[House Report 112-55]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-55
======================================================================
AMENDING THE INTERNAL REVENUE CODE OF 1986 TO ELIMINATE CERTAIN TAX
BENEFITS RELATING TO ABORTION
_______
April 6, 2011.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Camp, from the Committee on Ways and Means,
submitted the following
R E P O R T
together with
DISSENTING AND ADDITIONAL VIEWS
[To accompany H.R. 1232]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 1232) to amend the Internal Revenue Code of 1986 to
eliminate certain tax benefits relating to abortion, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................3
II. EXPLANATION OF THE BILL..........................................4
A. Deduction for Medical Expenses Not Allowed for
Abortions (sec. 1 of the bill and sec. 213 of the
Code).............................................. 4
B. Disallowance of Refundable Credit for Coverage Under
Qualified Health Plan Which Provides Coverage for
Abortion (sec. 2 of the bill and sec. 36B of the
Code).............................................. 6
C. Disallowance of Small Employer Health Insurance
Expense Credit for Plan Which Includes Coverage for
Abortion (sec. 3 of the bill and sec. 45R of the
bill).............................................. 9
D. Distributions from Certain Accounts and Arrangements
Includible in Gross Income......................... 12
1. Health flexible spending arrangements (sec. 4 of
the bill and secs. 105(b) and 125 of the Code)... 12
2. Health savings accounts and Archer medical savings
accounts (sec. 4 of the bill and secs. 220 and
223 of the Code)................................. 15
III. VOTES OF THE COMMITTEE..........................................17
IV. BUDGET EFFECTS OF THE BILL......................................18
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......21
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........22
VII. DISSENTING AND ADDITIONAL VIEWS.................................26
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. DEDUCTION FOR MEDICAL EXPENSES NOT ALLOWED FOR ABORTIONS.
(a) In General.--Section 213 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new subsection:
``(g) Amounts Paid for Abortion Not Taken Into Account.--
``(1) In general.--An amount paid during the taxable year for
an abortion shall not be taken into account under subsection
(a).
``(2) Exceptions.--Paragraph (1) shall not apply to--
``(A) an abortion--
``(i) in the case of a pregnancy that is the
result of an act of rape or incest, or
``(ii) in the case where a woman suffers from
a physical disorder, physical injury, or
physical illness that would, as certified by a
physician, place the woman in danger of death
unless an abortion is performed, including a
life-endangering physical condition caused by
or arising from the pregnancy, and
``(B) the treatment of any infection, injury,
disease, or disorder that has been caused by or
exacerbated by the performance of an abortion.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 2. DISALLOWANCE OF REFUNDABLE CREDIT FOR COVERAGE UNDER QUALIFIED
HEALTH PLAN WHICH PROVIDES COVERAGE FOR ABORTION.
(a) In General.--Subparagraph (A) of section 36B(c)(3) of the
Internal Revenue Code of 1986 is amended by inserting before the period
at the end the following: ``or any health plan that includes coverage
for abortions (other than any abortion or treatment described in
section 213(g)(2))''.
(b) Option to Purchase or Offer Separate Coverage or Plan.--Paragraph
(3) of section 36B(c) of such Code is amended by adding at the end the
following new subparagraph:
``(C) Separate abortion coverage or plan allowed.--
``(i) Option to purchase separate coverage or
plan.--Nothing in subparagraph (A) shall be
construed as prohibiting any individual from
purchasing separate coverage for abortions
described in such subparagraph, or a health
plan that includes such abortions, so long as
no credit is allowed under this section with
respect to the premiums for such coverage or
plan.
``(ii) Option to offer coverage or plan.--
Nothing in subparagraph (A) shall restrict any
non-Federal health insurance issuer offering a
health plan from offering separate coverage for
abortions described in such subparagraph, or a
plan that includes such abortions, so long as
premiums for such separate coverage or plan are
not paid for with any amount attributable to
the credit allowed under this section (or the
amount of any advance payment of the credit
under section 1412 of the Patient Protection
and Affordable Care Act).''.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years ending after December 31, 2013.
SEC. 3. DISALLOWANCE OF SMALL EMPLOYER HEALTH INSURANCE EXPENSE CREDIT
FOR PLAN WHICH INCLUDES COVERAGE FOR ABORTION.
(a) In General.--Subsection (h) of section 45R of the Internal
Revenue Code of 1986 is amended--
(1) by striking ``Any term'' and inserting the following:
``(1) In general.--Any term'', and
(2) by adding at the end the following new paragraph:
``(2) Exclusion of health plans including coverage for
abortion.--The terms `qualified health plan' and `health
insurance coverage' shall not include any health plan or
benefit that includes coverage for abortions (other than any
abortion or treatment described in section 213(g)(2)).''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 4. DISTRIBUTIONS FOR ABORTION EXPENSES FROM CERTAIN ACCOUNTS AND
ARRANGEMENTS INCLUDED IN GROSS INCOME.
(a) Flexible Spending Arrangements Under Cafeteria Plans.--Section
125 of the Internal Revenue Code of 1986 is amended by redesignating
subsections (k) and (l) as subsections (l) and (m), respectively, and
by inserting after subsection (j) the following new subsection:
``(k) Abortion Reimbursement From Flexible Spending Arrangement
Included in Gross Income.--Notwithstanding section 105(b), gross income
shall include any reimbursement for expenses incurred for an abortion
(other than any abortion or treatment described in section 213(g)(2))
from a health flexible spending arrangement provided under a cafeteria
plan. Such reimbursement shall not fail to be a qualified benefit for
purposes of this section merely as a result of such inclusion in gross
income.''.
(b) Archer MSAs.--Paragraph (1) of section 220(f) of such Code is
amended by inserting before the period at the end the following: ``,
except that any such amount used to pay for an abortion (other than any
abortion or treatment described in section 213(g)(2)) shall be included
in the gross income of such holder''.
(c) HSAs.--Paragraph (1) of section 223(f) of such Code is amended by
inserting before the period at the end the following: ``, except that
any such amount used to pay for an abortion (other than any abortion or
treatment described in section 213(g)(2)) shall be included in the
gross income of such beneficiary''.
(d) Effective Dates.--
(1) FSA reimbursements.--The amendment made by subsection (a)
shall apply to expenses incurred with respect to taxable years
beginning after the date of the enactment of this Act.
(2) Distributions from savings accounts.--The amendments made
by subsection (b) and (c) shall apply to amounts paid with
respect to taxable years beginning after the date of the
enactment of this Act.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 1232, as amended, reported by the Committee
on Ways and Means, extends the principles of the Hyde
amendment\1\ to certain tax expenditures. The bill amends the
Internal Revenue Code to include the principles of the Hyde
amendment and to eliminate certain tax benefits relating to
abortion.
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\1\ The Hyde amendment is language added to appropriations bills
to prevent the use of Federal funds for abortions except where the life
of the mother would be endangered unless an abortion is performed or
where the pregnancy is the result of an act of rape or incest. For
examples of this provision, see section 508 of Title V of Division D of
the Consolidated Appropriations Act, 2010, Pub. L. No. 111-117.
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Specifically, section 1 provides that an itemized personal
deduction is not allowed for an amount paid for an abortion.
Section 2 disallows the refundable premium assistance credit
for coverage under any qualified health plan that includes
coverage for abortions. Section 3 disallows the small employer
health insurance tax credit with respect to health plans that
include coverage for abortions. Section 4 provides that any
reimbursement from a health flexible spending arrangement under
a cafeteria plan for the expenses incurred for an abortion is
includible in the gross income of the employee. Section 4 also
provides that a distribution from a health savings account or
Archer medical savings account that is used for the cost of an
abortion is includible in gross income. The bill includes the
exceptions provided under the Hyde amendment for abortion of
any pregnancy that places the mother in danger of death unless
an abortion is performed, or is the result of rape or incest.
The provisions of the bill do not apply to amounts paid, health
coverage, reimbursements, or amounts used, for abortions in
these limited circumstances. The bill also does not apply to
treatment for infection, injury, disease, or disorder that has
been caused by or exacerbated by the performance of an
abortion. The provisions of the bill generally apply to taxable
years beginning after the date of enactment except for section
2, which applies to taxable years ending after December 31,
2013.
B. Background and Need for Legislation
On January 20, 2011, two Members of Congress introduced
bills seeking to codify the Hyde Amendment prohibiting taxpayer
funding of abortion, and extending the principles of the Hyde
Amendment to certain tax expenditures that encourage abortion.
Rep. Chris Smith (R-NJ) introduced H.R. 3, the ``No Taxpayer
Funding for Abortion Act,'' and Rep. Joseph Pitts (R-PA)
introduced H.R. 358, the ``Protect Life Act.'' The Committee on
Ways and Means received sequential referrals on both bills
because the bills include tax provisions that fall within the
jurisdiction of the Committee. The Committee believed it was
appropriate to review the tax language in both bills to ensure
the tax provisions would be clear for taxpayers and
administrable for the Internal Revenue Service. The tax
language in H.R. 3, specifically, created ambiguities and thus
the Committee on Ways and Means decided to develop substitute
tax provisions, embodied in the text of H.R. 1232, that provide
greater clarity to taxpayers, with the intent that these
provisions be added to the non-tax provisions of H.R. 3.
C. Legislative History
Background
H.R. 1232 was introduced on March 29, 2011, and was
referred to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up the bill on March
31, 2011, and ordered the bill, as amended, favorably reported.
Committee hearings
On March 16, 2011, the Subcommittee on Select Revenue
Measures of the House Committee on Ways and Means held a
hearing on H.R. 3, the ``No Taxpayer Funding for Abortion
Act,'' as ordered reported by the House Committee on the
Judiciary, and H.R. 358, the ``Protect Life Act,'' as reported
by the Committee on Energy and Commerce.
II. EXPLANATION OF THE BILL
A. Deduction for Medical Expenses Not Allowed for Abortions (Sec. 1 of
the Bill and Sec. 213 of the Code)
PRESENT LAW
Section 213 of the Internal Revenue Code (``Code'')\2\
allows a deduction\3\ for certain expenses paid for medical
care of the taxpayer, the taxpayer's spouse, and the taxpayer's
dependents to the extent that such expenses exceed 7.5 percent
of the taxpayer's adjusted gross income\4\ (generally 10
percent for taxable years beginning after December 31,
2012).\5\
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\2\Except where otherwise noted, all section references are to the
Internal Revenue Code of 1986, as amended.
\3\This deduction is available both to insured and uninsured
individuals; thus, for example, an individual with employer-provided
health insurance (or certain other forms of tax-subsidized health
benefits) may also claim the itemized deduction for the individual's
medical expenses not covered by that insurance if the 7.5 (or 10)
percent adjusted gross income threshold is met.
\4\For purposes of the alternative minimum tax, medical expenses
are deductible only to the extent that they exceed 10 percent of
adjusted gross income.
\5\For taxable years ending before January 1, 2017, if either the
taxpayer or the taxpayer's spouse turns 65 before the end of the
taxable year, the threshold remains at 7.5 percent of adjusted gross
income.
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Medical care is defined for purposes of the deduction as
amounts paid for the diagnosis, cure, mitigation, treatment, or
prevention of disease, or for the purpose of affecting the
structure or function of the body, for certain transportation
costs associated with such care, and for insurance covering
such care.\6\ Operations or treatments affecting any portion of
the body, including obstetric procedures, but excluding illegal
procedures or treatments, are considered to be for the purpose
of affecting the structure or function of the body, and thus
constitute medical care.\7\ Costs associated with legal
abortions are medical care expenses that are deductible under
section 213.\8\
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\6\Sec. 213(d). Section 213(b) provides that any amount paid during
a taxable year for medicine or drugs is taken into account for this
deduction as a medical expense only if the medicine or drug is a
prescribed drug or is insulin even though such medicine and drugs are
included in the definition of medical care under section 213(d).
\7\Treas. Reg. sec. 1.213-1(e).
\8\Rev. Rul. 73-201, 1973-1 C.B. 140.
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REASONS FOR CHANGE
The Committee believes it is appropriate to extend the
principles of the Hyde amendment, which generally precludes the
use of Federal funds to be expended for any abortion (except
where the life of the mother would be endangered unless an
abortion is performed or where the pregnancy is the result of
an act of rape or incest) to certain tax expenditures under the
Internal Revenue Code. As a result, the Committee does not
believe that taxpayers should generally be able to claim a tax
benefit for expenses paid for an abortion and thus believes
that it is inappropriate for a deduction to be allowed for such
expenses.
EXPLANATION OF PROVISION
Under the provision, an amount paid for an abortion is not
taken into account for purposes of the deduction for medical
expenses under section 213. Thus, such amount is both not
deductible and not taken into account in determining whether
the taxpayer has met the 7.5 (or 10) percent of adjusted gross
income threshold for medical expenses that qualify for the
deduction.
However, the provision does not apply to amounts paid for
an abortion in the case of a pregnancy that is the result of
rape or incest, or in the case of a woman who suffers from a
physical disorder, injury, or illness that would, as certified
by a physician, place the woman in danger of death unless an
abortion is performed, including a life-endangering physical
condition caused by or arising from the pregnancy itself
(``excluded abortions''). The provision also does not apply to
medical expenses for any treatment of any infection, injury,
disease, or disorder that has been caused by or exacerbated by
the performance of an abortion (``excluded abortion-related
treatment'').
EFFECTIVE DATE
The provision applies to taxable years beginning after date
of enactment.
B. Disallowance of Refundable Credit for Coverage Under Qualified
Health Plan Which Provides Coverage for Abortion (Sec. 2 of the Bill
and Sec. 36B of the Code)
PRESENT LAW
In general
Section 36B, added to the Code by the Patient Protection
and Affordable Care Act, as amended (``PPACA''),\9\ provides a
refundable tax credit (the ``premium assistance credit'') for
eligible individuals and families who purchase health insurance
through a health insurance exchange.\10\ The premium assistance
credit, which is refundable and payable in advance directly to
the insurer, subsidizes the purchase of qualified health plans
through an exchange.\11\
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\9\Pub. L. No. 111-148.
\10\Individuals enrolled in multi-state plans, pursuant to section
1334 of PPACA, are also eligible for the credit.
\11\Under PPACA, States are to establish American Health Benefit
Exchanges, commonly referred to simply as ``exchanges.'' These
exchanges will be governmental agencies or nonprofit entities that,
among other services, facilitate the purchase of health plans that meet
certain minimum enrollment and benefit requirements.
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In order to receive advance payment of the premium
assistance credit, an eligible individual enrolls in a plan
offered through an exchange and reports his or her income to
the exchange. Based on the information provided to the
exchange, the individual receives a premium assistance credit
based on income and the Treasury pays the premium assistance
credit amount directly to the insurance plan in which the
individual is enrolled. The individual then pays to the plan in
which he or she is enrolled the dollar difference between the
premium tax credit amount and the total premium charged for the
plan.\12\ Individuals who fail to pay all or part of the
remaining premium amount are given a mandatory three-month
grace period prior to an involuntary termination of their
participation in the plan. Initial eligibility for the premium
assistance credit is based on the individual's income for the
taxable year ending two years prior to the enrollment period.
Individuals (or couples) who experience a change in marital
status or other household circumstance, experience a decrease
in income of more than 20 percent, or receive unemployment
insurance, may update eligibility information or request a
redetermination of their tax credit eligibility. Excess advance
payments may be subject to recapture.\13\
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\12\Although the credit is generally payable in advance directly to
the insurer, individuals may choose to purchase health insurance out-
of-pocket and claim the credit at the end of the taxable year. The
amount of the reduction in premium is required to be included with each
bill sent to the individual.
\13\Sec. 36B(f)(2).
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Eligible individuals
The premium assistance credit is available for individuals
(single or joint filers) with household incomes between 100 and
400 percent of the Federal poverty level (``FPL'') for the
family size involved.\14\ Individuals who are eligible for
certain other health insurance, including certain health
insurance through an employer or a spouse's employer, may not
be eligible for the credit. Household income is defined as the
sum of: (1) the taxpayer's modified adjusted gross income, plus
(2) the aggregate modified adjusted gross incomes of all other
individuals taken into account in determining that taxpayer's
family size (but only if such individuals are required to file
a tax return for the taxable year). To be eligible for the
premium assistance credit, taxpayers who are married (within
the meaning of section 7703) must file a joint return.
Individuals who are listed as dependents on a return are
ineligible for the premium assistance credit.
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\14\Individuals who are lawfully present in the United States but
are not eligible for Medicaid because of their immigration status are
treated as having a household income equal to 100 percent of FPL (and
thus eligible for the premium assistance credit) as long as their
household income does not actually exceed 100 percent of FPL.
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Calculation of the credit
The premium assistance credit amount is determined based on
the percentage of income the cost of premiums represents,
rising from two percent of income for those at 100 percent of
FPL to 9.5 percent of income for those at 400 percent of FPL.
Beginning in 2014, the percentages of income are indexed to the
excess of premium growth over income growth for the preceding
calendar year. Beginning in 2018, if the aggregate amount of
premium assistance credits and cost-sharing reductions\15\
exceeds 0.504 percent of the gross domestic product for that
year, the percentage of income is also adjusted to reflect the
excess (if any) of premium growth over the rate of growth in
the consumer price index for the preceding calendar year. For
purposes of calculating family size, individuals who are in the
country illegally are not included.
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\15\As described in section 1402 of PPACA.
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Premium assistance credits are not available for months in
which an individual has a free choice voucher (as defined in
section 10108 of PPACA).
Qualified health plans
In general, qualified health plans are those plans that are
certified as being qualified by the Secretary of Health and
Human Services (``HHS''), provide essential health benefits
packages,\16\ are offered by a qualifying health insurance
issuer, and comply with the regulations and requirements
developed by the Secretary of HHS for exchange
participation.\17\ For purposes of the premium assistance
credit, however, catastrophic plans (as described in section
1302(e) of PPACA) are not considered qualified health plans.
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\16\As defined in section 1302(a) of PPACA.
\17\Section 1301 of PPACA.
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Treatment of abortions
Premium assistance credits, or any amounts that are
attributable to them, cannot be used to pay for abortions for
which Federal funding is prohibited. To prevent the premium
assistance credit from being used for the cost of abortion
coverage, section 1303 of PPACA requires that the portion of
any premium attributable to the cost of abortion coverage be
paid separately, either with a separate check or, in the case
of payroll deductions, a separate deduction. Section 1303
further requires that the separate payments be allocated to a
segregated account under the health plan and that the cost of
abortion services covered under the plan only be reimbursed
from funds in the segregated account. Under preexisting law,
this separate payment of premiums and segregation of the assets
alone is not sufficient to treat abortion coverage as being
offered under a separate health plan. Rather, there must also
be a separate election to purchase the coverage of abortion and
a separate election to purchase the portion of the plan that
does not cover abortion.\18\
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\18\See Treas. Reg. sec. 54.9831-1(c)(3) for the rules for
determining when limited excepted benefits are not an integral part of
a group health plan.
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REASONS FOR CHANGE
The Committee believes it is appropriate to extend the
principles of the Hyde amendment, which generally precludes the
use of Federal funds to be expended for any abortion (except
where the life of the mother would be endangered unless an
abortion is performed or where the pregnancy is the result of
an act of rape or incest) to certain tax expenditures under the
Internal Revenue Code. In the case of premium assistance
credits, Federal outlays constitute most of the budget effect,
and therefore it is proper to view the credits similarly to
Federal spending programs already subject to the Hyde
amendment. Given this, the Committee believes it is
inappropriate for a premium assistance credit to be used for
health plans that include abortion coverage.
EXPLANATION OF PROVISION
The provision amends section 36B in three ways. First, it
amends the definition of qualified health plan so that the
definition excludes health plans that cover abortion. As a
result, premium assistance credits may not be applied towards
plans that offer such coverage.
Second, the provision adds a new subparagraph to section
36B stating that, despite the change to the definition of
qualified health plan, individuals are not prohibited from
purchasing separate abortion coverage or health plans that
include abortion coverage, as long as premium assistance
credits are not used to purchase the separate coverage or plan.
Third, the provision adds a second new subparagraph to section
36B explicitly stating that, despite the change to the
definition of qualified health plan, non-Federal health
insurance issuers (for example, private issuers that offer
plans through an exchange) that offer qualified health plans
are not prohibited from offering separate abortion coverage, or
plans that have abortion coverage, as long as the premiums for
such coverage are not paid for with premium assistance credits.
For purposes of the provision, qualified health plans may
cover excluded abortions and excluded abortion-related
treatment.
EFFECTIVE DATE
The provision applies to taxable years ending after
December 31, 2013.
C. Disallowance of Small Employer Health Insurance Expense Credit for
Plan Which Includes Coverage for Abortion (Sec. 3 of the Bill and Sec.
45R of the Bill)
PRESENT LAW
Small business employers eligible for the credit
PPACA provides a tax credit for qualified small employers
for nonelective contributions to purchase health insurance for
their employees. A qualified small employer for this purpose
generally is an employer with no more than 25 full-time
equivalent employees (``FTEs'') employed during the employer's
taxable year, and whose employees have annual full-time
equivalent wages that average no more than $50,000. However,
the full amount of the credit is available only to an employer
with 10 or fewer FTEs and whose employees have average annual
full-time equivalent wages from the employer of not more than
$25,000. These wage limits are indexed to the Consumer Price
Index for Urban Consumers (``CPI-U'') for years beginning in
2014.
An employer's FTEs are calculated by dividing the total
hours worked by all employees during the employer's taxable
year by 2080. For this purpose, the maximum number of hours
that are counted for any single employee is 2080 (rounded down
to the nearest whole number). Wages are defined in the same
manner as under section 3121(a) (as determined for purposes of
FICA taxes but without regard to the dollar limit for covered
wages) and the average wage is determined by dividing the total
wages paid by the small employer by the number of FTEs (rounded
down to the nearest $1,000).
The number of hours of service worked by, and wages paid
to, a seasonal worker of an employer is not taken into account
in determining the FTEs and average annual wages of the
employer unless the worker works for the employer on more than
120 days during the taxable year.
The contributions must be provided under an arrangement
that requires the eligible small employer to make a nonelective
contribution on behalf of each employee who enrolls in certain
defined qualifying health insurance offered to employees by the
employer equal to a uniform percentage (not less than 50
percent) of the premium cost of the qualifying health plan.
The credit is not payable in advance to the taxpayer or
refundable. Thus, the employer must pay the employees' premiums
during the year and claim the credit at the end of the year on
its income tax return. The credit is a general business credit,
and may be carried back for one year and carried forward for 20
years. The credit is available to offset tax liability under
the alternative minimum tax.
Years the credit is available
The credit is initially available for any taxable year of
an employer beginning in 2010, 2011, 2012, or 2013. Qualifying
health insurance for claiming the credit for this first phase
of the credit is health insurance coverage within the meaning
of section 9832, which is generally health insurance coverage
purchased from an insurance company licensed under State law.
For taxable years beginning in years after 2013, the credit
is only available to a qualified small employer that purchases
health insurance coverage for its employees through a State
exchange and is only available for a maximum coverage period of
two consecutive taxable years beginning with the first year in
which the employer or any predecessor first offers one or more
qualified plans to its employees through an exchange.
The maximum two-year coverage period does not take into
account any taxable years beginning before 2014. Thus a
qualified small employer could potentially qualify for this
credit for six taxable years, four years under the first phase
and two years under the second phase.
Calculation of credit amount
Only nonelective contributions by the employer are taken
into account in calculating the credit. Therefore, any amount
contributed pursuant to a salary reduction arrangement under a
cafeteria plan within the meaning of section 125 is not treated
as an employer contribution for purposes of this credit. The
credit is equal to the lesser of the following two amounts
multiplied by an applicable tax credit percentage: (1) the
amount of contributions the employer made on behalf of the
employees during the taxable year for the qualifying health
coverage, and (2) the amount of contributions that the employer
would have made during the taxable year if each employee had
enrolled in coverage with a small business benchmark premium.
As discussed above, this tax credit is only available if this
uniform percentage is at least 50 percent.
For the first phase of the credit (any taxable years
beginning in 2010, 2011, 2012, or 2013), the applicable tax
credit percentage is 35 percent. The benchmark premium is the
average total premium cost in the small group market for
employer-sponsored coverage in the employer's State. The
premium and the benchmark premium vary based on the type of
coverage provided to the employee (e.g., single or family).
For taxable years beginning in years after 2013, the
applicable tax credit percentage is 50 percent. The benchmark
premium is the average premium cost in the small group market
in the rating area in which the employee enrolls in coverage.
The premium and the benchmark premium vary based on the type of
coverage being provided to the employee (e.g., single or
family).
The credit is reduced for an employer with between 10 and
25 FTEs. The amount of this reduction is equal to the amount of
the credit (determined before any reduction) multiplied by a
fraction, the numerator of which is the number of FTEs of the
employer in excess of 10 and the denominator of which is 15.
The credit is also reduced for an employer for whom the average
wages per employee is between $25,000 and $50,000. The amount
of this reduction is equal to the amount of the credit
(determined before any reduction) multiplied by a fraction, the
numerator of which is the average annual wages of the employer
in excess of $25,000 and the denominator of which is $25,000.
For an employer with both more than 10 FTEs and average annual
wages in excess of $25,000, the reduction is the sum of the
amounts of the two reductions.
Tax-exempt organizations as qualified small employers
Any organization described in section 501(c) that is exempt
under section 501(a) and otherwise qualifies for the small
business tax credit is eligible to receive the credit. However,
for tax-exempt organizations, the applicable percentage for the
credit during the first phase of the credit (any taxable year
beginning in 2010, 2011, 2012, or 2013) is limited to 25
percent, and the applicable percentage for the credit during
the second phase (taxable years beginning in years after 2013)
is limited to 35 percent. The small business tax credit is
otherwise calculated in the same manner for tax-exempt
organizations that are qualified small employers as for all
other qualified small employers. However, for tax-exempt
organizations, instead of being a general business credit, the
small business tax credit is a refundable tax credit limited to
the amount of the payroll taxes of the employer during the
calendar year in which the taxable year begins. For this
purpose, payroll taxes of an employer means: (1) the amount of
income tax required to be withheld from its employees' wages;
(2) the amount of hospital insurance tax under section 3101(b)
required to be withheld from its employees' wages; and (3) the
amount of the hospital insurance tax under section 3111(b)
imposed on the employer.
Special rules
The employer is entitled to a deduction under section 162
equal to the amount of the employer contribution minus the
dollar amount of the credit.
The employer is determined by applying the employer
aggregations rules in section 414(b), (c), and (m). In
addition, the definition of employee includes a leased employee
within the meaning of section 414(n).
Self-employed individuals, including partners and sole
proprietors, two percent share-holders of an S Corporation, and
five percent owners of the employer (within the meaning of
section 416(i)(1)(B)(i)) are not treated as employees for
purposes of this credit. There is also a special rule to
prevent sole proprietorships from receiving the credit for the
owner and their family members. Thus, no credit is available
for any contribution to the purchase of health insurance for
these individuals and these individuals are not taken into
account in determining the number of FTEs or average full-time
equivalent wages.
REASONS FOR CHANGE
The Committee believes it is appropriate to extend the
principles of the Hyde amendment, which generally precludes the
use of Federal funds to be expended for any abortion (except
where the life of the mother would be endangered unless an
abortion is performed or where the pregnancy is the result of
an act of rape or incest) to certain tax expenditures under the
Internal Revenue Code. In the case of small employer health
insurance expense credits, Federal outlays constitute much of
the budget effect, and therefore it is proper to view the
credits similarly to Federal spending programs already subject
to the Hyde amendment. Given this, the Committee believes that
it is inappropriate for an employer to be eligible for the
small employer health insurance tax credit on the basis of
health insurance that includes abortion coverage.
EXPLANATION OF PROVISION
Under the provision, health plans that include abortion
coverage are not considered qualifying health plans for
purposes of determining eligibility for the small employer
health insurance tax credit. Thus, contributions by small
employers toward the cost of health insurance premiums for
plans that cover abortion are disregarded when determining
whether the employer is eligible for the small employer health
insurance tax credit.
For purposes of the provision, qualified health plans may
cover excluded abortions and excluded abortion-related
treatment.
EFFECTIVE DATE
The provision applies to taxable years beginning after date
of enactment.
D. Distributions From Certain Accounts and Arrangements Includible in
Gross Income
1. Health flexible spending arrangements (sec. 4 of the bill and secs.
105(b) and 125 of the Code)
PRESENT LAW
Exclusion from income for employer-provided health coverage
Section 106 generally provides that the value of coverage
under an employer-provided health plan for employees (including
retirees) and their dependents\19\ is excludible from gross
income.\20\ The exclusion applies both to coverage under a
self-funded health plan (self-insured coverage) and health
insurance purchased from an insurance company. In addition,
under section 105(b), any reimbursements under the health plan
for incurred expense for medical care for employees (including
retirees) and their dependents (such as when the plan pays the
doctor and the hospital for an employee's surgery) generally
are excludible from gross income. A similar rule excludes the
value of coverage under an employer-provided health plan, and
reimbursement for incurred expenses for medical care, from the
employees' wages for payroll tax purposes.\21\
---------------------------------------------------------------------------
\19\For purposes of employer sponsored coverage, the term
dependents when used with respect to an individual (including an
employee) is intended to include the individual's spouse, dependents
(as defined in section 152, determined without regard to section
152(b)(1), (b)(2), and (d)(1)(B)), and any child (as defined in section
152(f)(1)) of the individual who as of the end of the taxable year has
not attained age 27.
\20\Health coverage provided to active members of the uniformed
services, military retirees, and their dependents is excludable under
section 134. That section provides an exclusion for ``qualified
military benefits,'' defined as benefits received by reason of status
or service as a member of the uniformed services and which were
excludable from gross income on September 9, 1986, under any provision
of law, regulation, or administrative practice then in effect.
\21\Secs. 3121(a)(2), 3306(a)(2), and 3401(a)(20). Also see sec.
3231(e)(1) for a similar rule with respect to compensation for purposes
of Railroad Retirement Tax.
---------------------------------------------------------------------------
Medical care for purposes of section 105(b) generally has
the same meaning as for purposes of the deduction for medical
expenses under section 213 except that medical care includes an
amount paid for medicine or a drug only if such medicine or
drug is insulin or is prescribed by a physician but does
include prescribed drugs that are also available without a
prescription. Medical care is defined as including amounts paid
for the diagnosis, cure, mitigation, treatment, or prevention
of disease, or for the purpose of affecting the structure or
function of the body, and for certain transportation costs
associated with such care. Operations or treatments affecting
any portion of the body, including obstetric procedures, but
excluding illegal procedures or treatments, are considered to
be for the purpose of affecting the structure or function of
the body, and thus constitute medical care.\22\ The costs
associated with legal abortions are medical care under this
definition.\23\
---------------------------------------------------------------------------
\22\Treas. Reg. sec. 1.213-1(e).
\23\Rev. Rul. 73-201, 1973-1 C.B. 140.
---------------------------------------------------------------------------
Requirements for a cafeteria plan
If an employee receives a qualified benefit based on the
employee's election between the qualified benefit and a taxable
benefit under a cafeteria plan, the qualified benefit generally
is not includible in gross income.\24\ Qualified benefits under
a cafeteria plan are generally employer-provided benefits that
are excludible from gross income under an express provision of
the Code and include employer-provided coverage under a health
plan. The one specified qualified benefit that is not
excludible from gross income is group term life insurance in
excess of the $50,000 limit.\25\ However, if a plan offering an
employee an election between taxable benefits (including cash)
and nontaxable qualified benefits does not meet the
requirements for being a cafeteria plan, the election between
taxable and nontaxable benefits results in gross income to the
employee, regardless of what benefit is elected and when the
election is made.\26\
---------------------------------------------------------------------------
\24\Sec. 125(a).
\25\Under section 79, employer-provided group term life insurance
is only excludable from gross income to the extent not in excess of
$50,000. Group term life insurance not in excess of the $50,000 limit
is also a qualified benefit under a cafeteria plan.
\26\Prop. Treas. Reg. sec. 1.125-1(b).
---------------------------------------------------------------------------
A cafeteria plan is required to be a separate written plan
under which all participants are employees, and participants
are permitted to choose among at least one permitted taxable
benefit (for example, current cash compensation) and at least
one qualified benefit. Finally, a cafeteria plan must not
provide for deferral of compensation, except as specifically
permitted in sections 125(d)(2)(B), (C), or (D). Some employer-
provided benefits that are not includible in gross income under
an express provision of the Code are explicitly not allowed in
a cafeteria plan. These benefits are generally referred to as
nonqualified benefits. Examples of nonqualified benefits
include scholarships,\27\ employer-provided meals and
lodging,\28\ educational assistance,\29\ and fringe
benefits.\30\ A plan offering any nonqualified benefit is not a
cafeteria plan.\31\
---------------------------------------------------------------------------
\27\Sec. 117.
\28\Sec. 119.
\29\Sec. 127.
\30\Sec. 132.
\31\Prop. Treas. Reg. sec. 1.125-1(q). Long-term care services,
contributions to Archer medical savings accounts, group term life
insurance for an employee's spouse, child or dependent, and elective
deferrals to section 403(b) plans are also nonqualified benefits.
---------------------------------------------------------------------------
Flexible spending arrangement under a cafeteria plan
A flexible spending arrangement for medical expenses under
a cafeteria plan (``health FSA'') is health coverage in the
form of an unfunded arrangement under which employees are given
the option to reduce their current cash compensation and
instead have the amount of the salary reduction contributions
made available for use in reimbursing the employee for incurred
expenses for medical care of the employee and the employee's
dependents.\32\ In the case of a health FSA, the employee makes
a choice under a cafeteria plan before the beginning of the
coverage period between (1) receiving cash compensation, and
(2) a reduction in salary\33\ equal to an amount not exceeding
the maximum amount of reimbursement. Under a health FSA, the
maximum amount of reimbursement must be available at all times
during the coverage period (reduced by any reimbursements
already made during the coverage period) even though salary
reduction contributions are made ratably over the coverage
period.\34\ The reimbursements for incurred expense for medical
care under a health FSA are excludible from gross income under
section 105(b). A health FSA is not required to reimburse all
medical expenses within the definition of medical care for
purposes of section 105(b). The employer can specify that only
certain medical expenses are reimbursed.
---------------------------------------------------------------------------
\32\Under Prop. Treas. Reg. sec. 1.125-5(b), a health FSA is
generally distinguishable from other employer-provided health coverage
offered under a cafeteria plan by the relationship between the value of
the coverage for a year and the maximum amount of reimbursement
reasonably available during the same period. A health FSA generally is
defined as a benefit program that provides employees with coverage
under which specific incurred medical care expenses may be reimbursed
(subject to reimbursement maximums and other conditions) and the
maximum amount of reimbursement reasonably available is less than 500
percent of the value of such coverage.
\33\Under section 125(i), for taxable years beginning after
December 31, 2012, salary reduction contributions under a health FSA
are not permitted to exceed $2,500.
\34\Prop. Treas. Reg. sec. 125-5(d).
---------------------------------------------------------------------------
Health FSAs are subject to the general requirements for
cafeteria plans, including the requirement that the plan not
provide deferred compensation. This requires that amounts
remaining under a health FSA at the end of a plan year be
forfeited by the employee (referred to as the ``use-it-or-lose-
it rule'').\35\ A health FSA is permitted to allow a grace
period not to exceed two and one-half months immediately
following the end of the plan year during which unused amounts
may be used.\36\ A health FSA can also include employer flex-
credits, which are non-elective employer contributions that the
employer makes for every employee eligible to participate in
the employer's cafeteria plan, to be used only for one or more
qualified benefits.\37\
---------------------------------------------------------------------------
\35\Sec. 125(d)(2) and Prop. Treas. Reg. sec. 1.125-5(c).
\36\Notice 2005-42, 2005-1 C.B. 1204 and Prop. Treas. Reg. sec.
1.125-1(e).
\37\Prop. Treas. Reg. sec. 1-125-5(b).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes it is appropriate to extend the
principles of the Hyde amendment, which generally precludes the
use of Federal funds to be expended for any abortion (except
where the life of the mother would be endangered unless an
abortion is performed or where the pregnancy is the result of
an act of rape or incest) to certain tax expenditures under the
Internal Revenue Code. Thus, the Committee does not believe
that reimbursements from a health FSA under a cafeteria plan
that may be attributable to salary reduction contributions that
reimburse the medical expenses of an abortion should generally
be tax-preferred and believes that such reimbursements should
not be excludible from gross income.
EXPLANATION OF PROVISION
Under the provision, any reimbursement from a health FSA
under a cafeteria plan for the expenses incurred for an
abortion (other than for excluded abortions and excluded
abortion-related treatment) is includible in the gross income
of the employee. However, the reimbursement does not cause the
health FSA to fail to satisfy the requirements of section 125.
EFFECTIVE DATE
The provision applies to expenses incurred with respect to
taxable years beginning after date of enactment.
2. Health savings accounts and Archer medical savings accounts (sec. 4
of the bill and secs. 220 and 223 of the Code)
PRESENT LAW
Health savings account
Present law provides that individuals with a high
deductible health plan (and generally no other health plan) may
establish and make tax-deductible contributions to a health
savings account (``HSA'').\38\ An HSA is a tax-exempt account
held by a trustee or custodian for the benefit of the
individual. An HSA is subject to a condition that the
individual is covered under a high deductible health plan
(purchased either through the individual market or through an
employer). The decision to create and fund an HSA is made on an
individual-by-individual basis and does not require any action
on the part of the employer.
---------------------------------------------------------------------------
\38\An individual with other coverage in addition to a high
deductible health plan is still eligible for an HSA if such other
coverage is ``permitted insurance'' or ``permitted coverage.''
Permitted insurance is: (1) insurance if substantially all of the
coverage provided under such insurance relates to (a) liabilities
incurred under worker's compensation law, (b) tort liabilities, (c)
liabilities relating to ownership or use of property (e.g., auto
insurance), or (d) such other similar liabilities as the Secretary may
prescribe by regulations; (2) insurance for a specified disease or
illness; and (3) insurance that provides a fixed payment for
hospitalization. Permitted coverage is coverage (whether provided
through insurance or otherwise) for accidents, disability, dental care,
vision care, or long-term care. With respect to coverage for years
beginning after December 31, 2006, certain coverage under a Health FSA
is disregarded in determining eligibility for an HSA.
---------------------------------------------------------------------------
Subject to certain limitations, contributions made to an
HSA by an employer, including contributions made through a
cafeteria plan through salary reduction, are excludible from
income (and from wages for payroll tax purposes). Contributions
made by individuals are deductible for income tax purposes,
regardless of whether the individuals itemize their deductions
on their tax return (rather than claiming the standard
deduction).
For 2011, the maximum aggregate annual contribution that
can be made to an HSA is $3,050 in the case of self-only
coverage and $6,150 in the case of family coverage. The annual
contribution limits are increased for individuals who have
attained age 55 by the end of the taxable year (referred to as
``catch-up contributions''). In the case of policyholders and
covered spouses who are age 55 or older, the HSA annual
contribution limit is greater than the otherwise applicable
limit by $1,000 in 2011 and thereafter. Contributions,
including catch-up contributions, cannot be made once an
individual is enrolled in Medicare.
A high deductible health plan is a health plan that has an
annual deductible that is at least $1,200 for self-only
coverage or $2,400 for family coverage for 2011 and that limits
the sum of the annual deductible and other payments that the
individual must make with respect to covered benefits to no
more than $5,950 in the case of self-only coverage and $11,900
in the case of family coverage for 2011.
Archer medical savings account
An Archer medical savings account (``Archer MSA'') is also
a tax-exempt trust or custodial account to which tax-deductible
contributions may be made by individuals with a high deductible
health plan.\39\ Archer MSAs provide tax benefits similar to,
but generally not as favorable as, those provided by HSAs for
individuals covered by high deductible health plans. The main
differences include: (1) only self-employed individuals and
employees of small employers are eligible to have an Archer
MSA; (2) for Archer MSA purposes, a high deductible health plan
is a health plan with (a) an annual deductible for 2011 of at
least $2,050 and no more than $3,050 in the case of self-only
coverage and at least $4,100 and no more than $6,050 in the
case of family coverage and (b) maximum out-of pocket expenses
for 2011 of no more than $4,100 in the case of self-only
coverage and no more than $7,500 in the case of family
coverage. After 2007, no new contributions can be made to
Archer MSAs except by or on behalf of individuals who
previously had made Archer MSA contributions and employees who
are employed by a participating employer.
---------------------------------------------------------------------------
\39\Sec. 220.
---------------------------------------------------------------------------
Tax treatment of distributions
General rule
Distributions from an HSA or Archer MSA that are used for
qualified medical expenses are excludible from gross income.
Distributions from an HSA or Archer MSA that are not used for
qualified medical expenses are includible in gross income. An
additional 20-percent tax is added for all HSA and Archer MSA
distributions not used for qualified medical expenses. The
additional 20-percent tax does not apply, however, if the
distribution is made after death, disability, or attainment of
age of Medicare eligibility (currently, age 65).
Qualified medical expenses
The definition of qualified medical expense generally means
amounts paid for medical care as defined for purposes of the
deduction for medical expenses under section 213 with the
exception that insurance premiums are qualified medical
expenses in only limited circumstances. Also qualified medical
expense includes an amount paid for medicine or a drug (other
than insulin) only if such medicine or drug is prescribed by a
physician but does include prescribed drugs that are also
available without a prescription.
Medical care is defined for purposes of the deduction for
medical expenses under section 213 as including amounts paid
for the diagnosis, cure, mitigation, treatment, or prevention
of disease, or for the purpose of affecting the structure or
function of the body, and for certain transportation costs
associated with such care. Operations or treatments affecting
any portion of the body, including obstetric procedures, but
excluding illegal procedures or treatments, are considered to
be for the purpose of affecting the structure or function of
the body, and thus constitute medical care.\40\ The costs
associated with legal abortions are medical care under this
definition.\41\
---------------------------------------------------------------------------
\40\Treas. Reg. sec. 1.213-1(e).
\41\Rev. Rul. 73-201, 1973-1 C.B. 140.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes it is appropriate to extend the
principles of the Hyde amendment, which generally precludes the
use of Federal funds to be expended for any abortion (except
where the life of the mother would be endangered unless an
abortion is performed or where the pregnancy is the result of
an act of rape or incest) to certain tax expenditures under the
Internal Revenue Code. Thus, the Committee does not believe
that distributions from a taxpayer's funds in HSAs and Archer
MSAs that are used to pay for an abortion should generally be
tax-preferred and thus believes that such distributions should
not be excludible from gross income.
EXPLANATION OF PROVISION
Under the provision, a distribution from an HSA or Archer
MSA used for the cost of an abortion (other than for excluded
abortions and excluded abortion-related treatment) is
includible in gross income. However, because the distribution
is a qualified medical expense for purposes of the HSA and
Archer MSA rules, the distribution is not subject to the 20-
percent additional tax applicable to distributions not used for
qualified medical expenses.
EFFECTIVE DATE
The provision applies to amounts paid from an HSA or Archer
MSA with respect to taxable years beginning after date of
enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 1232.
The bill H.R. 1232, was ordered favorably reported, as
amended, by a rollcall vote of 22 yeas to 14 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp...................... X ........ ......... Mr. Levin....... ........ X .........
Mr. Herger..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Stark........ ........ X .........
Mr. Brady...................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Ryan....................... X ........ ......... Mr. Lewis........ ........ X .........
Mr. Nunes...................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Tiberi..................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Davis...................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Reichert................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Boustany................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Heller..................... X ........ ......... Mr. Blumenauer... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Kind......... ........ X .........
Mr. Gerlach.................... X ........ ......... Mr. Pascrell..... ........ ........ .........
Mr. Price...................... X ........ ......... Ms. Berkley...... ........ X .........
Mr. Buchanan................... X ........ ......... Mr. Crowley...... ........ X .........
Mr. Smith...................... X ........ .........
Mr. Schock..................... X ........ .........
Ms. Jenkins.................... X ........ .........
Mr. Paulsen.................... X ........ .........
Mr. Marchant................... X ........ .........
Mr. Berg....................... X ........ .........
Ms. Black...................... X ........ .........
----------------------------------------------------------------------------------------------------------------
Votes on Amendments
The Crowley Amendment to the Chairman's Amendment in the
Nature of a Substitute to H.R. 1232 failed to pass by a
rollcall vote of 14 yeas to 22 nays (with a quorum being
present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp....................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Brady...................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Ryan....................... ........ X ......... Mr. Lewis........ X ........ .........
Mr. Nunes...................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Tiberi..................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. Davis...................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Reichert................... ........ X ......... Mr. Thompson..... X ........ .........
Mr. Boustany................... ........ X ......... Mr. Larson....... X ........ .........
Mr. Heller..................... ........ X ......... Mr. Blumenauer... X ........ .........
Mr. Roskam..................... ........ X ......... Mr. Kind......... X ........ .........
Mr. Gerlach.................... ........ X ......... Mr. Pascrell..... ........ ........ .........
Mr. Price...................... ........ X ......... Ms. Berkley...... X ........ .........
Mr. Buchanan................... ........ X ......... Mr. Crowley...... X ........ .........
Mr. Smith...................... ........ X .........
Mr. Schock..................... ........ X .........
Ms. Jenkins.................... ........ X .........
Mr. Paulsen.................... ........ X .........
Mr. Marchant................... ........ X .........
Mr. Berg....................... ........ X .........
Ms. Black...................... ........ X .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the revenue provisions
of the bill, H.R. 1232 as reported.
The bill, as reported, is estimated to have the following
effects on budget receipts for fiscal years 2011-2021:
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee states further that the bill involves no new or
increased tax expenditures.
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 5, 2011.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1232, a bill to
amend the Internal Revenue Code of 1986 to eliminate certain
tax benefits relating to abortion.
If you wish further details on this estimate, we will be
pleased to provide them.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 1232--A bill to amend the Internal Revenue Code of 1986 to
eliminate certain tax benefits relating to abortion
H.R. 1232 would amend the Internal Revenue Code to remove
certain tax benefits relating to abortion, except in cases of
rape, incest, or when the life of the pregnant woman is in
danger. The bill would not allow the costs of abortion
services, other than under the excepted circumstances mentioned
above, to count as a deductible medical expense in determining
income tax liability. The bill would change the definition of a
``qualified health plan'' to exclude plans that offer coverage
of abortion services, other than under the excepted
circumstances. In addition, health insurance tax credits for
small employers would not be available for health insurance
plans that include such coverage. The bill also would require
any reimbursements from health flexible spending arrangements
and distributions by Archer medical savings accounts and health
savings accounts for abortion services to be included as gross
income.
Enacting H.R. 1232 could affect direct spending or
revenues; therefore, pay-as-you-go procedures apply. According
to the staff of the Joint Committee on Taxation (JCT), the bill
would have negligible effects on tax revenues. Similarly, CBO
estimates that any effects on direct spending would be
negligible for each year and over the 2011-2021 period.
JCT has determined that H.R. 1232 contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
D. Macroeconomic Impact Analysis
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: The effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
review of the tax provisions of H.R. 3, as ordered reported by
the Committee on the Judiciary, that the Committee concluded
that it is appropriate to report the bill, as amended,
favorably to the House of Representatives with the
recommendation that the bill do pass.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the revenue provisions of
the bill do not contain Federal mandates on the private sector.
The Committee has determined that the revenue provisions of the
bill do not impose a Federal intergovernmental mandate on
State, local, or tribal governments.
D. Applicability of House Rule XXI 5(b)
Clause 5(b) of rule XXI of the Rules of the House of
Representatives provides, in part, that ``A bill or joint
resolution, amendment, or conference report carrying a Federal
income tax rate increase may not be considered as passed or
agreed to unless so determined by a vote of not less than
three-fifths of the Members voting, a quorum being present.''
The Committee has carefully reviewed the provisions of the
bill, and states that the provisions of the bill do not involve
any Federal income tax rate increases within the meaning of the
rule.
E. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
staff of the Joint Committee on Taxation (in consultation with
the Internal Revenue Service and the Treasury Department) to
provide a tax complexity analysis. The complexity analysis is
required for all legislation reported by the Senate Committee
on Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Code and that
have ``widespread applicability'' to individuals or small
businesses, within the meaning of the rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart C--Refundable Credits
* * * * * * *
SEC. 36B. REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN.
(a) * * *
* * * * * * *
(c) Definition and Rules Relating to Applicable Taxpayers,
Coverage Months, and Qualified Health Plan.--For purposes of
this section--
(1) * * *
* * * * * * *
(3) Definitions and other rules.--
(A) Qualified health plan.--The term
``qualified health plan'' has the meaning given
such term by section 1301(a) of the Patient
Protection and Affordable Care Act, except that
such term shall not include a qualified health
plan which is a catastrophic plan described in
section 1302(e) of such Act or any health plan
that includes coverage for abortions (other
than any abortion or treatment described in
section 213(g)(2)).
* * * * * * *
(C) Separate abortion coverage or plan
allowed.--
(i) Option to purchase separate
coverage or plan.--Nothing in
subparagraph (A) shall be construed as
prohibiting any individual from
purchasing separate coverage for
abortions described in such
subparagraph, or a health plan that
includes such abortions, so long as no
credit is allowed under this section
with respect to the premiums for such
coverage or plan.
(ii) Option to offer coverage or
plan.--Nothing in subparagraph (A)
shall restrict any non-Federal health
insurance issuer offering a health plan
from offering separate coverage for
abortions described in such
subparagraph, or a plan that includes
such abortions, so long as premiums for
such separate coverage or plan are not
paid for with any amount attributable
to the credit allowed under this
section (or the amount of any advance
payment of the credit under section
1412 of the Patient Protection and
Affordable Care Act).
* * * * * * *
Subpart D--Business Related Credits
* * * * * * *
SEC. 45R. EMPLOYEE HEALTH INSURANCE EXPENSES OF SMALL EMPLOYERS.
(a) * * *
* * * * * * *
(h) Insurance Definitions.--[Any term]
(1) In general.--Any term used in this section which
is also used in the Public Health Service Act or
subtitle A of title I of the Patient Protection and
Affordable Care Act shall have the meaning given such
term by such Act or subtitle.
(2) Exclusion of health plans including coverage for
abortion.--The terms ``qualified health plan'' and
``health insurance coverage'' shall not include any
health plan or benefit that includes coverage for
abortions (other than any abortion or treatment
described in section 213(g)(2)).
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
* * * * * * *
SEC. 125. CAFETERIA PLANS.
(a) * * *
* * * * * * *
(k) Abortion Reimbursement From Flexible Spending Arrangement
Included in Gross Income.--Notwithstanding section 105(b),
gross income shall include any reimbursement for expenses
incurred for an abortion (other than any abortion or treatment
described in section 213(g)(2)) from a health flexible spending
arrangement provided under a cafeteria plan. Such reimbursement
shall not fail to be a qualified benefit for purposes of this
section merely as a result of such inclusion in gross income.
[(k)] (l) Cross Reference.--For reporting and recordkeeping
requirements, see section 6039D.
[(l)] (m) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this section.
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 213. MEDICAL, DENTAL, ETC., EXPENSES.
(a) * * *
* * * * * * *
(g) Amounts Paid for Abortion Not Taken Into Account.--
(1) In general.--An amount paid during the taxable
year for an abortion shall not be taken into account
under subsection (a).
(2) Exceptions.--Paragraph (1) shall not apply to--
(A) an abortion--
(i) in the case of a pregnancy that
is the result of an act of rape or
incest, or
(ii) in the case where a woman
suffers from a physical disorder,
physical injury, or physical illness
that would, as certified by a
physician, place the woman in danger of
death unless an abortion is performed,
including a life-endangering physical
condition caused by or arising from the
pregnancy, and
(B) the treatment of any infection, injury,
disease, or disorder that has been caused by or
exacerbated by the performance of an abortion.
* * * * * * *
SEC. 220. ARCHER MSAS.
(a) * * *
* * * * * * *
(f) Tax Treatment of Distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of an Archer MSA which
is used exclusively to pay qualified medical expenses
of any account holder shall not be includible in gross
income, except that any such amount used to pay for an
abortion (other than any abortion or treatment
described in section 213(g)(2)) shall be included in
the gross income of such holder.
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) * * *
* * * * * * *
(f) Tax Treatment of Distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of a health savings
account which is used exclusively to pay qualified
medical expenses of any account beneficiary shall not
be includible in gross income, except that any such
amount used to pay for an abortion (other than any
abortion or treatment described in section 213(g)(2))
shall be included in the gross income of such
beneficiary.
* * * * * * *
DISSENTING AND ADDITIONAL VIEWS
----------
DISSENTING VIEWS
We want the record to show that we strongly oppose H.R.
1232, a bill to amend the Internal Revenue Code of 1986 to
eliminate certain tax benefits relating to abortion.
Our Republican colleagues on Ways and Means assert that
H.R. 1232 represents the mere codification of the annual Hyde
Amendment. The Hyde Amendment prohibits the use of federal
funds to pay for abortions. However, H.R. 1232 goes well beyond
the Hyde Amendment. For the first time, the bill would equate
health expenses that are the subject of preferential tax
treatment with federal spending under programs such as
Medicaid. H.R. 1232 is a tax increase on women and families
with respect to one of the most personal and private decisions
that they will ever face.
H.R. 1232 is very injurious because of its effect on middle
class and lower income women and families who do not have an
employer offer of health insurance coverage. This is because
H.R. 1232 would deny the use of premium tax credits that are
available under the Affordable Care Act for women and families
under 400 percent of the poverty line ($89,400 in 2011 for a
family of four) if the coverage includes abortion services. If
this bill becomes law, the over-riding economic incentive for
these women and families will be to choose coverage that does
not include abortion services--there is no doubt about this
conclusion. It is possible that, if H.R. 1232 is enacted,
insurance companies would respond in the individual market by
solely offering coverage that does not include abortion
services given the value of the premium tax credits. The
majority observes that insurance companies may offer
``unplanned pregnancy only'' coverage policies and that nothing
in their bill would prevent a family from purchasing this
additional coverage. This offers no practical assistance to
middle class and lower income women and families. It is highly
questionable that women and families would purchase coverage
for unplanned pregnancies. Indeed, the likelihood of an
insurance company even offering such coverage is also highly
questionable--in fact, there is no evidence that this market
even exists--and the likelihood that any woman or family would
buy such coverage is even more remote.
We are also extremely concerned that H.R. 1232 represents
an attack on the Affordable Care Act and the compromise
contained in the Act on health coverage and abortion services.
The Affordable Care Act is consistent with long standing
federal law by prohibiting the use of federal funds to pay for
abortions except under certain circumstances. The Act requires
two separate premium payments for those women and families who
receive premium tax credits and choose coverage that includes
abortion services. The Affordable Care Act is clear--no portion
of premium tax credits may be used to pay for the portion of
comprehensive health coverage that is purchased on state
exchanges that relates to abortion services. The Act recognizes
that the likelihood that insurers will offer unplanned
pregnancy coverage is remote and the likelihood of purchase of
such policies by women and families is even more remote. H.R.
1232, however, would require that insurers offer these
improbable policies as the only source of coverage for middle
class and lower income women and families.
H.R. 1232 is also injurious because it creates a
significant divide between the coverage that large employers
are able to offer their employees and the coverage that will be
available to employees of smaller employers. This is because
H.R. 1232 would deny a small employer the ability to use tax
credits created by the Affordable Care Act to provide employee
health coverage if the coverage includes abortion services.
H.R. 1232 contains no similar restrictions on medium and large
employers. The burden is placed only on the smallest employers.
If this bill is enacted, the over-riding economic incentive of
small employers will be to choose coverage for their employees
that does not include abortion services--there is no doubt
about this conclusion. It is even possible that, if H.R. 1232
is enacted, insurance companies would respond in the small
group market by solely offering coverage that does not include
abortion services given the value of the small business tax
credits. There is no doubt that women who work for small
businesses would lose access to the same type of comprehensive
coverage they currently have today and that will remain
available to women who work for medium and larger employers.
H.R. 1232 would certainly result in a tax increase for
women and families when they are facing an extremely private
and personal decision. The majority hides behind the fact that
the Joint Committee on Taxation estimates the revenue impact of
H.R. 1232 to be negligible. The fact behind this revenue
estimate is that the Joint Committee on Taxation believes that
increased tax liabilities on the part of women and families
will be offset by the increased tax benefits when more
pregnancies are carried to term. However, for any one
particular woman or family, the fact is that H.R. 1232 would
deny the itemized deduction for medical expenses in excess of
7.5 percent of adjusted gross income (10 percent in 2013) for
expenses that relate to an abortion. For any one particular
woman or family, the fact is that H.R. 1232 would treat as
taxable any distribution from a health savings account (HSA),
Archer medical savings account (MSA), or health flexible
spending account (FSA) that is used to pay for abortion
expenses. These clearly are tax increases.
Mr. Crowley of New York offered an amendment during the
Committee's markup of H.R. 1232 that would have prevented the
tax provisions of the bill from taking effect if the tax
liability of any one woman, family, or small business would be
increased. As the majority noted during the markup, the effect
of the amendment would have been to eliminate the tax
provisions of the bill. The amendment was defeated along a
party-line vote.
The majority suggests that if H.R. 1232 is enacted,
enforcement of the law by the Internal Revenue Service would
result in minimal intrusion on women and families. This
assertion is highly suspect. While existing tax forms and
instructions could be tailored so that a woman or family does
not have to report whether there has been an abortion and the
amount of the associated expense, there is nothing in H.R. 1232
that mandates such an approach. Further, the Internal Revenue
Service would be required to use the tools currently available
as part of its tax enforcement duties, including the Internal
Revenue Service's ability to audit taxpayers, to determine
whether tax benefits had properly or improperly been claimed
with respect to expenses related to abortion services.
We are extremely concerned with the direction that the
majority is taking with H.R. 1232. What further restrictions on
medical procedures lie ahead? For example, will tomorrow's
legislation seek to restrict tax benefits with respect to
procedures that involve stem cells? Will restrictions be placed
on an employer's deduction for employee health coverage if
abortion services are covered? Will similar restrictions be
placed on the employee's exclusion of the value of such
coverage from income? Will medical providers and insurers be
denied deductions with respect to their business expenses that
involve abortions?
We are also extremely concerned that H.R. 1232 does not
make an exception for a woman where continuing her pregnancy
would result in severe and long-lasting damage to her health.
The abortion exceptions that are allowed for in H.R. 1232 are
extremely limited and do not apply to situations in which a
woman's health is endangered. For example, a woman who is
diagnosed with cancer and in need of chemotherapy or other
treatments that are incompatible with a pregnancy would not
qualify for an exception under H.R. 1232.
For the reasons listed above, we strongly oppose H.R. 1232.
This bill not only represents an unprecedented move down a path
that takes the Committee's jurisdiction squarely into an
extremely private and personal decision that a woman and her
family may have to make--it would also increase taxes on women
and families during that difficult time.
Sander M. Levin.
Charles B. Rangel.
Fortney Pete Stark.
Jim McDermott.
John Lewis.
Richard E. Neal.
Xavier Becerra.
Lloyd Doggett.
Mike Thompson.
John B. Larson.
Earl Blumenauer.
Ron Kind.
Bill Pascrell, Jr.
Shelley Berkley.
Joseph Crowley.
ADDITIONAL VIEWS OF CONGRESSMAN BILL PASCRELL, JR.
Since I was first elected to Congress, I have opposed the
federal funding of abortion, and I support the Hyde amendment's
prohibitions. During last year's debate over the Affordable
Care Act, I worked closely with Members on both sides of the
aisle to craft a careful compromise that would ensure
affordable access to health insurance while maintaining this
federal prohibition.
The restrictions on abortion in H.R. 1232 go far beyond
this compromise. Abortion is an intensely personal decision,
and women should be able to make this decision in consultation
with their families, their faith, and with their health
professionals. I believe that H.R. 1232 will unnecessarily pull
the Internal Revenue Service into the role of determining
women's healthcare choices. I am not comfortable with such an
increased reach of government into the constitutionally
protected choices of our citizens.
Additionally, should H.R. 1232 become law, not only would
it increase taxes on the middle class, but participants in
state-based exchanges, who would be disproportionately lower
income, will likely lose access completely to health plans that
provide abortion coverage. Women have the right to choose a
plan that covers this legal procedure.
Using the tax code in the way proposed by this bill will
set a dangerous precedent. As Members of the Ways and Means
Committee, we should be acutely aware of the unintended
consequence that can occur when we use the code as a tool to
enact a political agenda.
During the Committee's Markup of H.R. 1232, I missed the
two roll call votes of the day. Had I been present I would have
voted YEA on Mr. Crowley's amendment to protect the middle
class from a tax increase. Additionally, had I been present I
would have voted NAY on reporting H.R. 1232 favorably.
Bill Pascrell, Jr.