Short title

This Act may be cited as the

Workforce Fairness and Tax Relief Act of 2008

Repeal of tax on unemployment compensation

(a)

In general

Section 85 of the Internal Revenue Code of 1986 is hereby repealed. (b)

Conforming amendments

(1)Subsection (p) of section 3402 of such Code is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2). (2)Section 6050B of such Code (relating to returns relating to unemployment compensation) is hereby repealed. (3)The table of sections for part II of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 85. (4)The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by striking the item relating to section 6050B. (c)

Effective date

The amendments made by this section shall apply to amounts received after December 31, 2008.

Unlimited penalty-free distributions from qualified retirement plans to individuals after separation from employment

(a)

Unlimited penalty-free distributions to unemployed individuals

Clause (i) of section 72(t)(2)(D) of the Internal Revenue Code of 1986 is amended to read as follows:

(i)

In general

Distributions from a qualified retirement plan to an individual after separation from employment if— (I)the individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation; and (II)such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year.

(b)

Conforming amendment

Subparagraph (D) of section 72(t)(2) of such Code is amended in the heading by striking

for health insurance premiums

. (c)

Effective date

The amendments made by this section shall apply to distributions made after December 31, 2008.

Limited exclusion from income of employment severance payments

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139B the following new section:

139C.

Certain employment severance payments

(a)

In general

Gross income shall not include amounts received by an employee (or former employee) from an employer solely in connection with a termination of employment if such amount is received in cash contemporaneously with such termination. (b)

Limitation

If the amount which would (but for this subsection) be excluded from gross income under subsection (a) in connection with any termination of employment exceeds $10,000, such amount shall be reduced (but not below zero) by an amount which bears the same proportion to such amount as— (1)the excess of— (A)such amount, over (B)$10,000, bears to (2)$10,000. (c)

Employment taxes

Amounts excluded from gross income under subsection (a) shall not be taken into account as wages for purposes of chapters 21, 22, 23, 23A, and 24.

(b)

Social security trust funds held harmless

There is hereby appropriated (out of any money in the Treasury not otherwise appropriated) for each fiscal year to each fund under the Social Security Act an amount equal to the reduction in the transfers to such fund for such fiscal year by reason of the amendment made by subsection (a). (c)

Clerical amendment

The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 139B the following new item:

Sec. 139C. Certain employment severance payments.

(d)

Effective date

The amendment made by this section shall apply to amounts received after December 31, 2008.

Increase in credit amount of health insurance costs of eligible individuals

(a)

In general

Subsection (a) of section 35 of the Internal Revenue Code of 1986 is amended by striking 65 percent and inserting 100 percent. (b)

Conforming amendment

Section 7527(b) of such Code is amended by striking 65 percent of. (c)

Effective date

The amendments made by this section shall apply to payments made after December 31, 2008.