Short title

This Act may be cited as the

Health Care Relief Act of 2005

First $2,000 of health insurance premiums fully deductible

(a)

In general

Subsection (a) of section 213 of the Internal Revenue Code of 1986 (relating to medical, dental, etc., expenses) is amended to read as follows:

(a)

Allowance of deduction

There shall be allowed as a deduction the following amounts not compensated for by insurance or otherwise— (1)the amount by which the amount of expenses paid during the taxable year (reduced by the amount deductible under paragraph (2)) for medical care of the taxpayer, the taxpayer’s spouse, and the taxpayer’s dependents (as defined in section 152) exceeds 7.5 percent of adjusted gross income, plus (2)so much of the expenses paid during the taxable year for insurance which constitutes medical care under subsection (d)(1)(D) (other than for a qualified long-term care insurance contract) for such taxpayer, spouse, and dependents as does not exceed $2,000.

(b)

Deduction allowed whether or not taxpayer itemizes deduction

Subsection (a) of section 62 of the Internal Revenue Code of 1986 (defining adjusted gross income) is amended by redesignating paragraph (19) (as added by section 703(a) of the American Jobs Creation Act of 2004) as paragraph (20) and by inserting after paragraph (20) (as so redesignated) the following new paragraph:

(21)

Health insurance premiums

The deduction allowed by section 213(a)(2).

(c)

Effective date

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

Credit for health insurance expenses of small businesses

(a)

In general

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business-related credits) is amended by adding at the end the following:

45N.

Small business health insurance expenses

(a)

General rule

For purposes of section 38, in the case of a small employer, the health insurance credit determined under this section for the taxable year is an amount equal to the applicable percentage of the expenses paid by the taxpayer during the taxable year for health insurance coverage for such year provided under a new health plan for employees of such employer. (b)

Applicable percentage

For purposes of subsection (a), the applicable percentage is— (1)in the case of insurance purchased as a member of a health benefit purchasing coalition (as defined in regulations prescribed by the Secretary), 40 percent, and (2)in the case of insurance not described in paragraph (1), 30 percent. (c)

Limitations

(1)

Per employee dollar limitation

The amount of expenses taken into account under subsection (a) with respect to any employee for any taxable year shall not exceed— (A)in the case of insurance purchased as a member of a coalition referred to in subsection (b)(1)— (i)$800 in the case of self-only coverage, and (ii)$2,000 in the case of family coverage, and (B)in any other case— (i)$600 in the case of self-only coverage, and (ii)$1,500 in the case of family coverage.

In the case of an employee who is covered by a new health plan of the employer for only a portion of such taxable year, the limitation under the preceding sentence shall be an amount which bears the same ratio to such limitation (determined without regard to this sentence) as such portion bears to the entire taxable year.

(2)

Period of coverage

Expenses may be taken into account under subsection (a) only with respect to coverage for the 4-year period beginning on the date the employer establishes a new health plan. (3)

Employer must bear 65 percent of cost

Expenses may be taken into account under subsection (a) only if at least 65 percent of the cost of the coverage (without regard to this section) is borne by the employer. (d)

Definitions

For purposes of this section— (1)

Health insurance coverage

The term health insurance coverage has the meaning given such term by section 9832(b)(1). (2)

New health plan

(A)

In general

The term new health plan means any arrangement of the employer which provides health insurance coverage to employees if— (i)such employer (and any predecessor employer) did not establish or maintain such arrangement (or any similar arrangement) at any time during the 2 taxable years ending prior to the taxable year in which the credit under this section is first allowed, and (ii)such arrangement provides health insurance coverage to at least 70 percent of the qualified employees of such employer. (B)

Qualified employee

(i)

In general

The term qualified employee means any employee of an employer and shall include a leased employee within the meaning of section 414(n). (3)

Small employer

The term small employer has the meaning given to such term by section 4980D(d)(2); except that— (A)only qualified employees shall be taken into account, and (B)such section shall be applied by substituting 100 employees for 50 employees. (e)

Special rules

(1)

Certain rules made applicable

For purposes of this section, rules similar to the rules of section 52 shall apply. (2)

Amounts paid under salary reduction arrangements

No amount paid or incurred pursuant to a salary reduction arrangement shall be taken into account under subsection (a). (3)

Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2006, each dollar amount contained in subsections (c)(1) and (d)(2)(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 2005 for calendar year 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50.

(f)

Termination

This section shall not apply to expenses paid or incurred by an employer with respect to any arrangement established on or after January 1, 2012.

(b)

Credit to be part of general business credit

Section 38(b) of such Code (relating to current year business credit) is amended by striking plus at the end of paragraph (25), by striking the period at the end of paragraph (26) and inserting , plus, and by adding at the end the following:

(27)in the case of a small employer (as defined in section 45N(d)(3)), the health insurance credit determined under section 45N(a).

(c)

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 45N for the taxable year which is equal to the amount of the credit determined for such taxable year under section 45N(a). (2)

Controlled groups

Persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as 1 person for purposes of this section.

(d)

Clerical amendment

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following:

Sec. 45N. Small business health insurance expenses

(e)

Effective date

The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2005, for arrangements established after the date of the enactment of this Act.

Refundable health insurance costs credit

(a)

Allowance of credit

(1)

In general

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

36.

Health insurance costs for uninsured individuals

(a)

Allowance of credit

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

Limitation

The amount allowed as a credit under subsection (a) for a taxable year shall not exceed $500. (c)

Qualified health insurance

For purposes of this section, the term qualified health insurance means health insurance coverage (as defined in section 9832(b)(1)). (d)

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)

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. (3)

Coordination with deduction for Archer MSAs and HSAs

In the case of a taxpayer who is eligible to deduct any amount under section 220 or 223 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. (4)

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. (5)

Coordination with section 35

In the case that a taxpayer is eligible for the same taxable year for the credit allowed under subsection (a) and the credit allowed under section 35, no credit shall be allowed under subsection (a) for the taxable year unless the taxpayer elects to claim the credit under subsection (a) and not to claim the credit under section 35. (e)

Expenses must be substantiated

A payment for insurance to which subsection (a) applies may be taken into account under this section only if the taxpayer substantiates such payment in such form as the Secretary may prescribe. (f)

Regulations

The Secretary may prescribe such regulations as may be necessary to carry out the purposes of this section.

(b)

Conforming amendments

(1)Section 162(l) of the Internal Revenue Code of 1986 is amended by adding at the end the following:

(6)

Election to have subsection apply

No deduction shall be allowed under paragraph (1) for a taxable year unless the taxpayer elects to have this subsection apply for such year.

(2)Section 220(b) of such Code is amended by adding at the end the following:

(8)

Election to have subsection apply

No deduction shall be allowed under subsection (a) for a taxable year unless the taxpayer elects to have this section apply for such year.

(3)Section 223(b) of such Code is amended by adding at the end the following:

(8)

Election to have subsection apply

No deduction shall be allowed under subsection (a) for a taxable year unless the taxpayer elects to have this section apply for such year.

(4)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. (5)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 last item and inserting the following:

Sec. 36. Health insurance costs for uninsured individuals

Sec. 37. Overpayments of tax

(c)

Effective date

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