,,ii #aaeth ,,congress #b;d ,session ,s4 #bdif ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,march #e1 #bjah ,mr4 ,enzi introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to establish ,small ,business ,health ,accounts4 #a4 ,short title ,this ,act may be cited as the ,small ,business ,health ,account ,act of #bjah4 #b4 ,small ,business ,health ,accounts 7a7 ,in general ,part ,,viii of subchapter ,b of chapter #a of the ,internal ,revenue ,code of #aihf is amended by redesignating section #bbd as section #bbe and inserting after section #bbc the following new section3 #bbd4 ,small ,business ,health ,accounts 7a7 ,deduction allowed ,in the case of an individual who is an eligible individual for any month during the taxable year1 there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by or on behalf of such individual to a small business health account of such individual4 7b7 ,limitations 7#a7 ,in general ,the amount allowable as a deduction under subsection 7a7 to an individual for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual4 7#b7 ,monthly limitation ,the monthly limitation for any month is #a_/ab of-- 7,a7 in the case of an eligible individual who is not described in subparagraph 7,b71 #c1djj1 or 7,b7 in the case of an eligible individual who is a head of a household or married 7within the meaning of section #ggjc7 and filing a joint return under section #fjac for the taxable year1 #f1gej4 7#c7 ,additional contributions for individuals #ee or older ,in the case of an individual who has attained age #ee before the close of the taxable year1 the applicable limitation under subparagraphs 7,a7 and 7,b7 of paragraph 7#b7 shall be increased by #a1jjj4 7#d7 ,coordination with other contributions 7,a7 ,in general ,the limitation which would 7but for this paragraph7 apply under this subsection to an individual for any taxable year shall be reduced 7but not below zero7 by the sum of-- 7i7 the aggregate amount paid for such taxable year to ,archer ,m,s,as of such individual1 7ii7 the aggregate amount contributed to small business health accounts of such individual which is excludable from the taxpayer's gross income for such taxable year under section #ajf7;d7 7and such amount shall not be allowed as a deduction under subsection 7a771 and 7iii7 the aggregate amount contributed to small business health accounts of such individual for such taxable year under section #djh7;d77#aj7 7and such amount shall not be allowed as a deduction under subsection 7a774 7,b7 ,exception ,subparagraph 7,a77i7 shall not apply with respect to any individual to whom paragraph 7#e7 applies4 7#e7 ,special rule for married individuals ,in the case of individuals who are married to each other1 the limitation under paragraph 7#a7 7without regard to any additional contribution amount under paragraph 7#c77-- 7,a7 shall be reduced by the aggregate amount paid to ,archer ,m,s,as of such spouses for the taxable year1 and 7,b7 after such reduction1 shall be divided equally between them unless they agree on a different division4 7#f7 ,denial of deductions to dependents ,no deduction shall be allowed under this section to any individual with respect to whom a deduction under section #aea is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins4 7#g7 ,medicare eligible individuals ,the limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title ,,xviii of the ,social ,security ,act and for each month thereafter4 7#h7 ,increase in limit for individuals becoming eligible individuals after the beginning of the year 7,a7 ,in general ,for purposes of computing the limitation under paragraph 7#a7 for any taxable year1 an individual who is an eligible individual during the last month of such taxable year shall be treated as having been an eligible individual during each of the months in such taxable year4 7,b7 ,failure to maintain eligibility 7i7 ,in general ,if1 at any time during the testing period1 the individual is not an eligible individual1 then-- 7,i7 gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual is increased by the aggregate amount of all contributions to the small business health account of the individual which could not have been made but for subparagraph 7,a71 and 7,,ii7 the tax imposed by this chapter for any taxable year on the individual shall be increased by #aj percent of the amount of such increase4 7ii7 ,exception for disability or death ,subclauses 7,i7 and 7,,ii7 of clause 7i7 shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled 7within the meaning of section #gb7m77#g774 7iii7 ,testing period ,the term testing period means the period beginning with the last month of the taxable year referred to in subparagraph 7,a7 and ending on the last day of the twelfth month following such month4 7c7 ,definitions and special rules ,for purposes of this section-- 7#a7 ,archer ,,msa ,the term ,archer ,,msa has the meaning given such term in section #bbj7;d74 7#b7 ,eligible individual ,the term eligible individual means1 with respect to any month1 any individual if-- 7,a7 such individual is employed by a small business1 and 7,b7 except as provided under subsection 7f77#e77;,b71 no cash has been paid during such month by or on behalf of such individual to a health savings account under section #bbc4 7#c7 ,small business ,the term small business means a small business concern 7as defined under section #c of the ,small ,business ,act 7#ae ,u4,s4,c4 #fcb774 7d7 ,small business health account ,for purposes of this section-- 7#a7 ,in general ,the term small business health account means a trust created or organized in the ,united ,states as a small business health account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary1 but only if the written governing instrument creating the trust meets the following requirements3 7,a7 ,except in the case of a rollover contribution described in subsection 7f77#e7 or section #bbj7;f77#e71 no contribution will be accepted-- 7i7 unless it is in cash1 or 7ii7 to the extent such contribution1 when added to previous contributions to the trust for the calendar year1 exceeds the sum of-- 7,i7 the dollar amount in effect under subsection 7b77#b71 and 7,,ii7 the dollar amount in effect under subsection 7b77#c74 7,b7 ,the trustee is a bank 7as defined in section #djh7n771 an insurance company 7as defined in section #haf71 or another person who demonstrates to the satisfaction of the ,secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section4 7,c7 ,no part of the trust assets will be invested in life insurance contracts4 7,d7 ,the assets of the trust will not be commingled with other property except in a common trust fund or common investment fund4 7,e7 ,the interest of an individual in the balance in their account is nonforfeitable4 7#b7 ,qualified medical expenses 7,a7 ,in general ,the term qualified medical expenses means1 with respect to an account beneficiary1 amounts paid by such beneficiary for-- 7i7 medical care 7as defined in section #bac7;d77 for such individual1 the spouse of such individual1 and any dependent 7as defined in section #aeb1 determined without regard to subsections 7b77#a71 7b77#b71 and 7d77#a77;,b7 thereof7 of such individual1 but only to the extent such amounts are not compensated for by insurance or otherwise1 and 7ii7 coverage under a health plan4 7,b7 ,prescribed drug ,the term qualified medical expenses shall include an amount paid for medicine or a drug only if such medicine or drug is a prescribed drug 7determined without regard to whether such drug is available without a prescription7 or is insulin4 7,c7 ,prohibition 7i7 ,in general ,the term qualified medical expenses shall not include any amount paid for-- 7,i7 an abortion1 7,,ii7 any health plan coverage described in clause 7ii7 of subparagraph 7,a7 which includes coverage for abortion1 or 7,,iii7 any prescribed drug1 as described in subparagraph 7,b71 for an abortion4 7ii7 ,exception ,this subparagraph shall not apply in the case of-- 7,i7 a pregnancy which is the result of an act of rape or incest1 or 7,,ii7 a woman who suffers from a physical disorder1 physical injury1 or physical illness that would1 as certified by a physician1 place the woman in danger of death unless an abortion is performed1 including a life-endangering physical condition caused by or arising from the pregnancy itself4 7#c7 ,account beneficiary ,the term account beneficiary means the individual on whose behalf the small business health account was established4 7#d7 ,certain rules to apply ,rules similar to the rules described in section #bbc7;d77#d7 shall apply for purposes of this section4 7e7 ,tax treatment of accounts ,rules similar to the rules described in section #bbc7;e7 shall apply for purposes of this section4 7f7 ,tax treatments of distributions 7#a7 ,amounts used for qualified medical expenses ,any amount paid or distributed out of a small business health account which is used exclusively to pay qualified medical expenses of any account beneficiary shall not be includible in gross income4 7#b7 ,inclusion of amounts not used for qualified medical expenses ,any amount paid or distributed out of a small business health account which is not used exclusively to pay the qualified medical expenses of the account beneficiary shall be included in the gross income of such beneficiary4 7#c7 ,excess contributions returned before due date of return 7,a7 ,in general ,if any excess contribution is contributed for a taxable year to any small business health account of an individual1 paragraph 7#b7 shall not apply to distributions from the small business health accounts of such individual 7to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year7 if-- 7i7 such distribution is received by the individual on or before the last day prescribed by law 7including extensions of time7 for filing such individual's return for such taxable year1 and 7ii7 such distribution is accompanied by the amount of net income attributable to such excess contribution4 ,any net income described in clause 7ii7 shall be included in the gross income of the individual for the taxable year in which it is received4 7,b7 ,excess contribution ,for purposes of subparagraph 7,a71 the term excess contribution means any contribution 7other than a rollover contribution described in paragraph 7#e7 or section #bbj7;f77#e77 which is neither excludable from gross income under section #ajf7;d7 nor deductible under this section4 7#d7 ,additional tax on distributions not used for qualified medical expenses 7,a7 ,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 small business health account of such beneficiary which is includible in gross income under paragraph 7#b7 shall be increased by #bj percent of the amount which is so includible4 7,b7 ,exception for disability or death ,subparagraph 7,a7 shall not apply if the payment or distribution is made after the account beneficiary becomes disabled within the meaning of section #gb7m77#g7 or dies4 7,c7 ,exceptions for distributions after medicare eligibility ,subparagraph 7,a7 shall not apply to any payment or distribution after the date on which the account beneficiary attains the age specified in section #ahaa of the ,social ,security ,act4 7#e7 ,rollover contribution 7,a7 ,in general ,an amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraph 7,b74 7,b7 ,rollover contribution rules 7i7 ,in general ,paragraph 7#b7 shall not apply to any amount paid or distributed from-- 7,i7 a health savings account 7as described in section #bbc7;d77 to the account beneficiary to the extent the amount received is paid into a small business health account1 or 7,,ii7 a small business health account to the account beneficiary to the extent the amount received is paid into a small business health account or a health savings account1 for the benefit of such beneficiary not later than the sixtieth day after the day on which the beneficiary receives the payment or distribution4 7ii7 ,limitation ,this paragraph shall not apply to any amount described in subparagraph 7,a7 received by an individual from a health savings account or a small business health account if1 at any time during the #a-year period ending on the day of such receipt1 such individual received any other amount described in subparagraph 7,a7 from a health savings account or a small business account which was not includible in the individual's gross income because of the application of this paragraph4 7#f7 ,additional rules ,rules similar to the rules described in paragraphs 7#f7 through 7#h7 of section #bbc7;e7 shall apply for purposes of this section4 7g7 ,cost-of-,living adjustment 7#a7 ,in general ,in the case of any taxable year beginning after #bjai1 each dollar amount in subsection 7b77#b7 shall be increased by an amount equal to-- 7,a7 such dollar amount1 multiplied by 7,b7 the cost-of-living adjustment determined under section #a7;f77#c7 for the calendar year in which such taxable year begins determined by substituting calendar year #bjah for calendar year #bjaf in subparagraph 7,a77ii7 thereof4 7#b7 ,rounding ,if any increase under paragraph 7#a7 is not a multiple of #ej1 such increase shall be rounded to the nearest multiple of #ej4 7h7 ,reports 7#a7 ,in general ,the ,secretary may require the trustee of a small business health account to make such reports regarding such account to the ,secretary and to the account beneficiary with respect to contributions1 distributions1 the return of excess contributions1 and such other matters as the ,secretary determines appropriate4 7#b7 ,time and manner ,the reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the ,secretary4 4 7b7 ,conforming amendments 7#a7 ,paragraph 7#b7 of section #bf7;b7 of the ,internal ,revenue ,code of #aihf is amended-- 7,a7 in subparagraph 7,s71 by inserting #bbd7;b77#h77;i77,,ii71 after #bbc7;b77#h77;i77,,ii712 and 7,b7 by striking subparagraph 7,u7 and inserting the following3 7,u7 sections #bbc7;f77#d7 and #bbd7;f77#d7 7relating to additional tax on health savings account distributions and small business heath account distributions not used for qualified medical expenses71 4 7#b7 ,paragraph 7#c7 of section #ce7;g7 of such ,code is amended by striking or from a health savings account 7as defined in section #bbc7;d77 and inserting 1 a health savings account 7as defined in section #bbc7;d771 or a small business health account 7as defined in section #bbd7;d774 7#c7 ,paragraph 7#ai7 of section #fb7;a7 of such ,code is amended to read as follows3 7#ai7 ,health savings accounts and small business health accounts ,the deductions allowed by sections #bbc and #bbd4 4 7#d7 ,subsection 7d7 of section #ajf of such ,code of #aihf is amended-- 7,a7 in the heading1 by inserting and small business health accounts2 7,b7 in paragraph 7#a71 by striking ,in general in the heading and inserting ,health savings accounts2 7,c7 by redesignating paragraphs 7#b7 and 7#c7 as paragraphs 7#c7 and 7#d71 respectively2 and 7,d7 by inserting after paragraph 7#a7 the following new paragraph3 7#b7 ,small business health accounts ,in the case of an employee who is an eligible individual 7as defined in section #bbd7;c77#b771 amounts contributed by such employee's employer to any small business health account 7as defined in section #bbd7;d77 of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section #bbd7;b7 7determined without regard to this subsection7 which is applicable to such employee for such taxable year4 4 7#e7 ,subparagraph 7,a7 of section #bbj7;f77#e7 of such ,code is amended by striking or a health savings account 7as defined in section #bbc7;d77 and inserting 1 a health savings account 7as defined in section #bbc7;d771 or a small business health account 7as defined in section #bbd7;d774 7#f7 ,subsection 7d7 of section #djh of such ,code is amended by adding at the end the following new paragraph3 7#aj7 ,distribution for small business health account funding 7,a7 ,in general ,in the case of an individual who is an eligible individual 7as defined in section #bbd7;c77#b77 and who elects the application of this paragraph for a taxable year1 gross income of the individual for the taxable year does not include a qualified ,,sbha funding distribution to the extent such distribution is otherwise includible in gross income4 7,b7 ,qualified ,,sbha funding distribution ,for purposes of this paragraph1 the term qualified ,,sbha funding distribution means a distribution from an individual retirement plan 7other than a plan described in subsection 7k7 or 7p77 of the employee to the extent that such distribution is contributed to the small business health account of the individual in a direct trustee-to-trustee transfer4 7,c7 ,limitations 7i7 ,maximum dollar limitation ,the amount excluded from gross income by subparagraph 7,a7 shall not exceed the applicable annual limitation under section #bbd7;b7 at the time of the qualified ,,sbha funding distribution4 7ii7 ,one-time transfer ,an individual may make an election under subparagraph 7,a7 only for one qualified ,,sbha funding distribution during the lifetime of the individual4 ,such an election1 once made1 shall be irrevocable4 7,d7 ,failure to maintain eligibility 7i7 ,in general ,if1 at any time during the testing period1 the individual is not an eligible individual1 then the aggregate amount of all contributions to the small business health account of the individual made under subparagraph 7,a7-- 7,i7 shall be includible in the gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual1 and 7,,ii7 the tax imposed by this chapter for any taxable year on the individual shall be increased by #aj percent of the amount which is so includible4 7ii7 ,exception for disability or death ,subclauses 7,i7 and 7,,ii7 of clause 7i7 shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled 7within the meaning of section #gb7m77#g774 7iii7 ,testing period ,the term testing period means the period beginning with the month in which the qualified ,,sbha funding distribution is contributed to a small business health account and ending on the last day of the twelfth month following such month4 7,e7 ,application of section #gb ,notwithstanding section #gb1 in determining the extent to which an amount is treated as otherwise includible in gross income for purposes of subparagraph 7,a71 the aggregate amount distributed from an individual retirement plan shall be treated as includible in gross income to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts from all individual retirement plans were distributed4 ,proper adjustments shall be made in applying section #gb to other distributions in such taxable year and subsequent taxable years4 4 7#g7 ,subparagraph 7,b7 of section #hdh7;e77#a7 of such ,code is amended-- 7,a7 in clause 7iv71 by striking and at the end2 7,b7 in clause 7v71 by striking the period at the end and inserting 1 and2 and 7,c7 by adding at the end the following new clause3 7vi7 any contract which is a small business health account 7as defined in section #bbd7;d774 4 7#h7 ,paragraph 7#b7 of section #hgg;,a7e7 of such ,code is amended by inserting a small business health account 7as defined in section #bbd71 after a health savings account 7as defined in section #bbc74 7#i7 ,subsection 7a7 of section #digc of such ,code is amended-- 7,a7 in paragraph 7#e71 by striking or at the end2 7,b7 by redesignating paragraph 7#f7 as paragraph 7#g72 and 7,c7 by inserting after paragraph 7#e7 the following new paragraph3 7#f7 a small business health account 7within the meaning of section #bbd7;d771 or 4 7#aj7 ,section #dige of such ,code is amended-- 7,a7 in subsection 7c71 by adding at the end the following new paragraph3 7#g7 ,special rule for small business health accounts ,an individual for whose benefit a small business health account 7within the meaning of section #bbd7;d77 is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such account 7which would otherwise be taxable under this section7 if1 with respect to such transaction1 the account ceases to be a small business health account by reason of the application of section #bbd7;e7 to such account4 2 and 7,b7 in paragraph 7#a7 of subsection 7e7-- 7i7 by redesignating subparagraphs 7,f7 and 7,g7 as subparagraphs 7,g7 and 7,h71 respectively2 and 7ii7 by inserting after subparagraph 7,e7 the following new subparagraph3 7,f7 a small business health account described in section #bbd7;d71 4 7#aa7 ,subsection 7a7 of section #fjea of such ,code is amended-- 7,a7 by redesignating paragraphs 7#ac7 through 7#ag7 as paragraphs 7#ad7 through 7#ah71 respectively2 and 7,b7 by inserting after paragraph 7#ab7 the following new paragraph3 7#ac7 the amount contributed to any small business health account 7as defined in section #bbd7;d77 of such employee or such employee's spouse1 4 7#ab7 ,paragraph 7#b7 of section #ffic7;a7 of such ,code is amended-- 7,a7 by redesignating subparagraphs 7,d7 through 7,f7 as subparagraphs 7,e7 through 7,g71 respectively2 and 7,b7 by inserting after subparagraph 7,c7 the following new subparagraph3 7,d7 section #bbd7;h7 7relative to small business health accounts71 4 7#ac7 ,the table of sections for part ,,vii of subchapter ,b of chapter #a of such ,code is amended by redesignating the item relating to section #bbd as relating to section #bbe and by inserting after the item relating to section #bbc the following new item3 ,sec4 #bbd4 ,small ,business ,health ,accounts4 4 7c7 ,effective date ,the amendments made by this section shall apply to taxable years beginning after ,december #ca1 #bjah4