Tax credit for matching funds for retirement plans

(a)

Allowance of credit

(1)

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 new section:

45N.

Retirement plan investment credit

(a)

Determination of amount

For purposes of section 38, the retirement plan investment credit determined under this section with respect to any eligible entity for any taxable year is an amount equal to the retirement investment provided by such eligible entity during the taxable year. (b)

Retirement investment

For purposes of this section, the term retirement investment means, with respect to any taxable year, an amount equal to the sum of— (1)the aggregate amount of qualified savings matches made by the eligible entity under an eligible retirement matching program during the taxable year, plus (2)$20 with respect to each new participating individual of the entity for the taxable year. (c)

Eligible retirement matching program

For purposes of this section— (1)

In general

The term eligible retirement matching program means a program of an eligible entity— (A)under which such entity provides a qualified savings match for the first $2,000 of qualified retirement savings contributions made during the taxable year of an eligible individual to a participating retirement plan, and (B)which is approved by the Secretary as meeting the requirements of paragraph (2). (2)

Program requirements

A program shall not be an eligible retirement matching program unless the program meets the following requirements: (A)The program requires that a deposit of any qualified savings match shall be made not later than 90 days after receipt of the qualified retirement savings contribution. (B)The program requires that qualified savings matches shall be provided on a uniform basis to eligible individuals. (C)The program requires that the eligible entity shall not provide a qualified savings match to an individual unless the eligible entity— (i)has no knowledge or reason to believe the individual is not an eligible individual, and (ii)exercises reasonable due diligence in determining whether an individual is an eligible individual for the taxable year in which the individual makes the qualified retirement savings contribution. (D)The program requires that any qualified retirement savings contribution, and any qualified savings match attributable to such contribution, may not be distributed before the first day of the calendar year following the calendar year in which such contribution was made. (E)The program includes such procedures as required by the Secretary in order to ensure that the program operates pursuant to the requirements of this section. (F)The program meets such other requirements as the Secretary may require. (3)

Proof of status as an eligible individual

In any taxable year in which contributions or deferrals are made with respect to a participating retirement plan by an individual, an eligible entity— (A)may require such individual— (i)to certify that— (I)such individual understands the rules and requirements of the program, and (II)such individual is an eligible individual, or (ii)to provide the eligible entity with the income eligibility certificate provided to such individual under section 7529, and (B)may request that such individual disclose the individual's Federal income tax return for the immediately preceding taxable year or to grant the eligible entity access to such return. (d)

New participating individual

For purposes of this section, the term new participating individual means an eligible individual who— (1)makes a qualified retirement savings contribution during the taxable year of the eligible entity to a participating retirement plan, and (2)has not made a qualified retirement savings contribution to any eligible retirement plan maintained by the eligible entity in any preceding taxable year of the eligible entity. (e)

Other definitions

For purposes of this section— (1)

Eligible entity

(A)

In general

The term eligible entity means, with respect to any eligible retirement matching program, any person which— (i)has a relationship described in subparagraph (B) to the participating retirement plan under the program, and (ii)is designated as the eligible entity under the program. (B)

Relationship described

A person has a relationship described in this subparagraph to a participating retirement plan if such person is— (i)the employer maintaining the plan, (ii)the plan administrator, (iii)the trustee of the plan, or (iv)any other person specified under regulations prescribed by the Secretary. (2)

Eligible individual

(A)

In general

The term eligible individual means, with respect to any taxable year, an individual who— (i)has attained the age of 18 as of the last day of such taxable year, (ii)was not a student (as defined in section 151(c)(4)) for the immediately preceding taxable year, (iii)is not an individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year of the other taxpayer ending during the immediately preceding taxable year of the individual, and (iv)is a taxpayer the modified adjusted gross income of whom for the immediately preceding taxable year does not exceed— (I)$50,000, in the case of a taxpayer described in section 1(a), (II)$37,500, in the case of a taxpayer described in section 1(b), and (III)$25,000, in the case of any other taxpayer. (B)

Modified adjusted gross income

For purposes of subparagraph (A)(iv), the term modified adjusted gross income means adjusted gross income determined without regard to sections 911, 931, and 933. (C)

Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2008, each of the dollar amounts in subparagraph (A)(iv) shall be increased by an amount equal to— (i)such dollar amount, multiplied by (ii)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 2007 for `calendar year 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $500.

(3)

Qualified savings match

The term qualified savings match means a contribution by an eligible entity on behalf of an eligible individual to a participating retirement plan in an amount equal to 50 percent of the qualified retirement savings contribution made by such eligible individual during the taxable year. (4)

Qualified retirement savings contributions

(A)

In general

The term qualified retirement savings contributions means, with respect to any taxable year of an eligible individual— (i)the amount of contributions made by such eligible individual to a participating retirement plan for such individual's benefit, or (ii)the amount of elective deferrals made by or on behalf of such eligible individual under a participating retirement plan. (B)

Reduction for certain distributions

(i)

In general

The qualified retirement savings contributions determined under subparagraph (A) shall be reduced (but not below zero) by the aggregate distributions received by the individual during the testing period from all eligible retirement plans of such individual. The preceding sentence shall not apply to the portion of any distribution which is not includible in gross income by reason of a trustee-to-trustee transfer or a rollover distribution. (ii)

Testing period

For purposes of clause (i), the testing period, with respect to a taxable year, is the period which includes such taxable year and the 2 preceding taxable years. (iii)

Excepted distributions

There shall not be taken into account under clause (i)— (I)any distribution referred to in section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), (II)any distribution to which section 408A(d)(3) applies, and (III)any distribution to which subsection (f) applies. (iv)

Treatment of distributions received by spouse of individual

For purposes of determining distributions received by an individual under clause (i) for any taxable year, any distribution received by the spouse of such individual shall be treated as received by such individual if such individual and spouse file a joint return for such taxable year and for the taxable year during which the spouse receives the distribution. (5)

Participating retirement plan

The term participating retirement plan means any eligible retirement plan which is part of an eligible retirement matching program. (6)

Eligible retirement plan

The term eligible retirement plan has the meaning given such term under section 402(c)(8)(B). (f)

Treatment of disqualified savings matches

(1)

In general

If any individual receives a disqualified savings match in any taxable year, then— (A)an amount equal to such disqualified savings match plus any earnings attributable to such disqualified savings match shall be distributed to such individual, and (B)the tax imposed under this chapter for such taxable year on such eligible individual shall be increased by an amount equal to 100 percent of such disqualified savings match. (2)

Treatment of distribution

(A)

Income

Notwithstanding section 72(x)— (i)any disqualified savings match for any taxable year shall not be included in the gross income of the individual for the taxable year, and (ii)the amount of any distribution made pursuant to paragraph (1)(A) shall not be included in gross income for the taxable year. (B)

Penalties

Section 72(t) shall not apply to any distribution made pursuant to paragraph (1)(A). (C)

Effect on plans

A plan shall not be treated as failing to meet the requirements of section 401(k)(2)(B), 403(b)(7)(A)(ii), or 403(b)(11) by reason of any distribution made pursuant to paragraph (1)(A). (3)

Disqualified savings match

For purposes of this subsection, the term disqualified savings match means, with respect to any taxable year of an individual— (A)in the case of an individual who is not an eligible individual for such taxable year, any payment under an eligible retirement matching program for which an eligible entity claims a credit under subsection (a), and (B)in the case of an individual who is an eligible individual for such taxable year, the amount of aggregate qualified savings matches received under one or more participating retirement plans which is in excess of $1,000. (g)

Special rules

(1)

Denial of double benefit

No deduction or credit (other than under this section) shall be allowed under this chapter with respect to any expense which is taken into account under subsection (a) in determining the credit under this section. (2)

Coordination with pension plan rules

(A)

In general

Any qualified savings match which is made by an eligible entity under an eligible retirement matching program— (i)shall not be treated as a matching contribution of the entity for purposes of this title, and (ii)shall not be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall not be taken into account in applying such limitations to other contributions or benefits under such plan or any other plan, with respect to the year in which the contribution is made. (B)

Effect on plans

A plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason of any qualified savings match made by an eligible entity under an eligible retirement matching program. (h)

Credit May Be Transferred

(1)

In general

An eligible entity may transfer any credit allowable to the eligible entity under subsection (a) to any person other than to another eligible entity which is exempt from tax under this title. The determination as to whether a credit is allowable shall be made without regard to the tax-exempt status of the eligible entity. (2)

Consent required for revocation

Any transfer under paragraph (1) may be revoked only with the consent of the Secretary. (3)

Regulations

The Secretary may prescribe such regulations as necessary to ensure that any credit described in paragraph (1) is claimed once and not retransferred by a transferee. (i)

Reports

(1)

In general

Each eligible entity shall make such reports to the Secretary and to eligible individuals regarding— (A)qualified savings matches provided under an eligible retirement matching program, (B)distributions from any participating retirement plan account aggregating $10 or more during any calendar year, and (C)such other information as the Secretary may require. (2)

Time for making reports

The reports required by this subsection— (A)shall be filed at such time and in such manner as the Secretary prescribes, and (B)shall be furnished to eligible individuals— (i)not later than January 31 of the calendar year following the calendar year to which such reports relate, and (ii)in such manner as the Secretary prescribes. (j)

Regulations

The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section.

(2)

Credit treated as business credit

Section 38(b) of such Code (relating to current year business credit) is amended by striking and at the end of paragraph (29), by striking the period at the end of paragraph (30) and inserting , plus, and by adding at the end the following new paragraph:

(31)the retirement plan investment credit determined under section 45N(a).

(b)

Treatment of matching contributions

Section 72 of the Internal Revenue Code of 1986 is amended by redesignating subsection (x) as subsection (y) and by inserting after subsection (w) the following new subsection:

(x)

Treatment of eligible retirement matching program contributions

(1)

In general

If an eligible entity provides a qualified savings match to an eligible retirement plan under an eligible retirement matching program, then the amount of such match— (A)shall be treated as income to the eligible individual, and (B)shall be added to the investment on the contract. (2)

Definitions

Any term used in this subsection which is also used in section 45N shall have the meaning given such term by section 45N.

(c)

Certificates of eligibility

Chapter 77 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

7529.

Certificate of income eligibility for eligible retirement matching programs

(a)

In general

The Secretary shall establish a program for providing income eligibility certificates to taxpayers who meet the requirements of clauses (iii) and (iv) of section 45N(e)(2)(A). (b)

Provision of certificate through mail

As soon as practicable after receiving a taxpayer's return for a taxable year, the Secretary shall mail such certificate to the taxpayer.

(d)

Penalty on eligible entities for matching contributions to ineligible individuals

Part I of subchapter B of chapter 68 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

6720B.

Payment of qualified matching contributions to ineligible individuals

(a)

In general

If an eligible entity provides ineligible savings matches under an eligible retirement program to 10 percent or more of the individuals participating in such program during the taxable year, then such eligible entity shall pay a penalty in an amount equal to 25 percent of the credit allowed to such entity under section 45N for such taxable year. (b)

Penalty in case of intentional disregard

If an eligible entity provides an ineligible savings match to an individual in any taxable year due to intentional disregard of whether such individual is an eligible individual, such eligible entity shall pay a penalty in an amount equal to 100 percent of the credit allowed to such entity under section 45N for such taxable year. (c)

Definitions

For purposes of this section— (1)

Ineligible savings match

The term ineligible savings match means a qualified savings match which is paid to an individual who is not an eligible individual for the taxable year in which the qualified savings match is paid. (2)

Other definitions

Any term used in this section which is also used in section 45N shall have the meaning given such term by section 45N.

(e)

Coordination with savers' credit

Section 25B(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

(3)

Participation in eligible retirement matching programs

The term eligible individual shall not include any individual who receives a qualified savings match under an eligible retirement matching program under section 45N during the taxable year.

(f)

Account funds disregarded for purposes of certain means-tested Federal programs

(1)

Earned income credit

Subparagraph (B) of section 32(c)(2) of the Internal Revenue Code of 1986 is amended by striking and at the end of clause (v), by striking the period at the end of clause (vi) and inserting , and, and by adding at the end the following new clause:

(vii)no qualified savings match (as defined in section 45N(e)(3)), including earnings thereon, paid as part of an eligible retirement matching program (as defined in section 45N(c)) shall be taken into account.

(2)

Other programs

Notwithstanding any other provision of Federal law that requires consideration of 1 or more financial circumstances of an individual, for the purpose of determining eligibility to receive, or the amount of, any assistance or benefit authorized by such provision to be provided to or for the benefit of such individual, the amount of any qualified savings match (within the meaning of section 45N(e)(3) of the Internal Revenue Code of 1986, as added by this Act), including earnings thereon, paid to such individual under an eligible retirement matching program (as defined in section 45N(c) of such Code) shall be disregarded for such purpose. (g)

Clerical amendments

(1)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 adding at the end the following new item:

Sec. 45N. Retirement plan investment credit.

(2)The table of sections for part I of subchapter B of chapter 68 of such Code is amended by adding at the end the following new item:

Sec. 6720B. Payment of qualified matching contributions to ineligible individuals.

(3)The table of sections for chapter 77 of such Code is amended by adding at the end the following new item:

Sec. 7529. Certificate of income eligibility for eligible retirement matching programs.

(h)

Effective date

The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2007.