Utah Legislation to Correct Marriage Penalties

H.B. 173

STATE INCOME TAX - ELIMINATION OF MARRIAGE TAX PENALTIES
1999 GENERAL SESSION

STATE OF UTAH

Sponsor: Wayne A. Harper

AN ACT RELATING TO THE INDIVIDUAL INCOME TAX ACT;
MODIFYING THE ADJUSTED GROSS INCOME AMOUNTS AT WHICH THE
RETIREMENT INCOME DEDUCTION AND THE PERSONAL RETIREMENT EXEMPTION ARE REDUCED; CLARIFYING THE AMOUNTS THAT MAY BE DEDUCTED UNDER
THE RETIREMENT INCOME DEDUCTION; MAKING TECHNICAL CHANGES; AND
PROVIDING AN EFFECTIVE DATE.

This act affects sections of Utah Code Annotated 1953 as follows:

AMENDS:
59-10-114, as last amended by Chapter 56, Laws of Utah 1997
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 59-10-114 is amended to read:
59-10-114. Additions to and subtractions from
federal taxable income of an individual.

(1) There shall be added to federal taxable
income of a resident or nonresident individual:

(a) the amount of any income tax imposed by
this or any predecessor Utah individual
income tax law and the amount of any income tax
imposed by the laws of another state, the District
of Columbia, or a possession of the United States,
to the extent deducted from federal adjusted
gross income, as defined by Section 62, Internal
Revenue Code, in determining federal taxable income;

(b) a lump sum distribution allowable as a
deduction under Section 402(e)(3), Internal
Revenue Code, to the extent deductible under
Section 62(a)(8), Internal Revenue Code, in
determining federal adjusted gross income;

(c) 25% of the personal exemptions, as defined
and calculated in the Internal Revenue Code;

(d) a withdrawal from a medical care savings
account and any penalty imposed in the taxable year if:

(i) the taxpayer did not deduct or include the
amounts on his federal tax return pursuant
to Section 220, Internal Revenue Code; and

(ii) the withdrawal is subject to Subsections
31A-32-105 (1) and (2); and

(e) the amount refunded to a participant under
Title 53B, Chapter 8a, Higher Education
Savings Incentive Program, in the year in which the
amount is refunded.

(2) There shall be subtracted from federal
taxable income of a resident or nonresident individual:

(a) the interest or dividends on obligations or
securities of the United States and its
possessions or of any authority, commission, or
instrumentality of the United States, to the extent
includable in gross income for federal income tax
purposes but exempt from state income taxes
under the laws of the United States, but the amount
subtracted under this subsection shall be
reduced by any interest on indebtedness incurred or
continued to purchase or carry the obligations
or securities described in this subsection, and by
any expenses incurred in the production of
interest or dividend income described in this
subsection to the extent that such expenses, including
amortizable bond premiums, are deductible in
determining federal taxable income;

(b) 1/2 of the net amount of any income tax
paid or payable to the United States after all
allowable credits, as reported on the United States
individual income tax return of the taxpayer for
the same taxable year;

(c) the amount of adoption expenses which, for
purposes of this subsection, means any
actual medical and hospital expenses of the mother
of the adopted child which are incident to the
child's birth and any welfare agency, child
placement service, legal, and other fees or costs relating
to the adoption;

(d) subject to the provisions of Subsection
(3), for a taxpayer who is under 65 on the last
day of the taxpayer's taxable year, or for the
taxpayer's surviving spouse who is under 65 on the
last day of the surviving spouse's taxable year,
amounts received [by taxpayers under age 65] as
retirement income [which, for purposes of this
section, means pensions and annuities, paid from
an annuity contract purchased by an employer under
a plan which meets the requirements of
Section 404 (a)(2), Internal Revenue Code, or
purchased by an employee under a plan which meets
the requirements of Section 408, Internal Revenue
Code, or paid by the United States, a state, or
political subdivision thereof, or the District of
Columbia, to the employee involved or the
surviving spouse] as defined in Subsection (3);

(e) subject to the provisions of Subsection
(3), for each taxpayer who is age 65 or over on
or before the [close] last day of the taxpayer's
taxable year, a $7,500 personal retirement
exemption;

(f) 75% of the amount of the personal
exemption, as defined and calculated in the Internal
Revenue Code, for each dependent child with a
disability and adult with a disability who is
claimed as a dependent on a taxpayer's return;

(g) any amount included in federal taxable
income that was received pursuant to any
federal law enacted in 1988 to provide reparation
payments, as damages for human suffering, to
United States citizens and resident aliens of
Japanese ancestry who were interned during World
War II;

(h) subject to the limitations of Subsection
(3)(e), 60% of the amounts paid by the taxpayer
during the taxable year for health care insurance,
as defined in Title 31A, Chapter 1, Insurance
Code, for the taxpayer, the taxpayer's spouse, and
the taxpayer's dependents to the extent the
amounts paid for health insurance were not
deductible under Sections 125, 162, or 213, Internal
Revenue Code, in determining federal taxable
income;

(i) except as otherwise provided in this
subsection, the amount of a contribution made in
the tax year on behalf of the taxpayer to a medical
care savings account and interest earned on a
contribution to a medical care savings account
established pursuant to Title 31A, Chapter 32,
Medical Care Savings Account Act, to the extent the
contribution is accepted by the account
administrator as provided in the Medical Care
Savings Account Act, and if the taxpayer did not
deduct or include amounts on his federal tax return
pursuant to Section 220, Internal Revenue
Code. A contribution deductible under this
subsection may not exceed either of the following:

(i) the maximum contribution allowed under the
Medical Care Savings Account Act for
the tax year multiplied by two for taxpayers who
file a joint return, if neither spouse is covered by
health care insurance as defined in Section
31A-1-301 or self-funded plan that covers the other
spouse, and each spouse has a medical care savings account; or

(ii) the maximum contribution allowed under the
Medical Care Savings Account Act for
the tax year for taxpayers:

(A) who do not file a joint return; or

(B) who file a joint return, but do not qualify
under Subsection (2)(i)(i); and

(j) the amount included in federal taxable
income that was derived from money paid by
the taxpayer to the program fund and investment
income earned on those payments under Title
53B, Chapter 8a, Higher Education Savings Incentive Program.

(3) (a) For purposes of Subsection (2)(d) and this Subsection (3)(a),

(i) "Governmental entity" means:

(A) the United States;

(B) a state;

(C) a political subdivision of a state; or

(D) the District of Columbia.

(ii) "Retirement income" means amounts paid to
a taxpayer or the taxpayer's surviving
spouse:

(A) from an annuity contract purchased by an
employer under a plan that meets the
requirements of Section 404(a)(2), Internal
Revenue Code;

(B) from a pension plan, an annuity plan, or both:

(I) purchased by an employee; and

(II) paid from an individual retirement
account that meets the requirements of Section 408,
Internal Revenue Code;

(C) from a pension plan, an annuity plan, or
both, established and maintained by a
governmental entity for employees of the
governmental entity; or

(D) under a combination of the contracts or
plans described in Subsections (3)(a)(ii)(A)
through (C).

(b) Subject to the limitations provided in
Subsection (3)(c), for purposes of Subsection

(2)(d), the amount of retirement income subtracted
for [taxpayers] a taxpayer who is under age 65
on the last day of the taxpayer's taxable year or
for the taxpayer's surviving spouse who is under
age 65 on the last day of the surviving spouse's
taxable year shall be the lesser of:

(i) the amount of retirement income included [
in federal taxable income,] as income on
the taxpayer's or the taxpayer's surviving
spouse's federal individual income tax return for the
taxable year; or

(ii) $4,800[, except that:].

(c) (i) For married taxpayers filing joint
returns, for each $1 of adjusted gross income
earned over [$32,000] $40,000, the amount of the
retirement income exemption that may be
subtracted shall be reduced by 50 cents[;].

(ii) For married taxpayers filing separate
returns, for each $1 of adjusted gross income
earned over [$16,000] $20,000, the amount of the
retirement income exemption that may be
subtracted shall be reduced by 50 cents[; and].

(iii) For individual taxpayers, for each $1 of
adjusted gross income earned over [$25,000]
$20,000, the amount of the retirement income
exemption that may be subtracted shall be reduced
by 50 cents.

[(b)] (d) For purposes of Subsection (2)(e),
the amount of the personal retirement
exemption shall be [further] reduced according to
the following schedule:

(i) for married taxpayers filing joint
returns, for each $1 of adjusted gross income earned
over [$32,000] $40,000, the amount of the personal
retirement exemption shall be reduced by 50 cents;

(ii) for married taxpayers filing separate
returns, for each $1 of adjusted gross income
earned over [$16,000] $20,000, the amount of the
personal retirement exemption shall be reduced
by 50 cents; and

(iii) for individual taxpayers, for each $1 of
adjusted gross income earned over [$25,000]
$20,000, the amount of the personal retirement
exemption shall be reduced by 50 cents.

[(c)] (e) For purposes of Subsections (3)[(a)]
(c) and [(b)] (d), adjusted gross income shall
be calculated by adding to federal adjusted gross
income any interest income not otherwise
included in federal adjusted gross income.

[(d)] (f) For purposes of determining
ownership of items of retirement income common
law doctrine will be applied in all cases even
though some items may have originated from service
or investments in a community property state.
Amounts received by the spouse of a living retiree
because of the retiree's having been employed in a
community property state are not deductible as
retirement income of such spouse.

[(e)] (g) For purposes of Subsection (2)(h), a
subtraction for an amount paid for health care
insurance as defined in Title 31A, Chapter 1,
Insurance Code, is not allowed:

(i) for an amount that is reimbursed or funded
in whole or in part by the federalinstrumentality
of the federal government or the state; and

(ii) for a taxpayer who is eligible to
participate in a health plan maintained and funded in
whole or in part by the taxpayer's employer or the
taxpayer's spouse's employer.

Section 2. Effective date.
This act takes effect on January 1, 2000.

Legislative Review Note
as of 11-19-98 12:15 PM
A limited legal review of this legislation raises no obvious
constitutional or statutory concerns.

Office of Legislative Research and General Counsel
Committee Note
The Revenue and Taxation Interim Committee recommended this bill.

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