Deduction of premiums for high deductible health plans

(a)

In General

Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:

224.

Premiums for high deductible health plans

(a)

Deduction Allowed

In the case of an individual, there shall be allowed as a deduction for the taxable year the aggregate amount paid by such individual as premiums under a high deductible health plan with respect to months during such year for which such individual is an eligible individual with respect to such health plan. (b)

Definitions

For purposes of this section— (1)

Eligible individual

The term eligible individual has the meaning given such term by section 223(c)(1). (2)

High deductible health plan

The term high deductible health plan has the meaning given such term by section 223(c)(2). (c)

Special Rules

(1)

Deduction limits

(A)

Deduction allowable for only 1 plan

For purposes of this section, in the case of an individual covered by more than 1 high deductible health plan for any month, the individual may only take into account amounts paid for such month for the plan with the lowest premium. (B)

Plans covering ineligible individuals

If 2 or more individuals are covered by a high deductible health plan for any month but only 1 of such individuals is an eligible individual for such month, only 50 percent of the aggregate amount paid by such eligible individual as premiums under the plan with respect to such month shall be taken into account for purposes of this section. (2)

Group health plan coverage

(A)

In general

No deduction shall be allowed to an individual under subsection (a) for any amount paid for coverage under a high deductible health plan for a month if that individual participates in any coverage under a group health plan (within the meaning of section 5000 without regard to section 5000(d)). (B)

Exception for plans only providing contributions to health savings accounts

Subparagraph (A) shall not apply to an individual if the individual's only coverage under a group health plan for a month consists of contributions by an employer to a health savings account with respect to which the individual is the account beneficiary. (C)

Exception for certain permitted coverage

Subparagraph (A) shall not apply to an individual if the individual’s only coverage under a group health plan for a month is coverage described in clause (i) or (ii) of section 223(c)(1)(B). (3)

Medical and health savings accounts

Subsection (a) shall not apply with respect to any amount which is paid or distributed out of an Archer MSA or a health savings account which is not included in gross income under section 220(f) or 223(f), as the case may be. (4)

Coordination with deduction for health insurance of self-employed individuals

Any amount taken into account by the taxpayer in computing the deduction under section 162(l) shall not be taken into account under this section. (5)

Coordination with medical expense deduction

Any amount taken into account by the taxpayer in computing the deduction under this section shall not be taken into account under section 213.

(b)

Deduction Allowed Whether or not Individual Itemizes Other Deductions

Subsection (a) of section 62 of such Code is amended by inserting before the last sentence at the end the following new paragraph:

(21)

Premiums for high deductible health plans

The deduction allowed by section 224.

(c)

Coordination With Section 35 Health Insurance Costs Credit

Section 35(g)(2) of such Code is amended by striking or 213 and inserting , 213, or 224. (d)

Clerical Amendment

The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by redesignating the item relating to section 224 as an item relating to section 225 and by inserting before such item the following new item:

Sec. 224. Premiums for high deductible health plans.

(e)

Effective Date

The amendments made by this section shall apply to taxable years beginning after December 31, 2006.

Credit for certain employment taxes paid with respect to premiums for high deductible health plans and contributions to health savings accounts

(a)

Allowance of credit

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.

Employment taxes paid with respect to premiums for high deductible health plans and contributions to health savings accounts

(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 product of— (1)the sum of the rates of tax in effect under sections 3101(a), 3101(b), 3111(a), and 3111(b) for the calendar year in which the taxable year begins, multiplied by (2)the sum of— (A)the aggregate amount paid by such individual as premiums under a high deductible health plan which is allowed as a deduction under section 224 for the taxable year, and (B)the aggregate amount paid to a health savings account of such individual which is allowed as a deduction under section 223 for the taxable year. (b)

Credit limited to certain employment taxes

(1)

In general

The credit allowed under subsection (a) with respect to any individual for any taxable year shall not exceed the specified employment taxes with respect to such individual for such taxable year. (2)

Specified employment taxes

For purposes of this subsection, the term specified employment taxes means, with respect to any individual for any taxable year, the sum of— (A)the taxes imposed under sections 3101(a), 3101(b), 3111(a), 3111(b), 3201(a), 3211(a), and 3221(a) (taking into account any adjustments or refunds under section 6413) with respect to wages and compensation received by such individual during the calendar year in which such taxable year begins, and (B)the taxes imposed under subsections (a) and (b) of section 1401 with respect to the self-employment income of such individual for such taxable year. (c)

Special rule for employment compensation in excess of Social Security contribution base

(1)

In general

If the aggregate amount of employment compensation received by any individual during the calendar year in which the taxable year begins exceeds the contribution and benefit base (as determined under section 230 of the Social Security Act), the amount of the credit determined under subsection (a) (determined before application of subsection (b)) shall be equal to the sum of— (A)the amount determined under subsection (a) by only taking into account so much of the amount determined under subsection (a)(2) as does not exceed such excess and by only taking into account the rates of tax in effect under section 3101(b) and 3111(b), and (B)the amount determined under subsection (a) by only taking into account so much of the amount determined under subsection (a)(2) as is not taken into account under subparagraph (A) and by taking into account each of the rates of tax referred to in subsection (a)(1). (2)

Employment compensation

For purposes of this subsection, the term employment compensation means, with respect to any individual for any taxable year, the sum of— (A)the wages (as defined in section 3121(a)) and compensation (as defined in section 3231(e)) received by such individual during the calendar year in which such taxable year begins, and (B)the self-employment income (as defined in section 1402(b)) of such individual for such taxable year.

(b)

Increase in additional tax on distributions not used for qualified medical expenses

Paragraph (4) of section 223(f) of such Code (relating to additional tax on distributions not used for qualified medical expenses) is amended to read as follows:

(4)

Additional tax on distributions not used for qualified medical expenses

(A)

In general

The tax imposed by this chapter on the account beneficiary for any taxable year in which there is a payment or distribution from a health savings account of such beneficiary which is includible in gross income under paragraph (2) shall be increased by 30 percent of the amount which is so includible. (B)

Exception for disability or death

In the case of payments or distributions made after the account beneficiary becomes disabled within the meaning of section 72(m)(7) or dies, subparagraph (A) shall be applied by substituting 15 percent for 30 percent. (C)

Exception for distributions after medicare eligibility

In the case of payments or distributions made after the date on which the account beneficiary attains the age specified in section 1811 of the Social Security Act, subparagraph (A) shall be applied by substituting 15 percent for 30 percent.

(c)

Conforming amendments

(1)Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting or section 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 by inserting after the item relating to section 35 the following new items:

Sec. 36. Employment taxes paid with respect to premiums for high deductible health plans and contributions to health savings accounts.

Sec. 37. Overpayments of tax.

(d)

Effective Date

The amendments made by this section shall apply to taxable years beginning after December 31, 2006.