To amend the Internal Revenue Code of 1986 to provide a refundable credit for health insurance costs.

July 21, 2004

Mr. HAYWORTH (for himself, Mr. PETERSON of Minnesota, and Mr. LEWIS of Kentucky) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide a refundable credit for health insurance costs.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Health Credits Act of 2004'.

SEC. 2. REFUNDABLE HEALTH INSURANCE COSTS CREDIT.

(a) ALLOWANCE OF CREDIT-

(1) IN GENERAL- Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable personal credits) is amended by redesignating section 36 as section 37 and by inserting after section 35 the following new section:

`SEC. 36. HEALTH INSURANCE COSTS FOR UNINSURED INDIVIDUALS.

`(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 amount paid by the taxpayer during such taxable year for qualified health insurance for the taxpayer and the taxpayer's spouse and dependents.

`(b) LIMITATIONS-

`(1) IN GENERAL- The amount allowed as a credit under subsection (a) to the taxpayer for the taxable year shall not exceed the lesser of--

`(A) the sum of the monthly limitations for coverage months during such taxable year for the individuals referred to in subsection (a) for whom the taxpayer paid during the taxable year any amount for coverage under qualified health insurance, or

`(B) 90 percent of the sum of the amounts paid by the taxpayer for qualified health insurance for each such individual for coverage months of the individual during the taxable year.

`(2) MONTHLY LIMITATION-

`(A) IN GENERAL- The monthly limitation for an individual for each coverage month of such individual during the taxable year is the amount equal to 1/12 of--

`(i) $1,000 if such individual is the taxpayer,

`(ii) $1,000 if--

`(I) such individual is the spouse of the taxpayer,

`(II) the taxpayer and such spouse are married as of the first day of such month, and

`(III) the taxpayer files a joint return for the taxable year, and

`(iii) $500 if such individual is an individual for whom a deduction under section 151(c) is allowable to the taxpayer for such taxable year.

`(B) LIMITATION TO 2 DEPENDENTS- Not more than 2 individuals may be taken into account by the taxpayer under subparagraph (A)(iii).

`(C) SPECIAL RULE FOR MARRIED INDIVIDUALS- In the case of a taxpayer--

`(i) 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

`(ii) who does not live apart from such taxpayer's spouse at all times during the taxable year,

the dollar limitation imposed under subparagraph (A)(iii) shall be divided equally between the taxpayer and the taxpayer's spouse unless they agree on a different division.

`(3) INCOME PHASEOUT OF CREDIT PERCENTAGE-

`(A) PHASEOUT FOR SINGLE COVERAGE-

`(i) UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES AND HEADS OF HOUSEHOLDS)- In the case of an individual (other than a surviving spouse, the head of a household, or a married individual) with self-only coverage, if such individual has modified adjusted gross income in excess of $15,000 for a taxable year, the 90 percent under paragraph (1)(B) shall be reduced (but not below zero) by--

`(I) 2 percentage points for each $250 of such income in excess of $15,000 but not in excess of $20,000, and

`(II) 1.25 percentage points for each $250 of such income in excess of $20,000.

`(ii) OTHER INDIVIDUALS- If a taxpayer (other than an individual described in clause (i)) with self-only coverage has modified adjusted gross income in excess of $25,000 for a taxable year, the 90 percent under paragraph (1)(B) shall be reduced (but not below zero) by 1.5 percentage points for each $250 of such excess.

`(B) AMOUNT OF REDUCTION FOR FAMILY COVERAGE- If a taxpayer with family coverage has modified adjusted gross income in excess of $25,000 for a taxable year, the 90 percent

under paragraph (1)(B) shall be reduced (but not below zero) by 0.643 percentage points for each $250 of such excess. Any percentage resulting from a reduction under this subparagraph shall be rounded to the nearest one-tenth of a percent.

`(C) MODIFIED ADJUSTED GROSS INCOME- The term `modified adjusted gross income' means adjusted gross income determined--

`(i) without regard to this section and sections 911, 931, and 933, and

`(ii) after application of sections 86, 135, 137, 219, 221, and 469.

`(c) COVERAGE MONTH- For purposes of this section--

`(1) IN GENERAL- The term `coverage month' means, with respect to an individual, any month if--

`(A) as of the first day of such month such individual is covered by qualified health insurance, and

`(B) the premium for coverage under such insurance for such month is paid by the taxpayer.

`(2) EMPLOYER-SUBSIDIZED COVERAGE-

`(A) IN GENERAL- The term `coverage month' shall not include any month for which such individual is eligible to participate in any subsidized health plan (within the meaning of section 162(l)(2)) maintained by any employer of the taxpayer or of the spouse of the taxpayer. A subsidized health plan shall not include a plan substantially all of the coverage of which is of excepted benefits described in section 9832(c).

`(B) PREMIUMS TO NONSUBSIDIZED PLANS- If an employer of the taxpayer or the spouse of the taxpayer maintains a health plan which is not a subsidized health plan (as so defined) and which constitutes qualified health insurance, employee contributions to the plan shall be treated as amounts paid for qualified health insurance.

`(3) CAFETERIA PLAN AND FLEXIBLE SPENDING ACCOUNT BENEFICIARIES- The term `coverage month' shall not include any month during a taxable year if any amount is not includible in the gross income of the taxpayer for such year under section 106 with respect to--

`(A) a benefit chosen under a cafeteria plan (as defined in section 125(d)), or

`(B) a benefit provided under a flexible spending or similar arrangement.

`(4) MEDICARE, MEDICAID, AND SCHIP- The term `coverage month' shall not include any month with respect to an individual if, as of the first day of such month, such individual--

`(A) is entitled to any benefits under part A of title XVIII of the Social Security Act or is enrolled under part B of such title, or

`(B) is enrolled in the program under title XIX or XXI of such Act (other than under section 1928 of such Act).

`(5) CERTAIN OTHER COVERAGE- The term `coverage month' shall not include any month during a taxable year with respect to an individual if, at any time during such year, any benefit is provided to such individual under--

`(A) chapter 89 of title 5, United States Code,

`(B) chapter 55 of title 10, United States Code,

`(C) chapter 17 of title 38, United States Code, or

`(D) any medical care program under the Indian Health Care Improvement Act.

`(6) PRISONERS- The term `coverage month' shall not include any month with respect to an individual if, as of the first day of such month, such individual is imprisoned under Federal, State, or local authority.

`(7) INSUFFICIENT PRESENCE IN UNITED STATES- The term `coverage month' shall not include any month during a taxable year with respect to an individual if such individual is present in the United States on fewer than 183 days during such year (determined in accordance with section 7701(b)(7)).

`(d) QUALIFIED HEALTH INSURANCE- For purposes of this section--

`(1) IN GENERAL- The term `qualified health insurance' means health insurance coverage (as defined in section 9832(b)(1)) which--

`(A) is coverage described in paragraph (2), and

`(B) meets the requirements of paragraph (3).

`(2) ELIGIBLE COVERAGE- Coverage described in this paragraph is the following:

`(A) Coverage under individual health insurance.

`(B) Coverage under a group health plan (as defined in section 5000 without regard to subsection (d)).

`(C) Coverage through a private sector health care coverage purchasing pool.

`(D) Coverage under a State high risk pool described in subparagraph (C) of section 35(e)(1).

`(E) Continuation coverage described in subparagraph (A) or (B) of section 35(a)(1).

`(F) Coverage under an eligible State buyin program.

`(3) REQUIREMENTS- The requirements of this paragraph are as follows:

`(A) COST LIMITS- Under the coverage, the sum of the annual deductible and the other annual out-of-pocket expenses required to be paid (other than premiums) for covered benefits does not exceed--

`(i) $5,000 for self-only coverage, and

`(ii) twice the dollar amount in clause (i) for family coverage, or

`(B) MAXIMUM BENEFITS- Under the coverage, the annual and lifetime maximum benefits are not less than $700,000.

`(4) ELIGIBLE STATE BUYIN PROGRAM- For purposes of paragraph (2)(F)--

`(A) IN GENERAL- The term `eligible State buyin program' means a State program under which an individual not otherwise eligible for assistance under the State medicaid program under title XIX of the Social Security Act or the State children's health insurance program under title XXI of such Act is able to buy health insurance coverage through a purchasing arrangement entered into between the State and a private sector health care purchasing group or health plan for purposes of providing health insurance coverage to recipients of assistance under such program or for purposes of providing such coverage to State employees.

`(B) REQUIREMENTS- Subparagraph (A) shall only apply to a State program if--

`(i) the program uses private sector health care purchasing groups or health plans, and

`(ii) the State maintains separate risk pools for participants under the State program.

`(e) ARCHER MSA CONTRIBUTIONS; HSA CONTRIBUTIONS- If a deduction would be allowed under section 220 to the taxpayer for a payment for the taxable year to the Archer MSA of an individual or under section 223 to the taxpayer for a payment for the taxable year to the Health Savings Account of such individual, subsection (a) shall not apply to the taxpayer for any month during such taxable year for which the taxpayer, spouse, or dependent is an eligible individual for purposes of either such section.

`(f) INFLATION ADJUSTMENT-

`(1) IN GENERAL- In the case of any taxable year beginning after 2004, each dollar amount referred to in subsections (b)(2)(A) and (d)(3) 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, except that `2003' shall be substituted for `1996' in subclause (II) thereof.

`(2) ROUNDING- If any amount as adjusted under paragraph (1) is not a multiple of $10, such amount shall be rounded to the next lowest multiple of $10.

`(g) SPECIAL RULES-

`(1) COORDINATION WITH MEDICAL EXPENSE DEDUCTION- The amount which would (but for this paragraph) be taken into account by the taxpayer under section 213 for the taxable year shall be reduced by the credit (if any) allowed by this section to the taxpayer for such year.

`(2) COORDINATION WITH DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS- In the case of a taxpayer who is eligible to deduct any amount under section 162(l) for the taxable year, this section shall apply only if the taxpayer elects not to claim any amount as a deduction under such section for such year.

`(3) 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 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.

`(4) COORDINATION WITH ADVANCE PAYMENT- Rules similar to the rules of section 35(g)(1) shall apply to any credit to which this section applies.

`(5) COORDINATION WITH SECTION 35- If a taxpayer is eligible for the credit allowed under this section and section 35 for any taxable year, the taxpayer shall elect which credit is to be allowed.

`(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) INFORMATION REPORTING-

(1) IN GENERAL- Subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 (relating to information concerning transactions with other persons) is amended by inserting after section 6050T the following:

`SEC. 6050U. RETURNS RELATING TO PAYMENTS FOR QUALIFIED HEALTH INSURANCE.

`(a) IN GENERAL- Any person who, in connection with a trade or business conducted by such person, receives payments during any calendar year from any individual for coverage of such individual or any other individual under creditable health insurance, shall make the return described in subsection (b) (at such time as the Secretary may by regulations prescribe) with respect to each individual from whom such payments were received.

`(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 the individual from whom payments described in subsection (a) were received,

`(B) the name, address, and TIN of each individual who was provided by such person with coverage under creditable health insurance by reason of such payments and the period of such coverage,

`(C) the aggregate amount of payments described in subsection (a), and

`(D) such other information as the Secretary may reasonably prescribe.

`(c) CREDITABLE HEALTH INSURANCE- For purposes of this section, the term `creditable health insurance' means qualified health insurance (as defined in section 36(d)).

`(d) 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 under subsection (b)(2)(A) 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,

`(2) the aggregate amount of payments described in subsection (a) received by the person required to make such return from the individual to whom the statement is required to be furnished, and

`(3) the information required under subsection (b)(2)(B) with respect to such payments.

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.

`(e) RETURNS WHICH WOULD BE REQUIRED TO BE MADE BY 2 OR MORE PERSONS- Except to the extent provided in regulations prescribed by the Secretary, in the case of any amount received by any person on behalf of another person, only the person first receiving such amount shall be required to make the return under subsection (a).'.

(2) ASSESSABLE PENALTIES-

(A) Subparagraph (B) of section 6724(d)(1) of such Code (relating to definitions) is amended by redesignating clauses (xii) through (xviii) as clauses (xiii) through (xix), respectively, and by inserting after clause (xi) the following:

`(xii) section 6050U (relating to returns relating to payments for qualified health insurance),'.

(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 the subparagraph (BB) and inserting `, or', and by adding at the end the following:

`(CC) section 6050U(d) (relating to returns relating to payments for qualified health insurance).'.

(3) CLERICAL AMENDMENT- The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after the item relating to section 6050T the following:

`Sec. 6050U. Returns relating to payments for qualified health insurance.'.

(c) CRIMINAL PENALTY FOR FRAUD- Subchapter B of chapter 75 of the Internal Revenue Code of 1986 (relating to other offenses) is amended by adding at the end the following:

`SEC. 7276. PENALTIES FOR OFFENSES RELATING TO HEALTH INSURANCE TAX CREDIT.

`Any person who knowingly misuses Department of the Treasury names, symbols, titles, or initials to convey the false impression of association with, or approval or endorsement by, the Department of the Treasury of any insurance products or group health coverage in connection with the credit for health insurance costs under section 36 shall on conviction thereof be fined not more than $10,000, or imprisoned not more than 1 year, or both.'.

(d) CONFORMING AMENDMENTS-

(1) Section 162(l) of the Internal Revenue Code of 1986 is amended by adding at the end the following:

`(6) ELECTION TO HAVE SUBSECTION APPLY- No deduction shall be allowed under paragraph (1) for a taxable year unless the taxpayer elects to have this subsection apply for such year.'.

(2) Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting before the period `, or from section 36 of such Code'.

(3) 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 last item and inserting the following:

`Sec. 36. Health insurance costs for uninsured individuals.

`Sec. 37. Overpayments of tax.'.

(4) The table of sections for subchapter B of chapter 75 of such Code is amended by adding at the end the following:

`Sec. 7276. Penalties for offenses relating to health insurance tax credit.'.

(e) EFFECTIVE DATES-

(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2003, without regard to whether final regulations to carry out such amendments have been promulgated by such date.

(2) PENALTIES- The amendments made by subsections (c) and (d)(4) shall take effect on the date of the enactment of this Act.

SEC. 3. ADVANCE PAYMENT OF CREDIT TO ISSUERS OF QUALIFIED 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 FOR HEALTH INSURANCE COSTS OF ELIGIBLE INDIVIDUALS.

`(a) GENERAL RULE- Not later than January 1, 2005, the Secretary shall establish a program for making payments on behalf of certified individuals to providers of qualified health insurance (as defined in section 36(d)) for such individuals.

`(b) PROGRAM OPTIONS- The program under subsection (a) may--

`(1) provide that payments may be made on the basis of modified adjusted gross income of certified individuals for the preceding taxable year, and

`(2) provide that, in lieu of payments to providers, the following amounts may be offset:

`(A) Amounts required to be deposited by the provider as estimated income tax under section 6654 or 6655.

`(B) Amounts required to be deducted and withheld under section 3401 (relating to wage withholding).

`(C) Taxes imposed under section 3111(a) or 50 percent of taxes imposed under section 1401(a) (relating to FICA employer taxes).

`(D) Amounts required to be deducted under section 3102 with respect to taxes imposed under section 3101(a) or 50 percent of taxes imposed under section 1401(a) (relating to FICA employee taxes).

`(c) CERTIFIED INDIVIDUAL- For purposes of this section, the term `certified individual' means any individual for whom a qualified health insurance credit eligibility certificate is in effect.

`(d) QUALIFIED HEALTH INSURANCE CREDIT ELIGIBILITY CERTIFICATE- For purposes of this section, a qualified health insurance credit eligibility certificate is a statement furnished by an individual to a provider of qualified health insurance which--

`(1) certifies that the individual will be eligible to receive the credit provided by section 36 for the taxable year,

`(2) estimates the amount of such credit for such taxable year, and

`(3) provides such other information as the Secretary may require for purposes of this section.'.

(b) CLERICAL AMENDMENT- The table of sections for chapter 77 of the Internal Revenue Code of 1986 is amended by adding at the end the following:

`Sec. 7529. Advance payment of health insurance credit for purchasers of qualified health insurance.'.

(c) EFFECTIVE DATE- The amendments made by this section shall take effect on July 1, 2005, without regard to whether final regulations to carry out such amendments have been promulgated by such date.

END