Tax Free Health Savings Act of 2006 - Amends the Internal Revenue Code to: (1) allow individual taxpayers a tax deduction for high deductible health plan premiums, a tax credit for employment taxes related to the payment of such premiums, and a refundable tax credit for the coverage costs under a high deductible health plan: (2) direct the Secretary of the Treasury to establish a program for advance payments of tax credit amounts to providers of high deductible health plans; (3) increase the tax deduction for contributions to health savings accounts; (4) allow health savings accounts to incorporate flexible spending arrangements or health reimbursement arrangements, or both; (5) allow payment of high deductible health plan premiums from health savings accounts; and (6) exempt employers from health savings account contribution requirements for certain employees with high levels of medical expenses.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5262 Introduced in House (IH)]
109th CONGRESS
2d Session
H. R. 5262
To amend the Internal Revenue Code of 1986 to provide tax incentives
for the payment of premiums for high deductible health plans, and for
other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 2, 2006
Mr. Cantor (for himself, Mr. Sam Johnson of Texas, Mr. Herger, Mrs.
Blackburn, Mr. Burgess, Mr. Price of Georgia, and Mr. Camp) introduced
the following bill; which was referred to the Committee on Ways and
Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide tax incentives
for the payment of premiums for high deductible health plans, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This Act may be cited as the ``Tax Free Health
Savings Act of 2006''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title, etc.
Sec. 2. Deduction of premiums for high deductible health plans.
Sec. 3. Credit for certain employment taxes paid with respect to
premiums for high deductible health plans
and contributions to health savings
accounts.
Sec. 4. Refundable credit for health insurance coverage under high
deductible health plan.
Sec. 5. Advance payment of credit as premium payment for high
deductible health insurance.
Sec. 6. Increase in contribution limits for health savings accounts.
Sec. 7. Health reimbursement arrangements and spending arrangements in
combination with health savings accounts.
Sec. 8. Certain expenses treated as qualified medical expenses.
Sec. 9. Exception to requirement for employers to make comparable
health savings account contributions.
SEC. 2. DEDUCTION OF PREMIUMS FOR HIGH DEDUCTIBLE HEALTH PLANS.
(a) In General.--Part VII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to additional itemized
deductions for individuals) is amended by redesignating section 224 as
section 225 and by inserting after section 223 the following new
section:
``SEC. 224. PREMIUMS FOR HIGH DEDUCTIBLE HEALTH PLANS.
``(a) Deduction Allowed.--In the case of an individual, there shall
be allowed as a deduction for the taxable year the aggregate amount
paid by the taxpayer as premiums under a high deductible health plan
with respect to months during such year for which such individual is an
eligible individual with respect to such health plan.
``(b) Definitions.--For purposes of this section--
``(1) Eligible individual.--The term `eligible individual'
means an individual who--
``(A) is described in section 223(c)(1), and
``(B) is the taxpayer or the taxpayer's spouse and
dependents.
``(2) High deductible health plan.--The term `high
deductible health plan' has the meaning given such term by
section 223(c)(2).
``(c) Special Rules.--
``(1) Deduction limits.--
``(A) Deduction allowable for only 1 plan.--For
purposes of this section, in the case of an individual
covered by more than 1 high deductible health plan for
any month, the individual may only take into account
amounts paid for such month for the plan with the
lowest premium.
``(B) Plans covering ineligible individuals.--If 2
or more individuals are covered by a high deductible
health plan for any month but only 1 of such
individuals is an eligible individual for such month,
only 50 percent of the aggregate amount paid by such
eligible individual as premiums under the plan with
respect to such month shall be taken into account for
purposes of this section.
``(2) Group health plan coverage.--
``(A) In general.--No deduction shall be allowed
for an individual under subsection (a) for any amount
paid for coverage under a high deductible health plan
for a month if that individual participates in any
coverage under a group health plan (within the meaning
of section 5000 without regard to section 5000(d)). For
purposes of the preceding sentence, an arrangement
which constitutes individual health insurance shall not
be treated as a group health plan if such arrangement
is a high deductible health plan (as defined in section
223(c)(2)), or is a payment by an employer or employee
organization with respect to such high deductible
health plan, notwithstanding that an employer or
employee organization negotiates the cost or benefits
of such arrangement.
``(B) Exception for plans only providing
contributions to health savings accounts.--Subparagraph
(A) shall not apply to an individual if the
individual's only coverage under a group health plan
for a month consists of contributions by an employer to
a health savings account with respect to which the
individual is the account beneficiary.
``(C) Exception for certain permitted coverage.--
Subparagraph (A) shall not apply to an individual if
the individual's only coverage under a group health
plan for a month is coverage described in clause (i) or
(ii) of section 223(c)(1)(B).
``(3) Medical and health savings accounts.--Subsection (a)
shall not apply with respect to any amount which is paid or
distributed out of an Archer MSA or a health savings account
which is not included in gross income under section 220(f) or
223(f), as the case may be.
``(4) Coordination with deduction for health insurance of
self-employed individuals.--Any amount taken into account by
the taxpayer in computing the deduction under section 162(l)
shall not be taken into account under this section.
``(5) Coordination with medical expense deduction.--Any
amount taken into account by the taxpayer in computing the
deduction under this section shall not be taken into account
under section 213.''.
(b) Deduction Allowed Whether or Not Individual Itemizes Other
Deductions.--Subsection (a) of section 62 of such Code is amended by
inserting before the last sentence at the end the following new
paragraph:
``(21) Premiums for high deductible health plans.--The
deduction allowed by section 224.''.
(c) Coordination With Section 35 Health Insurance Costs Credit.--
Section 35(g)(2) of such Code is amended by striking ``or 213'' and
inserting ``, 213, or 224''.
(d) Clerical Amendment.--The table of sections for part VII of
subchapter B of chapter 1 of such Code is amended by redesignating the
item relating to section 224 as an item relating to section 225 and by
inserting before such item the following new item:
``Sec. 224. Premiums for high deductible health plans.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 3. CREDIT FOR CERTAIN EMPLOYMENT TAXES PAID WITH RESPECT TO
PREMIUMS FOR HIGH DEDUCTIBLE HEALTH PLANS AND
CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.
(a) Allowance of Credit.--Subpart C of part IV of subchapter A of
chapter 1 of the Internal Revenue Code of 1986 (relating to refundable
credits) is amended by redesignating section 36 as section 37 and by
inserting after section 35 the following new section:
``SEC. 36. EMPLOYMENT TAXES PAID WITH RESPECT TO PREMIUMS FOR HIGH
DEDUCTIBLE HEALTH PLANS AND CONTRIBUTIONS TO HEALTH
SAVINGS ACCOUNTS.
``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this subtitle
for the taxable year an amount equal to the product of--
``(1) the sum of the rates of tax in effect under sections
3101(a), 3101(b), 3111(a), and 3111(b) for the calendar year in
which the taxable year begins, multiplied by
``(2) the sum of--
``(A) the aggregate amount paid by such individual
as premiums under a high deductible health plan which
is allowed as a deduction under section 224 for the
taxable year, and
``(B) the aggregate amount paid to a health savings
account of such individual which is allowed as a
deduction under section 223 for the taxable year.
``(b) Credit Limited to Certain Employment Taxes.--
``(1) In general.--The credit allowed under subsection (a)
with respect to any individual for any taxable year shall not
exceed the specified employment taxes with respect to such
individual for such taxable year.
``(2) Specified employment taxes.--For purposes of this
subsection, the term `specified employment taxes' means, with
respect to any individual for any taxable year, the sum of--
``(A) the taxes imposed under sections 3101(a),
3101(b), 3111(a), 3111(b), 3201(a), 3211(a), and
3221(a) (taking into account any adjustments or refunds
under section 6413) with respect to wages and
compensation received by such individual during the
calendar year in which such taxable year begins, and
``(B) the taxes imposed under subsections (a) and
(b) of section 1401 with respect to the self-employment
income of such individual for such taxable year.
``(c) Special Rule for Employment Compensation in Excess of Social
Security Contribution Base.--
``(1) In general.--If the aggregate amount of employment
compensation received by any individual during the calendar
year in which the taxable year begins exceeds the contribution
and benefit base (as determined under section 230 of the Social
Security Act), the amount of the credit determined under
subsection (a) (determined before application of subsection
(b)) shall be equal to the sum of--
``(A) the amount determined under subsection (a) by
only taking into account so much of the amount
determined under subsection (a)(2) as does not exceed
such excess and by only taking into account the rates
of tax in effect under section 3101(b) and 3111(b), and
``(B) the amount determined under subsection (a) by
only taking into account so much of the amount
determined under subsection (a)(2) as is not taken into
account under subparagraph (A) and by taking into
account each of the rates of tax referred to in
subsection (a)(1).
``(2) Employment compensation.--For purposes of this
subsection, the term `employment compensation' means, with
respect to any individual for any taxable year, the sum of--
``(A) the wages (as defined in section 3121(a)) and
compensation (as defined in section 3231(e)) received
by such individual during the calendar year in which
such taxable year begins, and
``(B) the self-employment income (as defined in
section 1402(b)) of such individual for such taxable
year.''.
(b) Increase in Additional Tax on Distributions Not Used for
Qualified Medical Expenses.--Paragraph (4) of section 223(f) of such
Code (relating to additional tax on distributions not used for
qualified medical expenses) is amended to read as follows:
``(4) Additional tax on distributions not used for
qualified medical expenses.--
``(A) In general.--The tax imposed by this chapter
on the account beneficiary for any taxable year in
which there is a payment or distribution from a health
savings account of such beneficiary which is includible
in gross income under paragraph (2) shall be increased
by 30 percent of the amount which is so includible.
``(B) Exception for disability or death.--In the
case of payments or distributions made after the
account beneficiary becomes disabled within the meaning
of section 72(m)(7) or dies, subparagraph (A) shall be
applied by substituting `15 percent' for `30 percent'.
``(C) Exception for distributions after medicare
eligibility.--In the case of payments or distributions
made after the date on which the account beneficiary
attains the age specified in section 1811 of the Social
Security Act, subparagraph (A) shall be applied by
substituting `15 percent' for `30 percent'.''.
(c) Conforming Amendments.--
(1) Paragraph (2) of section 1324(b) of title 31, United
States Code, is amended by inserting ``or section 36'' after
``section 35''.
(2) The table of sections for subpart C of part IV of
subchapter A of chapter 1 of the Internal Revenue Code of 1986
is amended by striking the item relating to section 36 and by
inserting after the item relating to section 35 the following
new items:
``Sec. 36. Employment taxes paid with respect to premiums for high
deductible health plans and contributions
to health savings accounts.
``Sec. 37. Overpayments of tax.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 4. REFUNDABLE CREDIT FOR HEALTH INSURANCE COVERAGE UNDER HIGH
DEDUCTIBLE HEALTH PLAN.
(a) Allowance of Credit.--Subpart C of part IV of subchapter A of
chapter 1 of the Internal Revenue Code of 1986 (as amended by this Act)
is amended by inserting after section 36 the following new section:
``SEC. 36A. HEALTH INSURANCE COVERAGE UNDER HIGH DEDUCTIBLE HEALTH
PLAN.
``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this subtitle
for the taxable year the aggregate amount paid in cash by the taxpayer
for qualified coverage under a high deductible health plan for the
taxpayer and the taxpayer's spouse and dependents.
``(b) Limitations.--
``(1) In general.--The amount allowable as a credit under
subsection (a) for the taxable year shall not exceed the sum of
the monthly limitations for months during such taxable year
that the taxpayer or the taxpayer's spouse or dependents is an
eligible individual.
``(2) Monthly limitation.--
``(A) In general.--The monthly limitation for any
month is the credit percentage of \1/12\ of--
``(i) $1,111 in the case of qualified
health insurance covering only 1 adult or 1 or
more children,
``(ii) $2,222 in the case of qualified
health insurance covering only 2 adults or 1
adult and 1 or more children, and
``(iii) $3,333 in the case of qualified
health insurance covering at least 2 adults and
1 or more children or at least 3 adults.
``(B) Special rule for married individuals.--In the
case of a taxpayer who is married (within the meaning
of section 7703) as of the close of the taxable year
but does not file a joint return for such year and who
does not live apart from such taxpayer's spouse at all
times during the taxable year, any dollar limitation
imposed under subparagraph (A) shall be divided equally
between the taxpayer and the taxpayer's spouse unless
they agree on a different division.
``(3) Credit percentage.--For purposes of paragraph (2),
the credit percentage is 90 percent, reduced as provided in
paragraphs (4) and (5).
``(4) Phaseout of credit percentage for coverage of 1 adult
or children.--
``(A) Joint return, surviving spouses, and heads of
household.--If--
``(i) coverage described in paragraph
(2)(A)(i) is provided under qualified health
insurance for any month in the taxable year,
and
``(ii) taxpayer is a married individual,
surviving spouse (as defined in section 2(a)),
or head of household (as defined in section
2(b)) and has modified adjusted gross income in
excess of $25,000 for the taxable year,
the 90 percent in paragraph (3) shall be reduced by the
number of percentage points which bears the same ratio
to 90 percentage points as such excess bears to
$15,000.
``(B) Special rule for married filing separate
return.--In the case of a married individual who has
coverage described in paragraph (2)(A)(i) for any month
in the taxable year and who files a separate return for
the taxable year, subparagraph (A) shall be applied by
substituting for each dollar amount therein one-half of
such dollar amount.
``(C) Single return.--In the case of any other
return by an individual who has coverage described in
paragraph (2)(A)(i) for any month in the taxable year,
and if--
``(i) the taxpayer has modified adjusted
gross income in excess of $15,000 for the
taxable year but not in excess of $20,000, the
90 percent in paragraph (3) shall be reduced by
the number of percentage points which bears the
same ratio to 40 percentage points as--
``(I) the excess of modified
adjusted gross income in excess of
$15,000, bears to
``(II) $5,000, or
``(ii) the taxpayer has modified adjusted
gross income in excess of $20,000 for the
taxable year, the 90 percent in paragraph (3)
shall be reduced by the sum of 40 percentage
points plus the number of percentage points
which bears the same ratio to 50 percentage
points as--
``(I) the excess of modified
adjusted gross income in excess of
$20,000, bears to
``(II) $10,000.
``(5) Phaseout of credit percentage for coverage of 2 or
more adults and children.--
``(A) In general.--If--
``(i) coverage described in clause (ii) or
(iii) of paragraph (2)(A) is provided under
qualified health insurance for any month in the
taxable year, and
``(ii) the taxpayer has modified adjusted
gross income in excess of $25,000 for the
taxable year,
the 90 percent in paragraph (3) shall be reduced by the
number of percentage points which bears the same ratio
to 90 percentage points as such excess bears to
$35,000.
``(B) Special rule for married filing separate
return.--In the case of a married individual filing a
separate return, subparagraph (A) shall be applied by
substituting for each dollar amount therein one-half of
such dollar amount.
``(6) Rounding.--Any percentage resulting from a reduction
under paragraphs (4) and (5) shall be rounded to the nearest
one-tenth of a percent.
``(7) Modified adjusted gross income.--For purposes of this
subsection, the term `modified adjusted gross income' means
adjusted gross income determined--
``(A) without regard to this section and sections
911, 931, and 933, and
``(B) after application of sections 86, 135, 137,
219, 221, and 469.
``(8) Adult.--For purposes of this subsection, the term
`adult' means an individual who is the taxpayer, the taxpayer's
spouse, or a dependent of the taxpayer who has attained age 24
as of the close of the taxable year.
``(9) Child.--For purposes of this subsection, the term
`child' means a dependent of the taxpayer who has not attained
age 24 as of the close of the taxable year.
``(c) Qualified Coverage Under a High Deductible Health Plan.--For
purposes of this section, the term `qualified coverage under a high
deductible health plan' means coverage under a high deductible health
plan (as defined in section 223(c)(2)) for any month for which each
individual covered under such plan is an eligible individual.
``(d) Eligible Individual.--For purposes of this section--
``(1) In general.--The term `eligible individual' means,
with respect to any month, an individual who--
``(A) is described in section 223(c)(1) and is not
covered by a group health plan, and
``(B) does not have other specified coverage.
``(2) Group health plan.--The term `group health plan' has
the meaning given such term by section 5000 without regard to
subsection (d) thereof. For purposes of the preceding sentence,
an arrangement which constitutes individual health insurance
shall not be treated as a group health plan if such arrangement
is a high deductible health plan (as defined in section
223(c)(2)), or is a payment by an employer or employee
organization with respect to such high deductible health plan,
notwithstanding that an employer or employee organization
negotiates the cost or benefits of such arrangement.
``(3) Other specified coverage.--An individual has other
specified coverage for any month if, as of the first day of
such month--
``(A) Medicare, medicaid, schip.--Such individual--
``(i) is entitled to benefits under part A
of title XVIII of the Social Security Act or
enrolled under part B of such title,
``(ii) is enrolled in the program under
title XIX of the Social Security Act (other
than under section 1928 of such Act), or
``(iii) is enrolled in the program under
title XXI of the Social Security Act.
``(B) Imprisonment.--Such individual is imprisoned
under Federal, State, or local authority.
``(C) Physical presence requirements.--Such
individual is present in the United States on fewer
than 183 days during the taxable year (determined in
accordance with section 7701(b)(7)).
``(e) Other Definitions.--
``(1) Dependents.--For purposes of this section--
``(A) Dependent defined.--The term `dependent' has
the meaning given such term by section 152 (determined
without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof).
``(B) Special rule for dependent child of divorced
parents.--An individual who is a child to whom section
152(e) applies shall be treated as a dependent of the
custodial parent for a coverage month unless the
custodial and noncustodial parent provide otherwise.
``(C) Denial of credit to dependents.--No credit
shall be allowed under this section to any individual
with respect to whom a deduction under section 151(c)
is allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
``(f) Inflation Adjustments.--
``(1) Credit and health insurance amounts.--In the case of
any taxable year beginning after 2007, each dollar amount
referred to in subsection (b)(2)(A) shall be increased by an
amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined
under section 213(d)(10)(B)(ii) for the calendar year
in which the taxable year begins, determined by
substituting `2006' for `1996' in subclause (II)
thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10, such amount shall be rounded to the nearest
multiple of $10.
``(2) Income phaseout amounts.--In the case of any taxable
year beginning after 2007, each dollar amount referred to in
paragraphs (4) and (5) of subsection (b) shall be increased by
an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, determined by substituting
`calendar year 2006' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $50, such amount shall be rounded to the next
lowest multiple of $50.
``(g) Special Rules.--
``(1) Coordination with deduction for premiums for high
deductible health plans.--No credit shall be allowable under
this section for a taxable year if a deduction is allowed under
section 224 for the taxable year.
``(2) Coordination with deduction for health insurance
costs of self-employed individuals.--No credit shall be
allowable under this section for a taxable year if a deduction
is allowed under section 162(l) for the taxable year.
``(3) Coordination with advance payment.--Rules similar to
the rules of section 35(g)(1) shall apply to any credit to
which this section applies.
``(4) Coordination with section 35.--If a taxpayer is
eligible for the credit allowed under this section and section
35 for any month, the taxpayer shall elect which credit is to
be allowed with respect to such month.
``(h) Expenses Must Be Substantiated.--A payment for insurance to
which subsection (a) applies may be taken into account under this
section only if the taxpayer substantiates such payment in such form as
the Secretary may prescribe.
``(i) Regulations.--The Secretary shall prescribe such regulations
as may be necessary to carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 1324(b) of title 31, United
States Code, as amended by this Act, is amended by inserting
``or section 36A'' after ``section 36''.
(2) The table of sections for subpart C of part IV of
subchapter A of chapter 1 of the Internal Revenue Code of 1986
(as amended by this Act) is amended by inserting after the item
relating to section 36 the following new item:
``Sec. 36A. Health insurance coverage under high deductible health
plan.''.
(c) Effective Dates.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 5. ADVANCE PAYMENT OF CREDIT AS PREMIUM PAYMENT FOR HIGH
DEDUCTIBLE HEALTH INSURANCE.
(a) In General.--Chapter 77 of the Internal Revenue Code of 1986
(relating to miscellaneous provisions) is amended by adding at the end
the following:
``SEC. 7529. ADVANCE PAYMENT OF CREDIT AS PREMIUM PAYMENT FOR HIGH
DEDUCTIBLE HEALTH INSURANCE.
``Not later than January 1, 2008, the Secretary shall establish a
program for making payments to providers of qualified coverage under a
high deductible health plan (as defined by subsection (c) of section
36A) on behalf of individuals eligible for the credit under section
36A. Such payments shall be made on the basis of modified adjusted
gross income of eligible individuals for the preceding taxable year.''.
(b) Disclosure of Return Information for Purposes of Advance
Payment of Credit as Premiums for High Deductible Health Insurance.--
(1) In general.--Subsection (l) of section 6103 of such
Code is amended by adding at the end the following new
paragraph:
``(21) Disclosure of return information for purposes of
advance payment of credit as premiums for high deductible
health insurance.--The Secretary may, on behalf of individuals
eligible for the credit under section 36A, disclose to a
provider of qualified coverage under a high deductible health
plan (as defined by subsection (c) of section 36A), and persons
acting on behalf of such provider, return information with
respect to any such individual and the spouse and dependents of
such individual only to the extent necessary (as prescribed by
regulations issued by the Secretary) to carry out the program
established by section 7529 (relating to advance payment of
credit as premium payment for high deductible health
insurance).''.
(2) Confidentiality of information.--Paragraph (3) of
section 6103(a) of such Code is amended by striking ``or (20)''
and inserting ``(20), or (21)''.
(3) Unauthorized disclosure.--Paragraph (2) of section
7213(a) of such Code is amended by striking ``or (20)'' and
inserting ``(20), or (21)''.
(c) Information Reporting.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 61 of such Code (relating to information concerning
transactions with other persons) is amended by inserting after
section 6050T the following new section:
``SEC. 6050U. RETURNS RELATING TO CREDIT FOR HEALTH INSURANCE COVERAGE
UNDER HIGH DEDUCTIBLE HEALTH PLAN.
``(a) Requirement of Reporting.--Every person who is entitled to
receive payments for any month of any calendar year under section 7529
(relating to advance payment of credit as premium payment for high
deductible health insurance) with respect to any individual shall, at
such time as the Secretary may prescribe, make the return described in
subsection (b) with respect to each such individual.
``(b) Form and Manner of Returns.--A return is described in this
subsection if such return--
``(1) is in such form as the Secretary may prescribe, and
``(2) contains--
``(A) the name, address, and TIN of each individual
referred to in subsection (a),
``(B) the number of months for which amounts were
entitled to be received with respect to such individual
under section 7529 (relating to advance payment of
credit as premium payment for high deductible health
insurance),
``(C) the amount entitled to be received for each
such month, and
``(D) such other information as the Secretary may
prescribe.
``(c) Statements to Be Furnished to Individuals With Respect to
Whom Information Is Required.--Every person required to make a return
under subsection (a) shall furnish to each individual whose name is
required to be set forth in such return a written statement showing--
``(1) the name and address of the person required to make
such return and the phone number of the information contact for
such person, and
``(2) the information required to be shown on the return
with respect to such individual.
The written statement required under the preceding sentence shall be
furnished on or before January 31 of the year following the calendar
year for which the return under subsection (a) is required to be
made.''.
(2) Assessable penalties.--
(A) Subparagraph (B) of section 6724(d)(1) of such
Code (relating to definitions) is amended by
redesignating clauses (xiii) through (xviii) as clauses
(xiv) through (xix), respectively, and by inserting
after clause (xii) the following new clause:
``(xiii) section 6050U (relating to returns
relating to credit for health insurance
coverage under high deductible health plan),''.
(B) Paragraph (2) of section 6724(d) of such Code
is amended by striking ``or'' at the end of
subparagraph (AA), by striking the period at the end of
subparagraph (BB) and inserting ``, or'', and by adding
after subparagraph (BB) the following new subparagraph:
``(CC) section 6050U (relating to returns relating
to credit for health insurance coverage under high
deductible health plan).''.
(d) Clerical Amendments.--
(1) The table of sections for chapter 77 of such Code is
amended by adding at the end the following new item:
``Sec. 7529. Advance payment of credit as premium payment for high
deductible health insurance.''.
(2) The table of sections for subpart B of part III of
subchapter A of chapter 61 of such Code is amended by adding at
the end the following new item:
``Sec. 6050U. Returns relating to credit for health insurance coverage
under high deductible health plan.''.
(e) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 6. INCREASE IN CONTRIBUTION LIMITS FOR HEALTH SAVINGS ACCOUNTS.
(a) Increase in Monthly Limit.--
(1) In general.--Paragraph (2) of section 223(b) of the
Internal Revenue Code of 1986 (relating to monthly limitation)
is amended to read as follows:
``(2) Monthly limitation.--
``(A) In general.--In the case of an eligible
individual who has coverage under a high deductible
health plan, the monthly limitation for any month of
such coverage is \1/12\ of the lesser of--
``(i) the sum of the annual deductible and
the other annual out-of-pocket expenses (other
than for premiums) required to be paid under
the plan by the eligible individual for covered
benefits, or
``(ii) in the case of an eligible
individual with--
``(I) self-only coverage, the
dollar amount in effect under subclause
(I) of subsection (c)(2)(A)(ii), or
``(II) family coverage, the dollar
amount in effect under subclause (II)
of subsection (c)(2)(A)(ii).
``(B) Special rules relating to out-of-pocket
expenses.--
``(i) Reduction for separate plan.--The
annual out-of-pocket expenses taken into
account under subparagraph (A)(i) with respect
to any eligible individual shall be reduced by
any out-of-pocket expense payable under a
separate plan covering the individual.
``(ii) Secretarial authority.--The
Secretary may by regulations provide that
annual out-of-pocket expenses will not be taken
into account under subparagraph (A)(i) to the
extent that there is only a remote likelihood
that such amounts will be required to be
paid.''.
(2) Conforming amendments.--
(A) Section 223(b)(3)(A) of such Code is amended by
striking ``subparagraphs (A) and (B) of''.
(B) Section 223(d)(1)(A)(ii)(I) of such Code is
amended by striking ``subsection (b)(2)(B)(ii)'' and
inserting ``subsection (c)(2)(A)(ii)(II)''.
(C) Section 223(c)(2)(D)(ii) of such Code is
amended to read as follows:
``(ii) Certain items disregarded in
computing monthly limitation.--Such plan's
annual deductible, and such plan's annual out-
of-pocket limitation, for services provided
outside of such network shall not be taken into
account for purposes of subsection (b)(2).''.
(D) Section 223(g)(1) of such Code is amended by
striking ``subsections (b)(2) and (c)(2)(A)'' and
inserting ``subsection (c)(2)(A)''.
(b) Application of Special Rules for Married Individuals.--
Paragraph (5) of section 223(b) of such Code (relating to special rule
for married individuals) is amended to read as follows:
``(5) Special rules for married individuals.--
``(A) In general.--In the case of individuals who
are married to each other and who are both eligible
individuals, the limitation under paragraph (1) for
each spouse shall be equal to the spouse's applicable
share of the combined marital limit.
``(B) Combined marital limit.--For purposes of
subparagraph (A), the combined marital limit is the
excess (if any) of--
``(i) the lesser of--
``(I) subject to subparagraph (C),
the sum of the limitations computed
separately under paragraph (1) for each
spouse (including any additional
contribution amount under paragraph
(3)), or
``(II) the dollar amount in effect
under subsection (c)(2)(A)(ii)(II),
over
``(ii) the aggregate amount paid to Archer
MSAs of such spouses for the taxable year.
``(C) Special rule where both spouses have family
coverage under same plan.--For purposes of subparagraph
(B)(i)(I), if either spouse has family coverage which
covers both spouses, both spouses shall be treated as
having only such coverage (and if both spouses each
have such coverage under different plans, shall be
treated as having only family coverage with the plan
with respect to which the lowest amount is determined
under paragraph (2)(A)(i)).
``(D) Applicable share.--For purposes of
subparagraph (A), a spouse's applicable share is one-
half of the combined marital limit unless both spouses
agree on a different division.
``(E) Couples not married entire year.--The
Secretary shall prescribe rules for the application of
this paragraph in the case of any taxable year for
which the individuals were not married to each other
during all months included in the taxable year,
including rules which allow individuals in appropriate
cases to take into account coverage prior to marriage
in computing the combined marital limit for purposes of
this paragraph.''.
(c) Self-Only Coverage.--Section 223(c)(4) of such Code (defining
family coverage) is amended to read as follows:
``(4) Coverage.--
``(A) Family coverage.--The term `family coverage'
means any coverage other than self-only coverage.
``(B) Self-only coverage.--If more than 1
individual is covered by a high deductible health plan
but only 1 of the individuals is an eligible
individual, the coverage shall be treated as self-only
coverage.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 7. HEALTH REIMBURSEMENT ARRANGEMENTS AND SPENDING ARRANGEMENTS IN
COMBINATION WITH HEALTH SAVINGS ACCOUNTS.
(a) In General.--Subparagraph (B) of section 223(c)(1) of the
Internal Revenue Code of 1986 (relating to certain coverage
disregarded) is amended by striking ``and'' at the end of clause (i),
by striking the period at the end of clause (ii) and inserting ``,
and'', and by inserting after clause (ii) the following new clause:
``(iii) coverage under a flexible spending
arrangement or a health reimbursement
arrangement, or both, which meets the
requirements of paragraph (6).''.
(b) Combination Health Reimbursement, Savings, and Spending
Arrangements.--Subsection (c) of section 223 of such Code (relating to
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(6) Combined limit for contributions or credits to health
reimbursement, arrangements and spending arrangements.--
``(A) In general.--In the case of coverage under a
flexible spending arrangement or a health reimbursement
arrangement, or both, such coverage meets the
requirements of this paragraph if, with respect to an
individual--
``(i) the sum of--
``(I) the amount allowable as a
deduction under subsection (a),
``(II) the salary reduction amount
elected by the individual and, if
applicable, the employer contribution
or credit allocated to the individual
for the taxable year under the flexible
spending arrangement (as defined in
section 106(c)(2)), plus
``(III) the amounts that the
individual is permitted, under the
terms of the plan, to receive in
reimbursements for the taxable year
under the health reimbursement
arrangement, does not exceed
``(ii) the sum of the annual deductible and
the other annual out-of-pocket expenses (other
than for premiums) required to be paid under
the plan by the eligible individual for covered
benefits.
``(B) Exceptions for disregarded coverage.--For
purposes of subparagraph (A)--
``(i) Certain flexible spending
arrangements.--Any flexible spending
arrangement salary reduction amounts or
employer contributions or credits that are
restricted by the employer to use for coverage
described in paragraph (1)(B) shall not be
taken into account under subparagraph
(A)(i)(II).
``(ii) Certain health reimbursement
arrangements.--Any reimbursements from a health
reimbursement arrangement for coverage
described in paragraph (1)(B) shall not be
taken into account under subparagraph
(A)(i)(III).
``(C) Termination.--Coverage shall not be treated
as meeting the requirements of this paragraph for any
taxable year beginning after December 31, 2011.''.
(c) One-Time FSA and HRA Rollovers to HSAs.--
(1) In general.--A plan shall not fail to be treated as a
flexible spending arrangement or health reimbursement
arrangement under section 105 or 106 of the Internal Revenue
Code of 1986 merely because--
(A) such plan provides for a contribution to the
health savings account (as defined in section 223 of
such Code) of the employee which meets the requirements
of paragraph (2), and
(B) such plan thereafter terminates with respect to
such employee.
(2) Requirements.--A contribution meets the requirements of
this paragraph if--
(A) in the case of a flexible spending arrangement
(as defined in section 106(c)(2) of such Code) in
existence on April __, 2006, such contribution is the
remaining balance in such arrangement as of the last
day of the plan year ending in or before the taxable
year in which such contribution is made,
(B) in the case of a health reimbursement
arrangement in existence on April __, 2006, such
contribution is the remaining balance of the amount to
be received in reimbursements under such arrangement as
of the last day of the plan year ending in or before
the taxable year in which such contribution is made,
and
(C) such contribution is made by the employer
directly to the health savings account of the employee
not later than 60 days after the end of the plan year
of such flexible spending arrangement or health
reimbursement arrangement.
(3) Treatment as rollover contribution.--For purposes of
sections 223 and 4973 of such Code, a contribution which meets
the requirements of paragraph (2) shall be treated as a
rollover contribution described in section 223(f)(5) of such
Code.
(4) Tax treatment relating to contributions.--For purposes
of this title--
(A) Income tax.--Gross income shall not include the
amount of any contribution under this subsection.
(B) Employment taxes.--Amounts contributed to a
health savings account under this subsection shall be
treated as a payment described in section 106(d).
(C) Comparability excise tax.--Section 4980G shall
not apply to contributions made under this subsection.
(5) Termination.--This paragraph shall not apply to any
taxable year beginning after December 31, 2011.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 8. CERTAIN EXPENSES TREATED AS QUALIFIED MEDICAL EXPENSES.
(a) Premiums for Non-Group High Deductible Health Plans Treated as
Qualified Medical Expenses.--Subparagraph (C) of section 223(d)(2) of
the Internal Revenue Code of 1986 is amended by striking ``or'' at the
end of clause (iii), by striking the period at the end of clause (iv)
and inserting ``, or'', and by adding at the end the following new
clause:
``(v) in the case of any individual who
meets the requirements of subsection
(c)(1)(A)(ii) (after application of subsection
(c)(1)(B)) and section 224(c)(2), a high
deductible health plan.''.
(b) Special Rule for Certain Medical Expenses Incurred Before
Establishment of Account.--Paragraph (2) of section 223(d) of such Code
is amended by adding at the end the following new subparagraph:
``(E) Certain medical expenses incurred before
establishment of account treated as qualified.--An
expense shall not fail to be treated as a qualified
medical expense solely because such expense was
incurred before the establishment of the health savings
account if such expense was incurred--
``(i) during either--
``(I) the taxable year in which the
health savings account was established,
or
``(II) the preceding taxable year
in the case of a health savings account
established after the taxable year in
which such expense was incurred but
before the time prescribed by law for
filing the return for such taxable year
(not including extensions thereof), and
``(ii) for medical care of an individual
during a period that such individual was
covered by a high deductible health plan and
met the requirements of subsection
(c)(1)(A)(ii) (after application of subsection
(c)(1)(B)).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 9. EXCEPTION TO REQUIREMENT FOR EMPLOYERS TO MAKE COMPARABLE
HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.
(a) In General.--Section 4980G of the Internal Revenue Code of 1986
(relating to failure of employer to make comparable health savings
account contributions) is amended by adding at the end the following
new subsection:
``(d) Exception.--
``(1) In general.--To the extent that an employer's
contributions to the health savings accounts of qualified
employees exceed the employer's comparable contributions to the
health savings accounts of other employees, this section shall
not apply with respect to the employer's contributions to the
health savings accounts of qualified employees.
``(2) Qualified employee.--For purposes of this subsection,
with respect to an employer, the term `qualified employee'
means an individual--
``(A) reasonably expected to incur a higher level
of medical expenses than the majority of the employer's
other employees due to a disease, illness, or other
medical condition, and
``(B) with respect to whom such elevated expenses
are reasonably expected to continue over a period in
excess of 1 year.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2006.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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