[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 275 Introduced in House (IH)]







106th CONGRESS
  1st Session
                                H. R. 275

To amend the Internal Revenue Code of 1986 to provide for an exception 
    from penalty tax and exclusion from income for certain amounts 
 withdrawn from certain retirement plans for qualified long-term care 
  insurance and a credit for taxpayers with certain persons requiring 
                  custodial care in their households.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 6, 1999

  Mr. Smith of New Jersey (for himself and Mr. Shays) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide for an exception 
    from penalty tax and exclusion from income for certain amounts 
 withdrawn from certain retirement plans for qualified long-term care 
  insurance and a credit for taxpayers with certain persons requiring 
                  custodial care in their households.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE AND AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Long-Term Care 
Advancement Act of 1999''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. EXCEPTION FROM PENALTY TAX AND EXCLUSION FROM INCOME FOR 
              AMOUNTS WITHDRAWN FROM CERTAIN RETIREMENT PLANS FOR 
              QUALIFIED LONG-TERM CARE INSURANCE.

    (a) Exception From Penalty Tax.--Paragraph (2) of section 72(t) 
(relating to 10-percent additional tax on early distributions from 
qualified retirement plans) is amended by adding at the end the 
following new subparagraph:
                    ``(G) Premiums for qualified long-term care 
                insurance contracts.--
                            ``(i) In general.--Distributions to an 
                        individual from an individual retirement plan, 
                        or from amounts attributable to employer 
                        contributions made pursuant to elective 
                        deferrals described in subparagraph (A) or (C) 
                        of section 402(g)(3), to the extent such 
                        distributions do not exceed the premiums for a 
                        qualified long-term care insurance contract for 
                        such individual or the spouse of such 
                        individual. In applying subparagraph (B), such 
                        premiums shall be treated as amounts not paid 
                        for medical care.
                            ``(ii) No double benefit.--No deduction 
                        shall be allowed under section 213 for any 
                        amount described in this subparagraph unless 
                        the taxpayer elects to have this subparagraph 
                        not apply to such amount.
                            ``(iii) Qualified long-term care insurance 
                        contract.--For purposes of this subparagraph, 
                        the term `qualified long-term care insurance 
                        contract' has the meaning given such term by 
                        section 7702B(b), except that such term 
                        includes only such contracts which are licensed 
                        for sale in the State in which the policy was 
                        purchased.''
    (b) Exclusion From Income for Amounts Withdrawn From Certain Plans 
To Pay Long-Term Care Premiums.--Part III of subchapter B of chapter 1 
(relating to items specifically excluded from gross income) is amended 
by redesignating section 139 as section 140 and by inserting after 
section 138 the following new section:

``SEC. 139. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS AND SECTION 
              401(K) PLANS FOR LONG-TERM CARE INSURANCE.

    ``(a) General Rule.--The amount which would (but for this section) 
be includible in the gross income of an individual for the taxable year 
by reason of distributions from any individual retirement plan (within 
the meaning of section 7701(a)(37)) or qualified cash or deferred 
arrangement (within the meaning of section 401(k)) shall be reduced 
(but not below zero) by the eligible long-term care premiums (as 
defined in section 213(d)(10)) paid by such individual during such 
taxable year for any qualified long-term care insurance contract 
covering such individual or the spouse of such individual.
    ``(b) Special Rules for Section 401(k) Plans.--
            ``(1) Withdrawals cannot exceed elective contributions 
        under qualified cash or deferred arrangement.--This section 
        shall not apply to any distribution from a qualified cash or 
        deferred arrangement (within the meaning of section 401(k)) to 
        the extent the aggregate amount of such distributions for the 
        use described in subsection (a) exceeds the aggregate employer 
        contributions made pursuant to the employee's election under 
section 401(k)(2).
            ``(2) Withdrawals not to cause disqualification.--A plan 
        shall not be treated as failing to satisfy the requirements of 
        section 401, and an arrangement shall not be treated as failing 
        to be a qualified cash or deferred arrangement (within the 
        meaning of section 401(k)), merely because under the plan or 
        arrangement distributions are permitted which are excludable 
        from gross income by reason of this section.
    ``(c) Qualified Long-Term Care Insurance Contract.--For purposes of 
this section, the term `qualified long-term care insurance contract' 
has the meaning given such term by section 7702B(b), except that such 
term includes only such contracts which are licensed for sale in the 
State in which the taxpayer purchased the policy.''
    (c) Distributions Permitted From Certain Plans To Pay Long-Term 
Care Premiums.--
            (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
        at the end of subclause (III), by striking ``and'' at the end 
        of subclause (IV) and inserting ``or'', and by inserting after 
subclause (IV) the following new subclause:
                                    ``(V) the date distributions for 
                                premiums for a long-term care insurance 
                                contract (as defined in section 139(c)) 
                                for coverage of such individual or the 
                                spouse of such individual are made, 
                                and''.
            (2) Section 403(b)(11) is amended by striking ``or'' at the 
        end of subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) for the payment of premiums for a long-term 
                care insurance contract (as defined in section 139(c)) 
                for coverage of the employee or the spouse of the 
                employee.''
            (3) Subparagraph (A) of section 457(d)(1) is amended by 
        striking ``or'' at the end of clause (ii), by striking ``and'' 
        at the end of clause (iii) and inserting ``or'', and by 
        inserting after clause (iii) the following new clause:
                            ``(iv) the date distributions for premiums 
                        for a long-term care insurance contract (as 
                        defined in section 139(c)) for coverage of such 
                        individual or the spouse of such individual are 
                        made, and''.
    (d) Conforming Amendments.--
            (1) Section 72(t)(2)(B) is amended by striking 
        ``subparagraph (A), (C), or (D)'' and inserting ``subparagraph 
        (A), (C), (D), or (G)''.
            (2) Section 401(k) is amended by adding at the end the 
        following new paragraph:
            ``(13) Cross reference.--

                                ``For provision permitting tax-free 
withdrawals for payment of long-term care premiums, see section 139.''

            (3) Section 408(d) is amended by adding at the end the 
        following new paragraph:
            ``(8) Cross reference.--

                                ``For provision permitting tax-free 
withdrawals from individual retirement plans for payment of long-term 
care premiums, see section 139.''

            (4) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the last item and inserting 
        the following new items:

                              ``Sec. 139. Distributions from individual 
                                        retirement plans and section 
                                        401(k) plans for long-term care 
                                        insurance.
                              ``Sec. 140. Cross references to other 
                                        Acts.''

    (e) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after December 31, 1998.

SEC. 3. REFUNDABLE CREDIT FOR TAXPAYERS WITH CERTAIN PERSONS REQUIRING 
              CUSTODIAL CARE IN THEIR HOUSEHOLDS.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
(relating to refundable credits) is amended by redesignating section 35 
as section 36 and by inserting after section 34 the following new 
section:

``SEC. 35. CREDIT FOR TAXPAYERS WITH CERTAIN PERSONS REQUIRING 
              CUSTODIAL CARE IN THEIR HOUSEHOLDS.

    ``(a) Allowance of Credit.--In the case of an individual who 
maintains a household which includes as a member one or more qualified 
persons, there shall be allowed as a credit against the tax imposed by 
this chapter for the taxable year an amount equal to $500 for each such 
person.
    ``(b) Limitation Based on Adjusted Gross Income.--
            ``(1) In general.--The amount of the credit allowable under 
        subsection (a) shall be reduced (but not below zero) by $50 for 
        each $1,000 (or fraction thereof) by which the taxpayer's 
        modified adjusted gross income exceeds the threshold amount. 
        For purposes of the preceding sentence, the term `modified 
        adjusted gross income' means adjusted gross income increased by 
        any amount excluded from gross income under section 911, 931, 
        or 933.
            ``(2) Threshold amount.--For purposes of paragraph (1), the 
        term `threshold amount' means--
                    ``(A) $110,000 in the case of a joint return,
                    ``(B) $75,000 in the case of an individual who is 
                not married, and
                    ``(C) $55,000 in the case of a married individual 
                filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703.
    ``(c) Qualified Person.--For purposes of this section, the term 
`qualified person' means any individual--
            ``(1) who is a father or mother of the taxpayer, his 
        spouse, or his former spouse or who is an ancestor of such a 
        father or mother,
            ``(2) who is a chronically ill individual (as defined in 
        section 7702B(c)(2)),
            ``(3) who has as his principal place of abode for more than 
        half of the taxable year the home of the taxpayer, and
            ``(4) whose name and TIN are included on the taxpayer's 
        return for the taxable year.
For purposes of paragraph (1), a stepfather or stepmother shall be 
treated as a father or mother.
    ``(d) Special Rules.--For purposes of this section, rules similar 
to the rules of paragraphs (1), (2), (3), and (4) of section 21(e) 
shall apply.
    ``(e) Phase-in.--In the case of a taxable year beginning in a 
calendar year before 2003, subsection (a) shall be applied by 
substituting the applicable amount determined under the following table 
for the $500 amount appearing in subsection (a):

``If the calendar year is:
                                              The applicable amount is:
  1999...............................................       $250       
  2000...............................................       $350       
  2001...............................................       $400       
  2002...............................................       $450.      

    ``(f) Inflation Adjustment.--In the case of any taxable year 
beginning in a calendar year after 2003, the $500 amount contained in 
subsection (a) shall be increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment under section 1(f)(3) 
        for the calendar year in which the taxable year begins, 
        determined by substituting `calendar year 2002' for `calendar 
        year 1992' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a 
multiple of $50, such amount shall be rounded to the nearest multiple 
of $50.''
    (b) Clerical Amendment.--The table of sections for subpart C of 
part IV of subchapter A of chapter 1 is amended by striking the last 
item and inserting the following:

                              ``Sec. 35. Credit for taxpayers with 
                                        certain persons requiring 
                                        custodial care in their 
                                        households.
                              ``Sec. 36. Overpayments of tax.''

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.
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