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Trust Examination Manual
MEDICARE
PRESCRIPTION DRUG, IMPROVEMENT, and MODERNIZATION ACT of 2003
TITLE
XII—TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY
SEC.
1201. HEALTH SAVINGS ACCOUNTS.
(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 223 as section 224 and by inserting after section 222 the
following new section:
‘‘ SEC. 223. HEALTH SAVINGS ACCOUNTS.
‘‘ (a) DEDUCTION ALLOWED.—In
the case of an individual who is an eligible individual for any month during
the taxable year, 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 health savings account of such individual.
‘‘ (b) LIMITATIONS.—
‘‘ (1) IN GENERAL.—The
amount allowable as a deduction under subsection (a) 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 individual.
‘‘ (2) MONTHLY LIMITATION.—The
monthly limitation for any month is 1/12 of—
‘‘ (A) in the case of an eligible individual who has
self only coverage under a high deductible health plan as of the first day of
such month, the lesser of—
‘‘ (i) the annual deductible under such coverage,
or
‘‘ (ii) $2,250, or
‘‘ (B) in the case of an eligible individual who has
family coverage under a high deductible health plan as of the first day of such
month, the lesser of—
‘‘ (i) the annual deductible under such coverage,
or
‘‘ (ii) $4,500.
‘‘ (3) ADDITIONAL CONTRIBUTIONS FOR INDIVIDUALS 55
OR OLDER.—
‘‘ (A) IN GENERAL.—In
the case of an individual who has attained age 55 before the close of the taxable
year, the applicable limitation under subparagraphs (A) and (B) of paragraph
(2) shall be increased by the additional contribution amount.
‘‘ (B) ADDITIONAL CONTRIBUTION AMOUNT.—For
purposes of this section, the additional contribution amount is the amount determined
in accordance with the following table:
‘‘ For taxable years beginning in: ..............The
additional contribution amount is:
2004 ...................................................................................................
$500
2005 ...................................................................................................
$600
2006 ...................................................................................................
$700
2007 ...................................................................................................
$800
2008 ...................................................................................................
$900
2009 and thereafter ............................................................................
$1,000.
‘‘ (4) COORDINATION WITH OTHER CONTRIBUTIONS.—The
limitation which would (but for this paragraph) apply under this subsection to
an individual for any taxable year shall be reduced (but not below zero) by the
sum of—
‘‘ (A) the aggregate amount paid for such taxable
year to Archer MSAs of such individual, and
‘‘ (B) the aggregate amount contributed to health
savings accounts of such individual which is excludable from the taxpayer’s gross income for such taxable year
under section 106(d) (and such amount shall not be allowed as a deduction under
subsection (a)). Subparagraph (A) shall not apply with respect to any individual
to whom paragraph (5) applies.
‘‘ (5) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In
the case of individuals who are married to each other, if either spouse has family
coverage—
‘‘ (A) both spouses shall be treated as having only
such family coverage (and if such spouses each have family coverage under different
plans, as having the family coverage with the lowest annual deductible), and
‘‘ (B) the limitation under paragraph (1) (after the
application of subparagraph (A) and without regard to any additional contribution
amount under paragraph (3))—
‘‘ (i) shall be reduced by the aggregate amount paid
to Archer MSAs of such spouses for the taxable year, and
‘‘ (ii) after such reduction, shall be divided equally
between them unless they agree on a different division.
‘‘ (6) DENIAL OF DEDUCTION TO DEPENDENTS.—No
deduction 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.
‘‘ (7) 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 thereafter.
‘‘ (c) DEFINITIONS AND SPECIAL RULES.—For
purposes of this section—
‘‘ (1) ELIGIBLE INDIVIDUAL.—
‘‘ (A) IN GENERAL.—The
term ‘eligible individual’ means, with respect to any month, any individual if—
‘‘ (i) such individual is covered under a high deductible
health plan as of the 1st day of such month, and
‘‘ (ii) such individual is not, while covered under
a high deductible health plan, covered under any health plan—
‘‘ (I) which is not a high deductible health plan,
and
‘‘ (II) which provides coverage for any benefit which
is covered under the high deductible health plan.
‘‘ (B) CERTAIN COVERAGE DISREGARDED.—Subparagraph
(A)(ii) shall be applied without regard to—
‘‘ (i) coverage for any benefit provided by permitted
insurance, and
‘‘ (ii) coverage (whether through insurance or otherwise)
for accidents, disability, dental care, vision care, or long-term care.
‘‘ (2) HIGH DEDUCTIBLE HEALTH PLAN.—
‘‘ (A) IN GENERAL.—The
term ‘high deductible health plan’ means a health plan—
‘‘ (i) which has an annual deductible which is not
less than—
‘‘ (I) $1,000 for self-only coverage, and
‘‘ (II) twice the dollar amount in subclause (I) for
family coverage, and
‘‘ (ii) the sum of the annual deductible and the other
annual out-of-pocket expenses required to be paid under the plan (other than
for premiums) for covered
benefits does not exceed—
‘‘ (I) $5,000 for self-only coverage, and
‘‘ (II) twice the dollar amount in subclause (I) for
family coverage.
‘‘ (B) EXCLUSION OF CERTAIN PLANS.—Such
term does not include a health plan if substantially all of its coverage is coverage
described in paragraph (1)(B).
‘‘ (C) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE
DEDUCTIBLE.—A plan shall not fail to be treated as a high deductible health plan by reason
of failing to have a deductible for preventive care (within the meaning of section
1871 of the Social Security Act, except as otherwise provided
by the Secretary).
‘‘ (D) SPECIAL RULES FOR NETWORK PLANS.—In
the case of a plan using a network of providers—
‘‘ (i) ANNUAL OUT-OF-POCKET LIMITATION.—Such
plan shall not fail to be treated as a high deductible health plan by reason
of having an out-of-pocket limitation for services provided outside of such network
which exceeds the applicable limitation under subparagraph (A)(ii).
‘‘ (ii) ANNUAL DEDUCTIBLE.—Such
plan’s annual deductible for services provided outside of such network shall not be
taken into account for purposes of subsection (b)(2).
‘‘ (3) PERMITTED INSURANCE.—The
term ‘permitted insurance’ means—
‘‘ (A) insurance if substantially all of the coverage
provided under such insurance relates to—
‘‘ (i) liabilities incurred under workers’ compensation
laws,
‘‘ (ii) tort liabilities,
‘‘ (iii) liabilities relating to ownership or use
of property, or
‘‘ (iv) such other similar liabilities as the Secretary
may specify by regulations,
‘‘ (B) insurance for a specified disease or illness,
and
‘‘ (C) insurance paying a fixed amount per day (or
other period) of hospitalization.
‘‘ (4) FAMILY COVERAGE.—The
term ‘family coverage’ means any coverage other than self-only coverage.
‘‘ (5) ARCHER MSA.—The
term ‘Archer MSA’ has the meaning given such term in section 220(d).
‘‘ (d) HEALTH SAVINGS ACCOUNT.—For
purposes of this section—
‘‘ (1) IN GENERAL.—The
term ‘health savings account’ means a trust created or organized in the United States as a health savings
account exclusively for the purpose of paying the qualified medical expenses
of the account beneficiary, but only if the written governing instrument creating
the trust meets the following requirements:
‘‘ (A) Except in the case of a rollover contribution
described in subsection (f)(5) or section 220(f)(5), no contribution will be
accepted—
‘‘ (i) unless it is in cash, or
‘‘ (ii) to the extent such contribution, when added
to previous contributions to the trust for the calendar year, exceeds the sum
of—
‘‘ (I) the dollar amount in effect under subsection
(b)(2)(B)(ii), and
‘‘ (II) the dollar amount in effect under subsection
(b)(3)(B).
‘‘ (B) The trustee is a bank (as defined in section
408(n)), an insurance company (as defined in section 816), 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 section.
‘‘ (C) No part of the trust assets will be invested
in life insurance contracts.
‘‘ (D) The assets of the trust will not be commingled
with other property except in a common trust fund or common investment fund.
‘‘ (E) The interest of an individual in the balance
in his account is nonforfeitable.
‘‘ (2) QUALIFIED MEDICAL EXPENSES.—
‘‘ (A) IN GENERAL.—The
term ‘qualified medical expenses’ means, with respect to an account beneficiary, amounts paid by such beneficiary
for medical care (as defined in section 213(d) for such individual, the spouse
of such individual, and any dependent (as defined in section 152) of such individual,
but only to the extent such amounts are not compensated for by insurance or otherwise.
‘‘ (B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM
ACCOUNT.—Subparagraph (A) shall not apply to any payment
for insurance.
‘‘ (C) EXCEPTIONS.—Subparagraph
(B) shall not apply to any expense for coverage under—
‘‘ (i) a health plan during any period of continuation
coverage required under any Federal law,
‘‘ (ii) a qualified long-term care insurance contract
(as defined in section 7702B(b)),
‘‘ (iii) a health plan during a period in which the
individual is receiving unemployment compensation under any Federal or State
law, or
‘‘ (iv) in the case of an account beneficiary who
has attained the age specified in section 1811 of the Social Security Act, any
health insurance other than
a medicare supplemental policy (as defined in section 1882 of the Social Security
Act).
‘‘ (3) ACCOUNT BENEFICIARY.—The
term ‘account beneficiary’ means the individual on whose behalf the health savings account was established.
‘‘ (4) CERTAIN RULES TO APPLY.—Rules
similar to the following rules shall apply for purposes of this section:
‘‘ (A) Section 219(d)(2) (relating to no deduction
for rollovers).
‘‘ (B) Section 219(f)(3) (relating to time when contributions
deemed made).
‘‘ (C) Except as provided in section 106(d), section
219(f)(5) (relating to employer payments).
‘‘ (D) Section 408(g) (relating to community property
laws).
‘‘ (E) Section 408(h) (relating to custodial accounts).
‘‘ (e) TAX TREATMENT OF ACCOUNTS.—
‘‘ (1) IN GENERAL.—A
health savings account is exempt from taxation under this subtitle unless such
account has ceased to be a health savings account. Notwithstanding the preceding
sentence, any such account is subject to the taxes imposed by section 511 (relating
to imposition of tax on unrelated business
income of charitable, etc. organizations).
‘‘ (2) ACCOUNT TERMINATIONS.—Rules
similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply
to health savings accounts, and any amount treated as distributed under such
rules shall be treated as not used to pay qualified medical expenses.
‘‘ (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.
‘‘ (2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED
MEDICAL EXPENSES.—Any amount paid or distributed out of a health savings 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 beneficiary.
‘‘ (3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE
OF RETURN.—
‘‘ (A) IN GENERAL.—If
any excess contribution is contributed for a taxable year to any health savings
account of an individual, paragraph (2) shall not apply to distributions from
the health savings accounts of such individual (to the extent such distributions
do not exceed the aggregate excess contributions to all such accounts of such
individual for such year) if—
‘‘ (i) such distribution is received by the individual
on or before the last day prescribed by law (including extensions of time) for
filing such individual’s return
for such taxable year, and
‘‘ (ii) such distribution is accompanied by the amount
of net income attributable to such excess contribution. Any net income described
in clause (ii) shall be included in the gross income of the individual for the
taxable year in which it is received.
‘‘ (B) EXCESS CONTRIBUTION.—For
purposes of subparagraph (A), the term ‘excess contribution’ means any contribution (other than a rollover contribution described in paragraph
(5) or section 220(f)(5)) which is neither excludable from gross income under
section 106(d) nor deductible under this section.
‘‘ (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 10 percent of the amount which is so includible.
‘‘ (B) EXCEPTION FOR DISABILITY OR DEATH.—Subparagraph
(A) shall not apply if the payment or distribution is made after the account
beneficiary becomes disabled within the meaning of section 72(m)(7) or dies.
‘‘ (C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE
ELIGIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date
on which the account beneficiary attains the age specified in section 1811 of
the Social Security Act.
‘‘ (5) ROLLOVER CONTRIBUTION.—An
amount is described in this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
‘‘ (A) IN GENERAL.—Paragraph
(2) shall not apply to any amount paid or distributed from a health savings account
to the account beneficiary to the extent the amount received is paid into a health
savings account for the benefit of such beneficiary not later than the 60th day
after the day on which the beneficiary receives the payment or distribution.
‘‘ (B) LIMITATION.—This
paragraph shall not apply to any amount described in subparagraph (A) received
by an individual from a health savings account if, at any time during the 1-year
period ending on the day of such receipt, such individual received any other
amount described in subparagraph (A) from a health savings account which was
not includible in the individual’s gross income because of the application of this paragraph.
‘‘ (6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—
For purposes of determining the amount of the deduction under section 213,
any payment or distribution out of a health savings account for qualified medical
expenses shall not be treated as an expense paid for medical care.
‘‘ (7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The
transfer of an individual’s interest in a health savings account to an individual’s spouse or former spouse under a divorce or separation instrument described
in subparagraph (A) of section 71(b)(2) shall not be considered a taxable transfer
made
by such individual notwithstanding any other provision of this subtitle, and
such interest shall, after such transfer, be treated as a health savings account
with respect to which such spouse is the account beneficiary.
‘‘ (8) TREATMENT AFTER DEATH OF ACCOUNT BENEFICIARY.—
‘‘ (A) TREATMENT IF DESIGNATED BENEFICIARY IS SPOUSE.—If
the account beneficiary’s surviving spouse acquires such beneficiary’s interest in a health savings account by reason of being the designated beneficiary
of such account at the death of the account beneficiary, such health savings
account shall be treated as if the spouse were the account beneficiary.
‘‘ (B) OTHER CASES.—
‘‘ (i) IN GENERAL.—If,
by reason of the death of the account beneficiary, any person acquires the account
beneficiary’s interest in a health savings account in a case to which subparagraph (A) does
not apply—
‘‘ (I) such account shall cease to be a health savings
account as of the date of death, and
‘‘ (II) an amount equal to the fair market value of
the assets in such account on such date shall be includible if such person is
not the estate of such beneficiary, in such person’s gross income for the taxable year which includes such date, or if such person
is the estate of such beneficiary, in such beneficiary’s gross income for the last taxable year of such beneficiary.
‘‘ (ii) SPECIAL RULES.—
‘‘ (I) REDUCTION OF INCLUSION FOR PREDEATH EXPENSES.—The
amount includible in gross income under clause (i) by any person (other than
the
estate) shall be reduced by the amount of qualified medical expenses which
were incurred by the decedent before the date of the decedent’s
death and paid by such person within 1 year after such date.
‘‘ (II) DEDUCTION FOR ESTATE TAXES.—An
appropriate deduction shall be allowed under section 691(c) to any person (other
than the decedent
or the decedent’s spouse) with respect to amounts
included in gross income under clause (i) by such person.
‘‘ (g) COST-OF-LIVING ADJUSTMENT.—
‘‘ (1) IN GENERAL.—Each
dollar amount in subsections (b)(2) and (c)(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 1(f)(3) for the calendar year in which such taxable year begins determined
by substituting for ‘calendar year 1992’ in subparagraph (B) thereof—
‘‘ (i) except as provided in clause (ii), ‘calendar
year 1997’, and
‘‘ (ii) in the case of each dollar amount in subsection
(c)(2)(A), ‘calendar year 2003’.
‘‘ (2) ROUNDING.—If any
increase under paragraph (1) is not a multiple of $50, such increase shall be
rounded to the nearest multiple of $50.
‘‘ (h) REPORTS.—The Secretary
may require—
‘‘ (1) the trustee of a health savings account to
make such reports regarding such account to the Secretary and to the account
beneficiary with respect to contributions, distributions, the return of excess
contributions, and such other matters as the Secretary determines appropriate,
and
‘‘ (2) any person who provides an individual with
a high deductible health plan to make such reports to the Secretary and to the
account beneficiary with respect to such plan as the Secretary determines appropriate.
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 Secretary.’’.
(b)
DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of section 62 of such Code is amended by inserting after paragraph
(18) the following new paragraph:
‘‘ (19) HEALTH SAVINGS ACCOUNTS.—The
deduction allowed by section 223.’’.
(c)
ROLLOVERS FROM ARCHER MSAS PERMITTED.—Subparagraph(A) of section 220(f)(5) of such Code (relating to rollover contribution)
is amended by inserting ‘‘or a health savings account (as defined in section 223(d))’’ after ‘‘paid into an Archer MSA’’.
(d)
EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.—
(1) EXCLUSION FROM INCOME TAX.—Section
106 of such Code (relating to contributions by employer to accident and health
plans) is amended by adding at the end the following new subsection:
‘‘ (d) CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.—
‘‘ (1) IN GENERAL.—In
the case of an employee who is an eligible individual (as defined in section
223(c)(1)), amounts contributed by such employee’s employer to any health savings account (as defined in section 223(d)) 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 223(b) (determined without regard to this subsection)
which is applicable to such employee for such taxable year.
‘‘ (2) SPECIAL RULES.—Rules
similar to the rules of paragraphs (2), (3), (4), and (5) of subsection (b) shall
apply for purposes of this subsection.
‘‘ (3) CROSS REFERENCE.—
‘‘ For penalty on failure by employer to make comparable
contributions to the health savings accounts of comparable employees, see section
4980G.’’.
(2) EXCLUSION FROM EMPLOYMENT TAXES.—
(A) RAILROAD RETIREMENT TAX.—Subsection
(e) of section 3231 of such Code is amended by adding at the end the following
new paragraph:
‘‘ (11) HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—The
term ‘ compensation’ shall not include any payment made to or for the benefit of an employee if at
the time of such payment it is reasonable to believe that the employee will be
able to exclude such payment from income under section 106(d).’’.
(B) UNEMPLOYMENT TAX.—Subsection (b) of
section 3306 of such Code is amended by striking ‘‘or’’ at the end of paragraph (16), by striking the period at the end of paragraph
(17) and inserting ‘‘; or’’, and by inserting after paragraph (17) the following new paragraph:
‘‘ (18) any payment made to or for the benefit of
an employee if at the time of such payment it is reasonable to believe that the
employee will be able to exclude such payment from income under section 106(d).’’.
(C) WITHHOLDING TAX.—Subsection (a) of
section 3401 of such Code is amended by striking ‘‘or’’ at the end of paragraph (20), by striking the period at the end of paragraph
(21) and inserting ‘‘; or’’, and by inserting after paragraph (21) the following new paragraph:
‘‘ (22) any payment made to or for the benefit of
an employee if at the time of such payment it is reasonable to believe that the
employee will be able to exclude such payment from income under section 106(d).’’.
(3) EMPLOYER CONTRIBUTIONS REQUIRED TO BE SHOWN ON W–2.—Subsection
(a) of section 6051 of such Code is amended by striking ‘‘and’’ at the end of paragraph (10), by striking the period at the end of paragraph
(11) and inserting ‘‘, and’’, and by inserting after paragraph (11) the following new paragraph:
‘‘ (12) the amount contributed to any health savings
account (as defined in section 223(d)) of such employee or such employee’s spouse.’’.
(4) PENALTY FOR FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH SAVINGS ACCOUNT
CONTRIBUTIONS.—
(A) IN GENERAL.—Chapter 43 of such Code is amended
by adding after section 4980F the following new section:
‘‘ SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE
HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.
‘‘ (a) GENERAL RULE.—In
the case of an employer who makes a contribution to the health savings account
of any employee during a calendar year, there is hereby imposed a tax on the
failure of such employer to meet the requirements of subsection (b) for such
calendar year.
‘‘ (b) RULES AND REQUIREMENTS.—Rules
and requirements similar to the rules and requirements of section 4980E shall
apply for purposes of this section.
‘‘ (c) REGULATIONS.—The
Secretary shall issue regulations to carry out the purposes of this section,
including regulations providing special rules for employers who make contributions
to Archer MSAs and health savings accounts during the calendar year.’’. (B) CLERICAL AMENDMENT.—The table of sections for chapter 43 of such Code is amended by adding after
the item relating to section 4980F the following new item:
‘‘ Sec. 4980G. Failure of employer to make comparable
health savings account contributions.’’.
(e)
TAX ON EXCESS CONTRIBUTIONS.—Section 4973 of such Code (relating to tax on excess contributions to certain
tax-favored accounts and annuities) is amended—
(1) by striking ‘‘or’’ at
the end of subsection (a)(3), by inserting ‘‘or’’ at the end of subsection (a)(4), and by inserting after subsection (a)(4) the
following new paragraph:
‘‘ (5) a health savings account (within the meaning
of section 223(d)),’’, and
(2) by adding at the end the following new subsection:
‘‘ (g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.— For
purposes of this section, in the case of health savings accounts
(within the meaning of section 223(d)), the term ‘excess
contributions’ means the sum of—
‘‘ (1) the aggregate amount contributed for the taxable
year to the accounts (other than a rollover contribution described in section
220(f)(5) or 223(f)(5)) which is neither excludable from gross income under section
106(d) nor allowable as a deduction under section 223 for such year, and
‘‘ (2) the amount determined under this subsection
for the preceding taxable year, reduced by the sum of—
‘‘ (A) the distributions out of the accounts which
were included in gross income under section 223(f)(2), and
‘‘ (B) the excess (if any) of—
‘‘ (i) the maximum amount allowable as a deduction
under section 223(b) (determined without regard to section 106(d)) for the taxable
year, over
‘‘ (ii) the amount contributed to the accounts for
the taxable year.For purposes of this subsection, any contribution which is distributed
out of the health savings account in a distribution to which section 223(f)(3)
applies shall be treated as an amount not contributed.’’.
(f)
TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax on prohibited transactions)
is amended by adding at the end of subsection (c) the following new paragraph:
‘‘ (6) SPECIAL RULE FOR HEALTH SAVINGS ACCOUNTS.—An
individual for whose benefit a health savings account (within the meaning of
section 223(d)) is established shall be exempt from the tax imposed by this section
with respect to any transaction concerning such account (which would otherwise
be taxable under this section) if, with respect to such transaction, the account
ceases to be a health savings account by reason of the application of section
223(e)(2) to such account.’’.
(2) Paragraph (1) of section 4975(e) of such Code is amended by redesignating
subparagraphs (E) and (F) as subparagraphs (F) and (G), respectively, and by
inserting after subparagraph (D) the following new subparagraph:
‘‘ (E) a health savings account described in section
223(d),’’.
(g)
FAILURE TO PROVIDE REPORTS ON HEALTH SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a) of such Code (relating to reports) is amended
by redesignating subparagraphs (C) and (D) as subparagraphs (D) and
(E), respectively, and by inserting after subparagraph (B) the following
new subparagraph:‘‘ (C) section 223(h) (relating to health savings accounts),’’.
(h)
EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION EXPENSES.—Subparagraph (B) of section 848(e)(1) of such Code (defining specified insurance
contract) is amended by striking ‘‘and’’ at the end of clause (iii), by striking the period at the end of clause (iv)
and inserting ‘‘, and’’, and by adding at the end the following new clause:
‘‘ (v) any contract which is a health savings account
(as defined in section 223(d)).’’.
(i)
HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER CAFETERIA PLANS.—Paragraph (2) of section 125(d) (relating to cafeteria
plan defined) is amended by adding at the end the following new subparagraph:
‘‘ (D) EXCEPTION FOR HEALTH SAVINGS ACCOUNTS.— Subparagraph
(A) shall not apply to a plan to the extent of amounts which a covered employee
may elect to have the employer pay as contributions to a health savings account
established on behalf of the employee.’’.
(j)
CLERICAL AMENDMENT.—The table of sections for part VII of subchapter B of chapter 1 of such Code
is amended by striking the last item and inserting the following:
‘‘ Sec. 223. Health savings accounts.
‘‘ Sec. 224. Cross reference.’’.
(k)
EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after
December 31, 2003.
SEC.
1202. EXCLUSION FROM GROSS INCOME OF CERTAIN FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG
PLANS.
(a)
IN GENERAL.—Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting after section 139 the following new section:
‘‘ SEC. 139A. FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG
PLANS.
‘‘ Gross income shall not include any special subsidy
payment received under section 1860D–22 of the Social Security Act. This section shall not be taken into account for
purposes of determining whether any deduction is allowable with respect to any
cost taken into account in determining such payment.’’.
(b)
ALTERNATIVE MINIMUM TAX RELIEF.—Section 56(g)(4)(B) of such Code is amended by inserting ‘‘or 139A’’ after ‘‘section 114’’.
(c)
CONFORMING AMENDMENT.—The table of sections for part III of subchapter B of chapter 1 of such Code
is amended by inserting after the item relating to section 139 the
following new item:
‘‘ Sec. 139A. Federal subsidies for prescription drug
plans.’’.
(d)
EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years ending after
the date of the enactment of this Act.
SEC. 1203. EXCEPTION
TO INFORMATION REPORTING REQUIREMENTS RELATED TO CERTAIN HEALTH ARRANGEMENTS.
(a)
IN GENERAL.—Section 6041 of the Internal Revenue Code of 1986 (relating to information at
source) is amended by adding at the end the following new subsection:
‘‘ (f)
SECTION DOES NOT APPLY TO CERTAIN HEALTH ARRANGEMENTS.—
This section shall not apply to any payment for medical care (as defined in
section 213(d)) made under—
‘‘ (1) a flexible spending arrangement (as defined
in section 106(c)(2)), or
‘‘ (2) a health reimbursement arrangement which is
treated as employer-provided coverage under an accident or health plan for purposes
of section 106.’’.
(b)
EFFECTIVE DATE.—The amendment made by this section shall apply to payments made after December
31, 2002.
Approved
December 8, 2003.
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