Refundable credit for health insurance coverage

(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.

Health insurance costs

(a)

In general

In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the amount paid during the taxable year for qualified health insurance for the taxpayer, his spouse, and dependents. (b)

Limitations

(1)

In general

The amount allowed as a credit under subsection (a) to the taxpayer for the taxable year shall not exceed the sum of the monthly limitations for coverage months during such taxable year for each individual referred to in subsection (a) for whom the taxpayer paid during the taxable year any amount for coverage under qualified health insurance. (2)

Phaseout of amount

(A)

Reduction based on adjusted gross income

The amount determined under paragraph (1) for any taxable year shall be reduced (but not below zero) by the amount determined under subparagraph (B). (B)

Amount of reduction

The amount determined under this subparagraph with respect to any amount determined under paragraph (1) shall be the amount which bears the same ratio to such amount determined under paragraph (1) as— (i)the excess of— (I)the taxpayer’s adjusted gross income for such taxable year, over (II)the applicable dollar amount, bears to (ii)$10,000.

The rules of subparagraphs (B) and (C) of section 219(g)(2) shall apply to any reduction under this subparagraph.

(C)

Definitions

For purposes of this paragraph— (i)adjusted gross income shall be determined in the same manner as under section 408A(c)(3)(C)(i), and (ii)the applicable dollar amount is— (I)in the case of a taxpayer filing a joint return, $105,000, (II)in the case of any other taxpayer (other than a married individual filing a separate return), $65,000, and (III)in the case of a married individual filing a separate return, zero. (3)

Monthly limitation

(A)

In general

The monthly limitation for an individual for each coverage month of such individual during the taxable year is the amount equal to 1/12th of— (i)the base amount, plus (ii)50 percent of the amount paid in excess of the base amount. (B)

Base amount

For purposes of this paragraph, the base amount is— (i)$1,000 if such individual is the taxpayer, (ii)$1,000 if— (I)such individual is the spouse of the taxpayer, (II)the taxpayer and such spouse are married as of the first day of such month, and (III)the taxpayer files a joint return for the taxable year, and (iii)$500 if such individual is an individual for whom a deduction under section 151(c) is allowable to the taxpayer for such taxable year. (C)

Limitation to 2 dependents

Not more than 2 individuals may be taken into account by the taxpayer under subparagraph (B)(iii). (D)

Special rule for married individuals

In the case of an individual— (i)who is married (within the meaning of section 7703) as of the close of the taxable year but does not file a joint return for such year, and (ii)who does not live apart from such individual’s spouse at all times during the taxable year,

the limitation imposed by subparagraph (C) shall be divided equally between the individual and the individual’s spouse unless they agree on a different division.

(4)

Coverage month

For purposes of this subsection— (A)

In general

The term coverage month means, with respect to an individual, any month if— (i)as of the first day of such month such individual is covered by qualified health insurance, and (ii)the premium for coverage under such insurance for such month is paid by the taxpayer. (B)

Employer-subsidized coverage

(i)

In general

Such term shall not include any month for which such individual participates in any subsidized health plan (within the meaning of section 162(l)(2)) maintained by any employer of the taxpayer or of the spouse of the taxpayer. (ii)

Premiums to nonsubsidized plans

If an employer of the taxpayer or the spouse of the taxpayer maintains a health plan which is not a subsidized health plan (as so defined) and which constitutes qualified health insurance, employee contributions to the plan shall be treated as amounts paid for qualified health insurance. (C)

Cafeteria plan and flexible spending account beneficiaries

Such term shall not include any month during a taxable year if any amount is not includible in the gross income of the taxpayer for such year under section 106 with respect to— (i)a benefit chosen under a cafeteria plan (as defined in section 125(d)), or (ii)a benefit provided under a flexible spending or similar arrangement. (D)

Medicare and medicaid

Such term shall not include any month with respect to an individual if, as of the first day of such month, such individual— (i)is entitled to any benefits under title XVIII of the Social Security Act, or (ii)is a participant in the program under title XIX or XXI of such Act. (E)

Certain other coverage

Such term shall not include any month during a taxable year with respect to an individual if, at any time during such year, any benefit is provided to such individual under— (i)chapter 89 of title 5, United States Code, (ii)chapter 55 of title 10, United States Code, (iii)chapter 17 of title 38, United States Code, or (iv)any medical care program under the Indian Health Care Improvement Act. (F)

Prisoners

Such term shall not include any month with respect to an individual if, as of the first day of such month, such individual is imprisoned under Federal, State, or local authority. (G)

Insufficient presence in United States

Such term shall not include any month during a taxable year with respect to an individual if such individual is present in the United States on fewer than 183 days during such year (determined in accordance with section 7701(b)(7)). (5)

Coordination with deduction for health insurance costs of self-employed individuals

In the case of a taxpayer who is eligible to deduct any amount under section 162(l) for the taxable year, this section shall apply only if the taxpayer elects not to claim any amount as a deduction under such section for such year. (c)

Reduced credit for participants in health plans of employers

In the case of any individual who participates in a subsidized health plan (within the meaning of section 162(l)(2)) maintained by any employer of the taxpayer or of the spouse of the taxpayer (not including a cafeteria plan (as defined in section 125(d)), there shall be allowed to the taxpayer one-quarter of the credit that would be allowed to the taxpayer under subsection (a) (determined without regard to the participation in the health plan) if the monthly limitation were determined without the addition of the amount described in subsection (b)(3)(A)(ii). (d)

Qualified health insurance

For purposes of this section— (1)

In general

The term qualified health insurance means insurance which constitutes medical care as defined in section 213(d) without regard to— (A)paragraph (1)(C) thereof, and (B)so much of paragraph (1)(D) thereof as relates to qualified long-term care insurance contracts. (2)

Exclusion of certain other contracts

Such term shall not include insurance if a substantial portion of its benefits are excepted benefits (as defined in section 9832(c)). (e)

Medical and health savings account contributions

(1)

In general

If a deduction would (but for paragraph (2)) be allowed under section 220 or 223 to the taxpayer for a payment for the taxable year to the medical or health savings account of an individual, subsection (a) shall be applied by treating such payment as a payment for qualified health insurance for such individual. (2)

Denial of double benefit

No deduction shall be allowed under section 220 or 223 for that portion of the payments otherwise allowable as a deduction under section 220 or 223 (as the case may be) for the taxable year which is equal to the amount of credit allowed for such taxable year by reason of this subsection. (f)

Special rules

(1)

Coordination with medical expense deduction

The amount which would (but for this paragraph) be taken into account by the taxpayer under section 213 for the taxable year shall be reduced by the credit (if any) allowed by this section to the taxpayer for such year. (2)

Denial of credit to dependents

No credit shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins. (3)

Denial of double benefit

No credit shall be allowed under subsection (a) if the credit under section 35 is allowed and no credit shall be allowed under 35 if a credit is allowed under this section. (4)

Election not to claim credit

This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year. (5)

Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2005, each dollar amount contained in subsection (b)(3)(B) shall be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2004 for calendar year 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50 ($25 in the case of the dollar amount in subsection (b)(3)(B)(iii)).

(b)

Information reporting

(1)

In general

Subpart B of part III of subchapter A of chapter 61 of such Code (relating to information concerning transactions with other persons) is amended by inserting after section 6050T the following new section:

6050U.

Returns relating to payments for qualified health insurance

(a)

In general

Any person who, in connection with a trade or business conducted by such person, receives payments during any calendar year from any individual for coverage of such individual or any other individual under creditable health insurance, shall make the return described in subsection (b) (at such time as the Secretary may by regulations prescribe) with respect to each individual from whom such payments were received. (b)

Form and manner of returns

A return is described in this subsection if such return— (1)is in such form as the Secretary may prescribe, and (2)contains— (A)the name, address, and TIN of the individual from whom payments described in subsection (a) were received, (B)the name, address, and TIN of each individual who was provided by such person with coverage under creditable health insurance by reason of such payments and the period of such coverage, and (C)such other information as the Secretary may reasonably prescribe. (c)

Creditable health insurance

For purposes of this section, the term creditable health insurance means qualified health insurance (as defined in section 36(d)) other than— (1)insurance under a subsidized group health plan maintained by an employer, or (2)to the extent provided in regulations prescribed by the Secretary, any other insurance covering an individual if no credit is allowable under section 36 with respect to such coverage. (d)

Statements to be furnished to individuals with respect to whom information is required

Every person required to make a return under subsection (a) shall furnish to each individual whose name is required under subsection (b)(2)(A) to be set forth in such return a written statement showing— (1)the aggregate amount of payments described in subsection (a) received by the person required to make such return from the individual to whom the statement is required to be furnished, and (2)the information required under subsection (b)(2)(B) with respect to such payments.

The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.

(e)

Returns which would be required to be made by 2 or more persons

Except to the extent provided in regulations prescribed by the Secretary, in the case of any amount received by any person on behalf of another person, only the person first receiving such amount shall be required to make the return under subsection (a).

(2)

Assessable penalties

(A)Subparagraph (B) of section 6724(d)(1) of such Code (relating to definitions) is amended by redesignating clauses (xiii) through (xviii) as clauses (xiv) through (xix), respectively, and by inserting after clause (xii) the following new clause:

(xiii)section 6050U (relating to returns relating to payments for qualified health insurance),

(B)Paragraph (2) of section 6724(d) of such Code is amended by striking or at the end of the next to last subparagraph, by striking the period at the end of the last subparagraph and inserting , or, and by adding at the end the following new subparagraph:

(CC)section 6050U(d) (relating to returns relating to payments for qualified health insurance).

(3)

Clerical amendment

The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after the item relating to section 6050T the following new item:

Sec. 6050U. Returns relating to payments for qualified health insurance

(c)

Conforming amendments

(1)Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting before the period , or from section 36 of such Code. (2)The table of sections for subpart C of part IV of subchapter A of chapter 1 of such Code is amended by redesignating the item relating to section 36 as an item relating to section 37 and by inserting after section 35 the following new item:

Sec. 36. Health insurance costs

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2004.