Refundable credit for contributions to health savings accounts of small business employees

(a)

In general

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

36.

Small employer contributions to health savings accounts

(a)

General rule

In the case of an eligible employer, there shall be allowed as a credit against the tax imposed by this subtitle an amount equal to the lesser of— (1)the amount contributed by the employer to any qualified health savings account of any employee who is an eligible individual (as defined in section 223(c)(1)) during the taxable year and who is covered by a high deductible health plan maintained by the employer, or (2)an amount equal to the product of— (A)$200 ($500 if coverage for all months described in subparagraph (B)(i) is family coverage), and (B)a fraction— (i)the numerator of which is the number of months that the employee was covered under a high deductible health plan maintained by the employer, and (ii)the denominator of which is the number of months in the taxable year. (b)

Eligible employer

For purposes of this section— (1)

In general

The term eligible employer means, with respect to any taxable year, an employer which— (A)is a small employer, and (B)maintains a high deductible health plan under which all employees of the employer reasonably expected to receive at least $5,000 of compensation during the taxable year are eligible to participate.

An employer may exclude from consideration under subparagraph (B) employees who are covered by an agreement described in section 410(b)(3)(A) if there is evidence that health benefits were the subject of good faith bargaining.

(2)

Exception for governmental and tax-exempt employers

The term eligible employer shall not include the Federal Government or any employer described in section 457(e)(1). (3)

Small employer

(A)

In general

The term small employer means, with respect to any calendar year, any employer if such employer employed an average of 100 or fewer employees on business days during either of the 2 preceding calendar years. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the employer was in existence throughout such year. (B)

Employers not in existence in preceding year

In the case of an employer which was not in existence throughout the 1st preceding calendar year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current calendar year. (C)

Special rule

Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer. (c)

Definitions

For purposes of this section— (1)

High deductible health plan

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

Qualified health savings account

(A)

In general

The term qualified health savings account means a health savings account (as defined in section 223(d))— (i)which is designated (in such form as the Secretary may prescribe) as a qualified account for purposes of this section or section 36A, (ii)which may not include any amount other than contributions described in subsection (a) or section 36A(e), and earnings on such contributions, and (iii)with respect to which section 223(f)(4)(A) is applied by substituting 100 percent for 10 percent. (B)

Subaccounts and separate accounting

The Secretary may prescribe rules under which a subaccount within a health savings account, or separate accounting with respect to contributions and earnings described in subparagraph (A)(ii), may be treated in the same manner as a qualified health savings account for purposes of this section and section 36A. (C)

Rollovers

A contribution of a distribution from a qualified health savings account to another health savings account shall be treated as a rollover contribution for purposes of section 223(f)(5) only if the other account is a qualified health savings account. (d)

Special rules

For purposes of this section— (1)

Aggregation rules

All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (n) or (o) of section 414, shall be treated as one person. (2)

Disallowance of deduction

No deduction shall be allowed for that portion of contributions to any health savings accounts for the taxable year which is equal to the credit determined under subsection (a). (3)

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.

(b)

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 chapter 1 of the Internal Revenue Code of 1986 is amended by redesignating the item relating to section 36 as an item relating to section 37 and by inserting before the item relating to section 37 the following new item:

Sec. 36. Small employer contributions to health savings accounts.

(c)

Effective date

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

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 inserting after section 36 the following new section:

36A.

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)

Limitations

(1)

In general

The amount allowed as a credit under subsection (a) to the taxpayer for the taxable year shall not exceed the lesser of— (A)90 percent of the sum of the amounts paid by the taxpayer for qualified health insurance for each individual referred to in subsection (a) for coverage months of such individual during the taxable year, or (B)$3,000. (2)

Monthly limitation

(A)

In general

For purposes of paragraph (1), amounts paid by the taxpayer for qualified health insurance for an individual for any coverage month of such individual during the taxable year shall not be taken into account to the extent such amounts exceed the amount equal to 1/12 of— (i)$1,111 if such individual is the taxpayer, (ii)$1,111 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)$1,111 if such individual has attained the age of 24 as of the close of the taxable year and is a dependent of the taxpayer for such taxable year, (iv)one-half of the amount described in clause (i) if such individual has not attained the age of 24 as of the close of the taxable year and is a dependent of the taxpayer for such taxable year. (B)

Limitation to 2 young dependents

If there are more than 2 individuals described in subparagraph (A)(iv) with respect to the taxpayer for any coverage month, the aggregate amounts paid by the taxpayer for qualified health insurance for such individuals which may be taken into account under paragraph (1) shall not exceed 1/12 of the dollar amount in effect under subparagraph (A)(i) for the coverage month. (C)

Special rule for married individuals

In the case of a taxpayer— (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 taxpayer’s spouse at all times during the taxable year,

any dollar limitation imposed under this paragraph on amounts paid for qualified health insurance for individuals described in subparagraph (A)(iv) shall be divided equally between the taxpayer and the taxpayer’s spouse unless they agree on a different division.

(3)

Income phaseout of credit percentage for one-person coverage

(A)

Phaseout for unmarried individuals (other than surviving spouses and heads of households)

In the case of an individual (other than a surviving spouse, the head of a household, or a married individual) with one-person coverage, if such individual has modified adjusted gross income— (i)in excess of $15,000 for a taxable year but not in excess of $20,000, the 90 percent under paragraph (1)(B) shall be reduced by the number of percentage points which bears the same ratio to 40 percentage points as— (I)the excess of modified adjusted gross income in excess of $15,000, bears to (II)$5,000, or (ii)in excess of $20,000 for a taxable year, the 90 percent under paragraph (1)(B) shall be reduced by the sum of 40 percentage points plus the number of percentage points which bears the same ratio to 50 percentage points as— (I)the excess of modified adjusted gross income in excess of $20,000, bears to (II)$10,000. (B)

Phaseout for other individuals

In the case of a taxpayer (other than an individual described in subparagraph (A) or (C)) with one-person coverage, if the taxpayer has modified adjusted gross income in excess of $25,000 for a taxable year, the 90 percent under paragraph (1)(B) shall be reduced by the number of percentage points which bears the same ratio to 90 percentage points as— (i)the excess of modified adjusted gross income in excess of $25,000, bears to (ii)$15,000. (C)

Married filing separate return

In the case of a taxpayer who is married filing a separate return for the taxable year and who has one-person coverage, if the taxpayer has modified adjusted gross income in excess of $12,500 for the taxable year, the 90 percent under paragraph (1)(B) shall be reduced by the number of percentage points which bears the same ratio to 90 percentage points as— (i)the excess of modified adjusted gross income in excess of $12,500, bears to (ii)$7,500. (4)

Income phaseout of credit percentage for coverage of more than one person

(A)

In general

Except as provided in subparagraph (B), in the case of a taxpayer with coverage of more than one person, if the taxpayer has modified adjusted gross income in excess of $25,000 for a taxable year, the 90 percent under paragraph (1)(B) shall be reduced by the number of percentage points which bears the same ratio to 90 percentage points as— (i)the excess of modified adjusted gross income in excess of $25,000, bears to (ii)$35,000. (B)

Married filing separate return

In the case of a taxpayer who is married filing a separate return for the taxable year and who has coverage of more than one person, if the taxpayer has modified adjusted gross income in excess of $12,500 for the taxable year, the 90 percent under paragraph (1)(B) shall be reduced by the number of percentage points which bears the same ratio to 90 percentage points as— (i)the excess of modified adjusted gross income in excess of $12,500, bears to (ii)$17,500. (5)

Rounding

Any percentage resulting from a reduction under paragraphs (3) and (4) shall be rounded to the nearest one-tenth of a percent. (6)

Modified adjusted gross income

The term modified adjusted gross income means adjusted gross income determined— (A)without regard to this section and sections 911, 931, and 933, and (B)after application of sections 86, 135, 137, 219, 221, and 469. (c)

Coverage month

For purposes of this section— (1)

In general

The term coverage month means, with respect to an individual, any month if— (A)as of the first day of such month such individual is covered by qualified health insurance, and (B)the premium for coverage under such insurance for such month is paid by the taxpayer. (2)

Group health plan coverage

(A)

In general

The term coverage month shall not include any month for which such individual participates in any group health plan (within the meaning of section 5000 without regard to section 5000(d)). (B)

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)

Employer-provided coverage

The term coverage month 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 (other than coverage described in clause (i) or (ii) of section 223(c)(1)(B)). (4)

Medicare, medicaid, and schip

The term coverage month shall not include any month with respect to an individual if, as of the first day of such month, such individual— (A)is entitled to any benefits under part A of title XVIII of the Social Security Act or is enrolled under part B of such title, or (B)is enrolled in the program under title XIX or XXI of such Act (other than under section 1928 of such Act). (5)

Certain other coverage

The term coverage month shall not include any month with respect to an individual if, at any time during such month, any benefit is provided to such individual under— (A)chapter 89 of title 5, United States Code, or (B)chapter 55 of title 10, United States Code. (6)

Prisoners

The term coverage month 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. (7)

Insufficient presence in United States

The term coverage month 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)). (d)

Qualified health insurance

For purposes of this section— (1)

In general

The term qualified health insurance means health insurance coverage (as defined in section 9832(b)(1)) which— (A)is coverage described in paragraph (2), and (B)meets the requirements of paragraph (3). (2)

Eligible coverage

Coverage described in this paragraph is the following: (A)Coverage under individual health insurance. (B)Coverage through a private sector health care coverage purchasing pool. (C)Coverage through a State health care coverage purchasing pool. (D)Coverage under a State high risk pool described in subparagraph (C) of section 35(e)(1). (E)Coverage, after December 31, 2006, under an eligible State buyin program. (3)

Requirements

The requirements of this paragraph are as follows: (A)

Cost limits

The coverage meets the requirements of section 223(c)(2)(A)(ii). (B)

Maximum benefits

Under the coverage, the annual and lifetime maximum benefits are not less than $700,000. (C)

Broad coverage

The coverage includes inpatient and outpatient care, emergency benefits, and physician care. (D)

Guaranteed renewability

Such coverage is guaranteed renewable by the provider. (4)

Eligible State buyin program

For purposes of paragraph (2)(E)— (A)

In general

The term eligible State buyin program means a State program under which an individual who— (i)is not eligible for assistance under the State medicaid program under title XIX of the Social Security Act, (ii)is not eligible for assistance under the State children’s health insurance program under title XXI of such Act, or (iii)is not a State employee,

is able to buy health insurance coverage through a purchasing arrangement entered into between the State and a private sector health care purchasing group or health plan.

(B)

Requirements

Subparagraph (A) shall only apply to a State program if— (i)the program uses private sector health care purchasing groups or health plans, and (ii)the State maintains separate risk pools for participants under the State program. (C)

Subsidies

(i)

In general

A State program shall not fail to be treated as an eligible State buyin program merely because the State subsidizes the costs of an individual in buying health insurance coverage under the program. (ii)

Exception

Clause (i) shall not apply if the State subsidy under the program for any adult for any consecutive 12-month period exceeds the applicable dollar amount. (iii)

Applicable dollar amount

(I)

In general

For purposes of clause (ii), the applicable dollar amount is $2,000. (II)

Reduction

In the case of a family with annual income in excess of 133 percent of the applicable poverty line (as determined in accordance with criteria established by the Director of the Office of Management and Budget) but not in excess of 200 percent of such line, the dollar amount under clause (i) shall be ratably reduced (but not below $500) for each dollar of such excess. In the case of a family with annual income in excess of 200 percent of such line, the applicable dollar amount shall be zero. (e)

Arrangements under which insurers contribute to HSA

(1)

In general

For purposes of this section, health insurance shall not be treated as qualified health insurance if the insurer makes contributions to a health savings account of the taxpayer unless such insurance is provided under an arrangement described in paragraph (2). (2)

Arrangements described

(A)

Amounts paid for coverage exceed monthly limitation

In the case of amounts paid under an arrangement for health insurance for a coverage month in excess of the amount in effect under subsection (b)(2)(A) for such month, an arrangement is described in this subparagraph if under the arrangement— (i)the aggregate amount contributed by the insurer to any health savings account of the taxpayer does not exceed 90 percent of the excess of— (I)the amount paid by the taxpayer for qualified health insurance under such arrangement for such month, over (II)the amount in effect under subsection (b)(2)(A) for such month, and (ii)the amount contributed by the insurer to a qualified health savings account of the taxpayer, reduced by the amount of the excess under clause (i), does not exceed 27 percent of the amount in effect under subsection (b)(2)(A) for such month. (B)

Amounts paid for coverage less than monthly limitation

In the case of an arrangement under which the amount paid for qualified health insurance for a coverage month does not exceed the amount in effect under subsection (b)(2)(A) for such month, an arrangement is described in this subparagraph if— (i)under the arrangement the value of the insured benefits (excluding overhead) exceeds 65 percent of the amount paid for qualified health insurance for such month, and (ii)the amount contributed by the insurer to a qualified health savings account of the taxpayer does not exceed 27 percent of the amount in effect under subsection (b)(2)(A) for such month. (3)

Qualified health savings account

The term qualified health savings account has the meaning given such term by section 36(c)(2). (f)

Dependents

For purposes of this section— (1)

Dependent defined

The term dependent has the meaning given to such term by section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof). (2)

Special rule for dependent child of divorced parents

An individual who is a child to whom section 152(e) applies shall be treated as a dependent of the custodial parent for a coverage month unless the custodial and noncustodial parent provide otherwise. (3)

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(c) is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins. (g)

Inflation adjustments

(1)

Credit and health insurance amounts

In the case of any taxable year beginning after 2006, each dollar amount referred to in subsections (b)(1)(B), (b)(2)(A), (d)(3)(B), and (d)(4)(C)(iii)(I) shall be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost-of-living adjustment determined under section 213(d)(10)(B)(ii) for the calendar year in which the taxable year begins, determined by substituting 2005 for 1996 in subclause (II) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10.

(2)

Income phaseout amounts

In the case of any taxable year beginning after 2006, each dollar amount referred to in paragraph (3) and (4) of subsection (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.

If any amount as adjusted under the preceding sentence is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.

(h)

Special rules

(1)

Coordination with medical expense deduction and deduction for premiums for high deductible health plans

The amount which would (but for this paragraph) be taken into account by the taxpayer under section 213 or 224 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

No credit shall be allowable under this section for a taxable year if a deduction is allowed under section 162(l) for the taxable year. (3)

Coordination with advance payment

Rules similar to the rules of section 35(g)(1) shall apply to any credit to which this section applies. (4)

Coordination with section 35

If a taxpayer is eligible for the credit allowed under this section and section 35 for any month, the taxpayer shall elect which credit is to be allowed with respect to such month. (i)

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. (j)

Regulations

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

(b)

Information reporting

(1)

In general

Subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 (relating to information concerning transactions with other persons) is amended by inserting after section 6050T the following:

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, (C)the aggregate amount of payments described in subsection (a), and (D)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 36A(d)). (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 name and address of the person required to make such return and the phone number of the information contact for such person, (2)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 (3)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:

(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 subparagraph (AA), by striking the period at the end of the subparagraph (BB) and inserting , or, and by adding at the end the following:

(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:

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

(c)

Criminal penalty for fraud

Subchapter B of chapter 75 of the Internal Revenue Code of 1986 (relating to other offenses) is amended by adding at the end the following:

7276.

Penalties for offenses relating to health insurance tax credit

Any person who knowingly misuses Department of the Treasury names, symbols, titles, or initials to convey the false impression of association with, or approval or endorsement by, the Department of the Treasury of any insurance products or health coverage in connection with the credit for health insurance costs under section 36A shall on conviction thereof be fined not more than $10,000, or imprisoned not more than 1 year, or both.

(d)

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 36A of such Code. (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 inserting after the item relating to section 36 the following new item:

Sec. 36A. Health insurance costs for uninsured individuals.

(3)The table of sections for subchapter B of chapter 75 of such Code is amended by adding at the end the following:

Sec. 7276. Penalties for offenses relating to health insurance tax credit.

(e)

Effective dates

(1)

In general

Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2005. (2)

Penalties

The amendments made by subsections (c) and (d)(4) shall take effect on the date of the enactment of this Act.