Refundable credit for small businesses which provide health care coverage for employees

(a)

In general

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.

Small businesses providing health care coverage for employees

(a)

In general

In the case of an eligible small business, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the applicable percentage of the expenses paid or incurred by the taxpayer for qualified health care coverage of eligible employees, their spouses, and dependents (within the meaning of section 213(a)). (b)

Applicable percentage

For purposes of this section, the term applicable percentage means— (1)50 percent if qualified health care coverage is provided by the taxpayer to an average (on days during the taxable year) of 10 or fewer eligible employees of the taxpayer, (2)25 percent if qualified health care coverage is provided by the taxpayer to an average (on such days) of at least 10 but not more than 25 eligible employees of the taxpayer, and (3)15 percent if qualified health care coverage is provided by the taxpayer to an average (on such days) of more than 25 eligible employees of the taxpayer. (c)

Eligible small business

For purposes of this section, the term eligible small business means any taxpayer engaged in a trade or business if the taxpayer meets the requirements of the following paragraphs: (1)

50 or fewer employees

(A)

In general

A taxpayer meets the requirements of this paragraph if the taxpayer employs an average of 50 or fewer employees on business days during the preceding taxable year. (B)

Taxpayer not in existence

In any case in which the taxpayer is an entity and is not in existence throughout the preceding taxable year, subparagraph (A) shall be applied by substituting taxable year for preceding taxable year. (2)

Gross receipts limitation

(A)

In general

A taxpayer meets the requirements of this paragraph if the gross receipts of the taxpayer for the preceding taxable year do not exceed $10,000,000. (B)

Taxpayer not in existence

Special rules

For purposes of subparagraph (A), the rules of subparagraphs (B) and (C) of section 448(c)(3) shall apply. (3)

Plan offering requirement

A taxpayer meets the requirements of the paragraph if— (A)the taxpayer offers qualified health coverage, on the same terms and conditions, to at least 90 percent of the taxpayer’s eligible employees, and (B)such offering is made at least annually and at such other times and in such manner as the Secretary shall prescribe. (4)

Plan participation requirement

(A)

In general

A taxpayer meets the requirements of the paragraph if the average daily percentage of eligible employees who are provided with qualified health coverage by the taxpayer during the taxable year is not less than such average for the preceding taxable year. (B)

Exceptions

(i)

Not in existence

Subparagraph (A) shall not apply if the trade or business was not in existence throughout the preceding taxable year. (ii)

Business decline

Under regulations prescribed by the Secretary, subparagraph (A) shall not apply to the extent that any reduction in such percentage is the result of a reduction in the number of employees of the taxpayer on account of a reduction in the gross receipts of the taxpayer. (5)

Minimum employer payment

A taxpayer meets the requirements of the paragraph if at least 65 percent of the cost of qualified health coverage provided to each eligible employee is borne by the employer (determined without regard to this section). (d)

Eligible employees

For purposes of this section, the term eligible employee means any employee of the taxpayer if— (1)such employee is not covered under— (A)any health plan of the employee’s spouse, (B)title XVIII, XIX, or XXI of the Social Security Act, (C)chapter 17 of title 38, United States Code, (D)chapter 55 of title 10, United States Code, (E)chapter 89 of title 5, United States Code, or (F)any other provision of law, and (2)such employee is not a part-time or seasonal employee. (e)

Qualified health coverage

For purposes of this section, the term qualified health coverage means coverage under a health plan provided by the employer which is substantially equivalent on an actuarial basis to coverage provided chapter 89 of title 5, United States Code. (f)

Special rules

For purposes of this section— (1)

Treatment of predecessors

Any reference in paragraphs (1), (2), and (4) of subsection (c) to an entity shall include a reference to any predecessor of such entity. (2)

Controlled groups

All persons treated as a single employer under subsection (b) or (c) of section 52 shall be treated as 1 person. (3)

Mergers and acquisitions

Rules similar to the rules of subparagraphs (A) and (B) of section 41(f)(3) shall apply. (4)

Employee to include self-employed

The term employee includes an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals). (5)

Exception for 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).

(b)

Denial of double benefit

Section 280C of such Code is amended by adding at the end the following new subsection:

(h)

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 36 for the taxable year which is equal to the amount of the credit allowed for such taxable year under section 36(a). (2)

Controlled groups

Paragraph (3) of subsection (b) shall apply for purposes of this subsection.

(c)

Technical amendments

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

Sec. 36. Small businesses providing health care coverage for employees.

Sec. 37. Overpayments of tax.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.