) Under applicable state and federal tax law taxpayers are responsible for paying the 1-18 amounts of any underpayments of state and federal income taxes; 1-19 (7) Affected employees are required to file their 2005 state and federal income tax returns 2-1 on or before April 15, 2006; and 2-2 (8) In order to pay the additional income tax owed as a result of the imputed income from 2-3 the receipt of health care benefits for their domestic partners, some affected employees may 2-4 require financial assistance. 2-5 (b) There is hereby created a separate account within the department of administration 2-6 which shall be known as the Domestic Partner Income Tax Loan Account (2002-2005), 2-7 hereinafter known as the ("Account"). The account is created in order that the state of Rhode 2-8 Island, through the department of administration, can develop and implement an interest-free loan 2-9 program to loan funds to eligible state employees so that employees can pay the additional federal 2-10 and state income taxes incurred for the tax years 2002, 2003, 2004 and 2005, as a result of 2-11 income imputed to them equal to the fair market value of the health care benefits extended to 2-12 their domestic partners. The state controller is hereby authorized to advance from the general 2-13 fund the necessary funds for disbursement of loan amounts to eligible employees as provided 2-14 herein. 2-15 (c) Such loans shall be repaid by the affected employees through payroll deductions in 2-16 accordance with the requirements of the Domestic Partner Income Tax Loan Account Program, 2-17 hereinafter known as the ("Program"), as follows: 2-18 (1) Only one such loan will be extended to an employee; 2-19 (2) No loans will be granted after August 15, 2006; 2-20 (3) Loans will only be extended to current employees of the state who have signed a 2-21 promissory note and have committed to full repayment through payroll deduction; 2-22 (4) Loans will not be extended to employees who are on any type of leave if the 2-23 employee does not have bi-weekly pay sufficient to cover the necessary payment; 2-24 (5) Loans will only be extended to those employees who owe more than a total of five 2-25 hundred dollars ($500) in state and federal taxes as a result of the extension of state health care 2-26 benefits to an employee's domestic partner for the tax years 2002, 2003, 2004, and 2005; 2-27 (6) The maximum amount of each loan shall be six thousand dollars ($6,000) or the total 2-28 amount of state and federal taxes owing due to the underreporting of taxable imputed income 2-29 from the extension of state health care benefits to domestic partners of state employees during the 2-30 tax years 2002, 2003, 2004, and 2005, whichever is less. Provided, however, the maximum loan 2-31 amount for the 2005 tax year shall be the 2005 imputed income from the benefits times the 2-32 effective tax rate for the filer for 2005, which is calculated as tax liability divided by adjusted 2-33 gross income. Provided further, the 2005 loan amount shall be reduced by the total amount of any 2-34 2005 federal and state estimated tax refunds. 3-1 (7) For payment of federal taxes owing, the state will issue the check payable to the IRS 3-2 and the employee. The employee shall be responsible for submission of the check, along with the 3-3 amended return, to the IRS; 3-4 (8) For payment of state taxes owing, the state will issue the check payable to the Rhode 3-5 Island division of taxation and the employee. The employee shall be responsible for submission 3-6 of the check, along with the amended return, to the division of taxation; 3-7 (9) If after receiving such a loan an employee does not have sufficient funds in his/her bi- 3-8 weekly pay to pay the loan payment, the employee will be responsible for repayment to the 3-9 Program with repayment made on or before the date the deduction would have been made from 3-10 his/her bi-weekly pay. If payment is not promptly remitted, the promissory note will immediately 3-11 become due and payable in full; 3-12 (10) The loan repayment schedule will consist of the following maximum repayment 3-13 periods: 3-14 (i) For loan amounts greater than five hundred dollars ($500), and less than or equal to 3-15 one thousand dollars ($1,000): the maximum repayment period is one year; 3-16 (ii) For loan amounts greater than one thousand dollars, ($1,000), and less than or equal 3-17 to two thousand dollars ($2,000): the maximum repayment period is two (2) years; 3-18 (iii) For loan amounts greater than two thousand dollars ($2,000), and less than or equal 3-19 to three thousand dollars ($3,000): the maximum repayment period is three (3) years; 3-20 (iv) For loan amounts greater than three thousand dollars ($3,000), and less than or equal 3-21 to six thousand dollars ($6,000): the maximum repayment period is four (4) years. 3-22 Notwithstanding the above employees may voluntarily elect a shorter repayment period. 3-23 (11) The minimum loan payment amount will be calculated by dividing the qualifying 3-24 amount set forth in section (6) above by the number of pay periods in the applicable repayment 3-25 period set forth in section (10) above. 3-26 Notwithstanding the above employees may voluntarily elect a higher monthly repayment 3-27 amount. 3-28 (12) If the employee does not remit a payment when due, and the state commences legal 3-29 action through suit or otherwise to collect the same or a portion thereof, the state shall be entitled 3-30 to collect all reasonable costs and expenses of suit, including, but not limited to, reasonable 3-31 attorney's fees; 3-32 (13) If an employee leaves state employment, any outstanding loan amount will become 3-33 due and payable at the date of termination. Any amount owed for the employee's unused 3-34 vacation, sick, and personal time shall be applied toward payoff of the loan. 4-1 (14) (i) Additionally, an employee may elect to discharge accrued vacation time in 4-2 exchange for the state paying a portion or the entire amount owed to the IRS and/or state division 4-3 of taxation. An employee who wishes to exercise this option must inform the state controller in 4-4 writing of the number of accrued vacation hours he/she wishes to discharge. The controller will 4-5 first deduct the required taxes from the value of the vacation hours, and will then authorize 4-6 payment of the remaining funds to the IRS and/or the division of taxation on behalf of the 4-7 employee. This option is available through August 15, 2006, and is available only once to an 4-8 employee. In the event that an employee discharges such accrued vacation time, the value of such 4-9 vacation time shall be deducted from the maximum loan amount in paragraph (6) above. 4-10 (ii) In addition, in December 2006 and thereafter each December until the year 2009, and 4-11 in order to reduce the outstanding amount of the loan that is owed to the state, an employee with 4-12 an outstanding domestic partner loan amount may elect to discharge vacation time accrued by the 4-13 employee during that calendar year. An employee who wishes to exercise this option must notify 4-14 the state controller in writing by December 1 of the number of accrued vacation hours he/she 4-15 wishes to discharge for loan repayment that year. Upon approval the controller will first deduct 4-16 the required taxes from the value of the vacation hours accrued, and will then deduct the 4-17 remaining amount from the outstanding amount of the loan. Provided, however, this option is 4-18 available only to those employees who had discharged the full amount of their accrued vacation 4-19 before the inception of their loan. 4-20 (d) All amounts repaid under the terms of the program shall be promptly remitted to the 4-21 Domestic Partner Income Tax Loan Account in the general fund. 4-22 (e) Beginning in January 2007, and in each January thereafter until the loans are repaid 4-23 in full, the department of administration shall submit a report to the chairpersons of the house and 4-24 senate finance committees which shall describe, as of December 31 of the previous year, the 4-25 number of state employees that continued to participate in the program, the number and dollar 4-26 amount of loans outstanding, and the total receipts from payroll deductions that have been 4-27 transferred to the general fund during the prior twelve (12) month period. 4-28 (f) For purposes of the Program, the term "employee(s)" shall include employee(s) of 4-29 other state agencies for which the department of administration purchased health care coverage 4-30 during the period 2002-2005. 4-31 SECTION 2. Section 44-1-7 of the General Laws in Chapter 44-1 entitled "State Tax 4-32 Officials" is hereby amended to read as follows: 4-33 44-1-7. Interest on delinquent payments. -- (a) Whenever the full amount of any state 4-34 tax or any portion or deficiency, as finally determined by the tax administrator, has not been paid 5-1 on the date when it is due and payable, whether the time has been extended or not, there shall be 5-2 added as part of the tax or portion or deficiency interest at the rate as determined in accordance 5-3 with subsection (b) of this section, notwithstanding any general or specific statute to the contrary; 5-4 provided, however, no interest or penalties shall be added to any deficiency resulting from 5-5 imputed income from domestic partner healthcare benefits for tax years 2002 through 2004 5-6 provided the taxpayer files amended returns by August 15, 2006. 5-7 (b) Each January 1 the tax administrator shall compute the rate of interest to be in effect 5-8 for that calendar year by adding two percent (2%) to the prime rate, which was in effect on 5-9 October 1 of the preceding year. The resultant sum is the interest rate referred to in subsection (a) 5-10 of this section and in section 44-1-7.1. 5-11 (c) "Prime rate" as used in subsection (b) of this section means the predominant prime 5-12 rate quoted by commercial banks to large businesses as determined by the board of governors of 5-13 the Federal Reserve System. In no event shall the rate of interest exceed twenty-one percent 5-14 (21%) per annum nor be less than twelve percent (12%) per annum. 5-15 SECTION 3. This act shall take effect upon passage and shall be repealed on August 15, 5-16 2010. ======= LC01560/SUB A/2 ======== EXPLANATION BY THE LEGISLATIVE COUNCIL OF A N A C T RELATING TO PUBLIC OFFICERS AND EMPLOYEES *** 6-1 This act would implement a loan program for those state employees affected by the 6-2 additional income tax liability due to the extension of health insurance coverage to a non- 6-3 dependent domestic partner. 6-4 This act would take effect on passage and would be repealed on August 15, 2010. ======= LC01560/SUB A/ ======= H7679A