Credit for employee health insurance expenses

(a)

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:

45O.

Employee health insurance expenses

(a)

General rule

For purposes of section 38, in the case of a qualified small employer, the employee health insurance expenses credit determined under this section is an amount equal to the applicable percentage of the amount paid by the taxpayer during the taxable year for qualified employee health insurance expenses. (b)

Applicable percentage

For purposes of subsection (a), the applicable percentage is— (1)50 percent in the case of an employer with less than 10 qualified employees, (2)25 percent in the case of an employer with more than 9 but less than 25 qualified employees, and (3)20 percent in the case of an employer with more than 24 but less than 50 qualified employees. (c)

Per employee dollar limitation

The amount of qualified employee health insurance expenses taken into account under subsection (a) with respect to any qualified employee for any taxable year shall not exceed— (1)$4,000 for self-only coverage, and (2)$10,000 for family coverage. (d)

Definitions and special rules

For purposes of this section— (1)

Qualified small employer

(A)

In general

The term qualified small employer means any small employer which— (i)provides eligibility for health insurance coverage (after any waiting period (as defined in section 9801(b)(4))) to all qualified employees of the employer, and (ii)pays at least 50 percent of the cost of such coverage for each qualified employee. (B)

Small employer

(i)

In general

For purposes of this paragraph, the term small employer means, with respect to any taxable year, any employer if— (I)the average gross receipts of such employer for the preceding 3 taxable years does not exceed $5,000,000, and (II)such employer employed an average of more than 1 but less than 50 qualified employees on business days during the preceding taxable year. (ii)

Aggregate gross assets

For purposes of clause (i)(I), the term aggregate gross assets shall have meaning given such term by section 1202(d)(2). (iii)

Employers not in existence in preceding year

For purposes of clause (i)(II)— (I)a preceding taxable year may be taken into account only if the employer was in existence throughout such year, and (II)in the case of an employer which was not in existence throughout the preceding taxable year, the determination of whether such employer is a qualified small employer shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current taxable year. (iv)

Aggregation rules

All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as one person for purposes of this subparagraph. (v)

Predecessors

The Secretary may prescribe regulations which provide for references in this subparagraph to an employer to be treated as including references to predecessors of such employer. (2)

Qualified employee health insurance expenses

(A)

In general

The term qualified employee health insurance expenses means any amount paid by an employer for health insurance coverage to the extent such amount is attributable to coverage provided to any employee while such employee is a qualified employee. (B)

Exception for amounts paid under salary reduction arrangements

No amount paid or incurred for health insurance coverage pursuant to a salary reduction arrangement shall be taken into account under subparagraph (A). (C)

Health insurance coverage

The term health insurance coverage has the meaning given such term by section 9832(b)(1). (3)

Qualified employee

(A)

In general

The term qualified employee means an employee of an employer who, with respect to any period, is not provided health insurance coverage under— (i)a health plan of the employee’s spouse, (ii)title XVIII, XIX, or XXI of the Social Security Act, (iii)chapter 17 of title 38, United States Code, (iv)chapter 55 of title 10, United States Code, (v)chapter 89 of title 5, United States Code, or (vi)any other provision of law. (B)

Employee

The term employee— (i)means any individual, with respect to any calendar year, who is reasonably expected to receive not more than $50,000 of compensation from the employer during such year, (ii)does not include an employee within the meaning of section 401(c)(1), and (iii)includes a leased employee within the meaning of section 414(n). (C)

Compensation

The term compensation means amounts described in section 6051(a)(3). (D)

Inflation adjustment

(i)

In general

In the case of a taxable year beginning after 2007, the $50,000 amount in subparagraph (B)(i) 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 2006 for calendar year 1992 in subparagraph (B) thereof. (ii)

Rounding

If any amount as adjusted under clause (i) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. (4)

No qualified employees excluded

Subsection (a) shall not apply to an employer for any period unless at all times during such period health insurance coverage is available to all qualified employees of such employer under similar terms. (e)

Portion of credit made refundable

(1)

In general

The aggregate credits allowed to a taxpayer under subpart C shall be increased by the lesser of— (A)the credit which would be allowed under subsection (a) without regard to this subsection and the limitation under section 38(c), or (B)the amount by which the aggregate amount of credits allowed by this subpart (determined without regard to this subsection) would increase if the limitation imposed by section 38(c) for any taxable year were increased by the amount of employer payroll taxes imposed on the taxpayer during the calendar year in which the taxable year begins.

The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of the credit otherwise allowable under subsection (a) without regard to section 38(c).

(2)

Employer payroll taxes

For purposes of this subsection— (A)

In general

The term employer payroll taxes means the taxes imposed by— (i)section 3111(b), and (ii)sections 3211(a) and 3221(a) (determined at a rate equal to the rate under section 3111(b)). (B)

Special rule

A rule similar to the rule of section 24(d)(2)(C) shall apply for purposes of subparagraph (A). (f)

Denial of double benefit

No deduction or credit under any other provision of this chapter shall be allowed with respect to qualified employee health insurance expenses taken into account under subsection (a).

(b)

Credit To be part of general business credit

Section 38(b) of the Internal Revenue Code of 1986 (relating to current year business credit) is amended by striking plus at the end of paragraph (30), by striking the period at the end of paragraph (31) and inserting , plus, and by adding at the end the following:

(32)the employee health insurance expenses credit determined under section 45O.

(c)

Clerical amendment

The table of sections for subpart D 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:

Sec. 45O. Employee health insurance expenses.

(d)

Effective date

The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2006.