Refundable credit for small businesses providing health insurance coverage for employees

(a)

In general

Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable credits) is amended by redesignating section 36 as section 37 and by inserting after section 35 the following new section:

36.

Small business health insurance expenses

(a)

In general

There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the amounts paid during the taxable year by the taxpayer for qualified health insurance for employees of the taxpayer and spouses and dependents of such employees. (b)

Applicable percentage

The applicable percentage shall be determined in accordance with the following table: Total number of employees of taxpayer: The applicable percentage is:25 or fewer60 percent 26 to 10040 percent 101 or more0 percent.

(c)

Limitations

The credit allowed under this section shall be zero for any taxable year if— (1)less than 65 percent of the cost of the coverage (without regard to this section) for such year is borne by the employer, (2)the plan provides qualified health insurance to less than 75 percent of the employees of the employer for such year, (3)the percentage of the cost of the coverage (without regard to this section) for such year which is borne by the employer is less than the percentage of the cost of such coverage for any prior year which was borne by such employer, or (4)the health benefits provided under the plan for such year are less than the health benefits provided under the plan for any prior year. (d)

Self-employed individuals

For purposes of this section, a self-employed individual (within the meaning of section 401(c)) shall be treated as an employee. (e)

Qualified health insurance

For purposes of this section, the term qualified health insurance means insurance which constitutes medical care (as defined in section 213(d)); except that such term shall not include any insurance if substantially all of its coverage is of excepted benefits described in section 9832(c). (f)

Aggregation rule

For purposes of this section, all persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (n) or (o) of section 414 shall be treated as one person.

(b)

Denial of double benefit

Section 280C of such Code is amended by adding at the end the following new subsection:

(e)

Credit for small business health insurance expenses

(1)

In general

No deduction shall be allowed for that portion of the expenses (otherwise allowable as a deduction) taken into account in determining the credit under section 36 for the taxable year which is equal to the amount of the credit determined for such taxable year under section 36(a). (2)

Controlled groups

Persons treated as one person under section 36(f) shall be treated as one person for purposes of this section.

(c)

Conforming amendments

(1)Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting or 36 after section 35. (2)The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 36 and inserting the following new items:

Sec. 36. Small business cost of providing health insurance coverage for employees

Sec. 37. Overpayment of taxes

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.