1.This Act may be cited as the
Long-Term Care and Retirement Security
Act of 2005
.
2.Treatment of premiums
on qualified long-term care insurance contracts
(a)Part VII of
subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions) is amended by redesignating section 224 as
section 225 and by inserting after section 223 the following new
section:
224.Premiums on
qualified long-term care insurance contracts
(a)In the case of an
individual, there shall be allowed as a deduction an amount equal to the
applicable percentage of the amount of eligible long-term care premiums (as
defined in section 213(d)(10)) paid during the taxable year for coverage for
the taxpayer and the taxpayer’s spouse and dependents under a qualified
long-term care insurance contract (as defined in section 7702B(b)).
(b)For purposes of
subsection (a), the applicable percentage shall be determined in accordance
with the following table:
For taxable years
beginning in calendar year—The applicable percentage is—
2005, 2006, or 200725
200835
200965
2010 or thereafter100.
(c)Coordination
with other deductionsAny
amount paid by a taxpayer for any qualified long-term care insurance contract
to which subsection (a) applies shall not be taken into account in computing
the amount allowable to the taxpayer as a deduction under section 162(l) or
213(a).
.
(b)Long-Term care
insurance permitted to be offered under cafeteria plans and flexible spending
arrangements
(1)The last sentence of
section 125(f) of such Code (defining qualified benefits) is amended by
inserting before the period at the end ; except that such term shall
include the payment of premiums for any qualified long-term care insurance
contract (as defined in section 7702B) to the extent the amount of such payment
does not exceed the eligible long-term care premiums (as defined in section
213(d)(10)) for such contract
.
(2)Flexible
spending arrangementsSection
106 of such Code (relating to contributions by an employer to accident and
health plans) is amended by striking subsection (c) and redesignating
subsection (d) as subsection (c).
(c)
(1)Section 62(a) of such Code is amended by
inserting before the last sentence at the end the following new
paragraph:
(21)Premiums on
qualified long-term care insurance contractsThe deduction allowed by section
224.
.
(2)Sections 223(b)(4)(B), 223(d)(4)(C),
223(f)(3)(B), 3231(e)(11), 3306(b)(18), 3401(a)(22), 4973(g)(1), and
4973(g)(2)(B)(i) of such Code are each amended by striking section
106(d)
and inserting section 106(c)
.
(3)Section 6041 of such Code is
amended—
(A)in subsection (f)(1) by striking (as
defined in section 106(c)(2))
, and
(B)by adding at the end the following new
subsection:
(h)Flexible spending
arrangement definedFor
purposes of this section, a flexible spending arrangement is a benefit program
which provides employees with coverage under which—
(1)specified incurred expenses may be
reimbursed (subject to reimbursement maximums and other reasonable conditions),
and
(2)the maximum amount of reimbursement which
is reasonably available to a participant for such coverage is less than 500
percent of the value of such coverage.
In the case of an insured plan, the
maximum amount reasonably available shall be determined on the basis of the
underlying
coverage..
(4)The table of sections for part VII of
subchapter B of chapter 1 of such Code is amended by striking the last item and
inserting the following new items:
Sec. 224. Premiums on qualified
long-term care insurance contracts.
Sec. 225. Cross
reference.
.
(d)
(1)Except as provided in
paragraph (2), the amendments made by this section shall apply to taxable years
beginning after December 31, 2004.
(2)Cafeteria plans
and flexible spending arrangementsThe amendments made by subsection (b) shall
apply to taxable years beginning after December 31, 2006.
3.Credit for taxpayers
with long-term care needs
(a)Subpart A of part IV
of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to
nonrefundable personal credits) is amended by inserting after section 25B the
following new section:
25C.Credit for taxpayers
with long-term care needs
(a)
(1)There shall be
allowed as a credit against the tax imposed by this chapter for the taxable
year an amount equal to the applicable credit amount multiplied by the number
of applicable individuals with respect to whom the taxpayer is an eligible
caregiver for the taxable year.
(2)For purposes of
paragraph (1), the applicable credit amount shall be determined in accordance
with the following table:
For taxable years
beginning in calendar year—The applicable credit amount is—
2005$1,000
20061,500
20072,000
20082,500
2009 or thereafter3,000.
(b)Limitation based
on adjusted gross income
(1)The amount of the
credit allowable under subsection (a) shall be reduced (but not below zero) by
$100 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)For purposes of
paragraph (1), the term threshold amount means—
(A)$150,000 in the case of a joint return,
and
(B)$75,000 in any other case.
(3)In the case of any taxable year beginning
in a calendar year after 2005, each dollar amount contained in paragraph (2)
shall be increased by an amount equal to the product of—
(A)such dollar amount, and
(B)the medical care cost adjustment determined
under section 213(d)(10)(B)(ii) for the calendar year in which the taxable year
begins, determined by substituting August 2004
for August
1996
in subclause (II) thereof.
If any increase determined under the
preceding sentence is not a multiple of $50, such increase shall be rounded to
the next lowest multiple of $50.(c)For purposes of this section—
(1)
(A)The term
applicable individual means, with respect to any taxable year, any
individual who has been certified, before the due date for filing the return of
tax for the taxable year (without extensions), by a physician (as defined in
section 1861(r)(1) of the Social Security
Act) as being an individual with long-term care needs described in
subparagraph (B) for a period—
(i)which is at least 180 consecutive days,
and
(ii)a portion of which occurs within the
taxable year.
Notwithstanding the preceding
sentence, a certification shall not be treated as valid unless it is made
within the 391/2 month period ending on such due date (or
such other period as the Secretary prescribes).(B)Individuals with
long-term care needsAn
individual is described in this subparagraph if the individual meets any of the
following requirements:
(i)The individual is at least 6 years of age
and—
(I)is unable to perform (without substantial
assistance from another individual) at least 3 activities of daily living (as
defined in section 7702B(c)(2)(B)) due to a loss of functional capacity,
or
(II)requires substantial supervision to protect
such individual from threats to health and safety due to severe cognitive
impairment and is unable to perform, without reminding or cuing assistance, at
least 1 activity of daily living (as so defined) or to the extent provided in
regulations prescribed by the Secretary (in consultation with the Secretary of
Health and Human Services), is unable to engage in age appropriate
activities.
(ii)The individual is at least 2 but not 6
years of age and is unable due to a loss of functional capacity to perform
(without substantial assistance from another individual) at least 2 of the
following activities: eating, transferring, or mobility.
(iii)The individual is under 2 years of age and
requires specific durable medical equipment by reason of a severe health
condition or requires a skilled practitioner trained to address the
individual’s condition to be available if the individual’s parents or guardians
are absent.
(2)
(A)A taxpayer shall be
treated as an eligible caregiver for any taxable year with respect to the
following individuals:
(i)The taxpayer.
(ii)The taxpayer’s spouse.
(iii)An individual with respect to whom the
taxpayer is allowed a deduction under section 151(c) for the taxable
year.
(iv)An individual who would be described in
clause (iii) for the taxable year if section 151(c) were applied by
substituting for the exemption amount an amount equal to the sum of the
exemption amount, the standard deduction under section 63(c)(2)(C), and any
additional standard deduction under section 63(c)(3) which would be applicable
to the individual if clause (iii) applied.
(v)An individual who would be described in
clause (iii) for the taxable year if—
(I)the requirements of clause (iv) are met
with respect to the individual, and
(II)the requirements of subparagraph (B) are
met with respect to the individual in lieu of the support test under subsection
(c)(1)(D) or (d)(1)(C) of section 152.
(B)The requirements of this
subparagraph are met if an individual has as his principal place of abode the
home of the taxpayer and—
(i)in the case of an individual who is an
ancestor or descendant of the taxpayer or the taxpayer’s spouse, is a member of
the taxpayer’s household for over half the taxable year, or
(ii)in the case of any other individual, is a
member of the taxpayer’s household for the entire taxable year.
(C)Special rules
where more than 1 eligible caregiver
(i)If more than 1
individual is an eligible caregiver with respect to the same applicable
individual for taxable years ending with or within the same calendar year, a
taxpayer shall be treated as the eligible caregiver if each such individual
(other than the taxpayer) files a written declaration (in such form and manner
as the Secretary may prescribe) that such individual will not claim such
applicable individual for the credit under this section.
(ii)If each individual
required under clause (i) to file a written declaration under clause (i) does
not do so, the individual with the highest adjusted gross income shall be
treated as the eligible caregiver.
(iii)Married
individuals filing separatelyIn the case of married individuals filing
separately, the determination under this subparagraph as to whether the husband
or wife is the eligible caregiver shall be made under the rules of clause (ii)
(whether or not one of them has filed a written declaration under clause
(i)).
(d)Identification
requirementNo credit shall
be allowed under this section to a taxpayer with respect to any applicable
individual unless the taxpayer includes the name and taxpayer identification
number of such individual, and the identification number of the physician
certifying such individual, on the return of tax for the taxable year.
(e)Taxable year
must be full taxable yearExcept in the case of a taxable year closed
by reason of the death of the taxpayer, no credit shall be allowable under this
section in the case of a taxable year covering a period of less than 12
months.
.
(b)
(1)Section 6213(g)(2) of such Code is amended
by striking and
at the end of subparagraph (L), by striking the
period at the end of subparagraph (M) and inserting , and
, and
by inserting after subparagraph (M) the following new subparagraph:
(N)an omission of a correct TIN or physician
identification required under section 25C(d) (relating to credit for taxpayers
with long-term care needs) to be included on a
return.
.
(2)The table of sections for subpart A of part
IV of subchapter A of chapter 1 of such Code is amended by inserting after the
item relating to section 25B the following new item:
Sec. 25C. Credit for taxpayers
with long-term care
needs.
.
(c)The amendments made by
this section shall apply to taxable years beginning after December 31,
2004.
4.Additional consumer
protections for long-term care insurance
(a)Additional
protections applicable to long-Term care insuranceSubparagraphs
(A) and (B) of section 7702B(g)(2) of the Internal Revenue Code of 1986
(relating to requirements of model regulation and Act) are amended to read as
follows:
(A)The requirements of
this paragraph are met with respect to any contract if such contract
meets—
(i)The following
requirements of the model regulation:
(I)Section 6A (relating to guaranteed renewal
or noncancellability), other than paragraph (5) thereof, and the requirements
of section 6B of the model Act relating to such section 6A.
(II)Section 6B (relating to prohibitions on
limitations and exclusions) other than paragraph (7) thereof.
(III)Section 6C (relating to extension of
benefits).
(IV)Section 6D (relating to continuation or
conversion of coverage).
(V)Section 6E (relating to discontinuance and
replacement of policies).
(VI)Section 7 (relating to unintentional
lapse).
(VII)Section 8 (relating to disclosure), other
than sections 8F, 8G, 8H, and 8I thereof.
(VIII)Section 11 (relating to prohibitions
against post-claims underwriting).
(IX)Section 12 (relating to minimum
standards).
(X)Section 13 (relating to requirement to
offer inflation protection).
(XI)Section 25 (relating to prohibition against
preexisting conditions and probationary periods in replacement policies or
certificates).
(XII)The provisions of section 26 relating to
contingent nonforfeiture benefits, if the policyholder declines the offer of a
nonforfeiture provision described in paragraph (4).
(ii)The following
requirements of the model Act:
(I)Section 6C (relating to preexisting
conditions).
(II)Section 6D (relating to prior
hospitalization).
(III)The provisions of section 8 relating to
contingent nonforfeiture benefits, if the policyholder declines the offer of a
nonforfeiture provision described in paragraph (4).
(B)For purposes of this paragraph—
(i)The terms
model regulation and model Act mean the long-term
care insurance model regulation, and the long-term care insurance model Act,
respectively, promulgated by the National Association of Insurance
Commissioners (as adopted as of October 2000).
(ii)Any provision of the model regulation or
model Act listed under clause (i) or (ii) of subparagraph (A) shall be treated
as including any other provision of such regulation or Act necessary to
implement the provision.
(iii)For purposes of this section and section
4980C, the determination of whether any requirement of a model regulation or
the model Act has been met shall be made by the
Secretary.
.
(b)Paragraph (1) of section
4980C(c) of the Internal Revenue Code of 1986 (relating to requirements of
model provisions) is amended to read as follows:
(1)Requirements of
model provisions
(A)The following
requirements of the model regulation must be met:
(i)Section 9 (relating to required disclosure
of rating practices to consumer).
(ii)Section 14 (relating to application forms
and replacement coverage).
(iii)Section 15 (relating to reporting
requirements).
(iv)Section 22 (relating to filing requirements
for marketing).
(v)Section 23 (relating to standards for
marketing), including inaccurate completion of medical histories, other than
paragraphs (1), (6), and (9) of section 23C.
(vi)Section 24 (relating to
suitability).
(vii)Section 29 (relating to standard format
outline of coverage).
(viii)Section 30 (relating to requirement to
deliver shopper's guide).
The requirements referred to in
clause (vi) shall not include those portions of the personal worksheet
described in Appendix B relating to consumer protection requirements not
imposed by section 4980C or 7702B.(B)The following
requirements of the model Act must be met:
(i)Section 6F (relating to right to
return).
(ii)Section 6G (relating to outline of
coverage).
(iii)Section 6H (relating to requirements for
certificates under group plans).
(iv)Section 6J (relating to policy
summary).
(v)Section 6K (relating to monthly reports on
accelerated death benefits).
(vi)Section 7 (relating to incontestability
period).
(C)For purposes of this paragraph, the terms
model regulation and model Act have the meanings
given such terms by section
7702B(g)(2)(B).
.
(c)The amendments made by
this section shall apply to policies issued more than 1 year after the date of
the enactment of this Act.
5.Treatment of exchanges
of long-term care insurance contracts
(a)Subsection (a) of
section 1035 of the Internal Revenue Code of 1986 (relating to exchanges of
insurance policies) is amended by striking the period at the end of paragraph
(3) and inserting ; or
and by adding at the end the following
new paragraph:
(4)a qualified long-term care insurance
contract for another qualified long-term care insurance
contract.
.
(b)Qualified
long-Term care insurance contractSubsection (b) of section 1035 of such Code
(relating to definitions) is amended by adding at the end the following new
paragraph:
(4)Qualified
long-term care insurance contractThe term qualified long-term care
insurance contract means—
(A)any qualified long-term care insurance
contract (as defined in section 7702B), and
(B)any contract which is treated as such by
section 321(f)(2) of the Health Insurance
Portability and Accountability Act of
1996.
.
(c)
(1)The amendments made
by this section shall apply to exchanges after December 31, 1997.
(2)If the credit or
refund of any overpayment of tax with respect to a taxable year ending before
the date of the enactment of this Act resulting from the application of section
1035(a)(4) of the Internal Revenue Code of 1986, as added by this section, is
prevented at any time by the operation of any law or rule of law (including res
judicata), such credit or refund may nevertheless be allowed or made if the
claim therefor is filed before the close of the 1-year period beginning on the
date of the enactment of this Act.