To amend the Internal Revenue Code of 1986 to allow certain employees without employer-provided health coverage a refundable credit for their health insurance costs.

Summary: Amends the Internal Revenue Code to provide a health insurance cost tax credit for certain employees without employer-provided coverage. Subjects such credit to employee compensation, adjusted gross income, and tax limits.  Excludes long-term care insurance.

SECTION 1. REFUNDABLE CREDIT FOR HEALTH INSURANCE COSTS OF EMPLOYEES.

    (a) 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 35 as section 36 and by 
inserting after section 34 the following new section:

``SEC. 35. HEALTH INSURANCE COSTS OF EMPLOYEES.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this subtitle an amount 
equal to 30 percent of the amount paid during the taxable year for 
insurance which constitutes medical care for the taxpayer, his spouse, 
and dependents.
    ``(b) Limitations.--
            ``(1) Limitation based on employee compensation.--The 
        payments taken into account under subsection (a) for any 
        taxable year shall not exceed the taxpayer's wages, salaries, 
        tips, and other employee compensation includible in gross 
        income for such taxable year.
            ``(2) Limitation based on other coverage.--Subsection (a) 
        shall not apply to--
                    ``(A) any taxpayer for any calendar month for which 
                the taxpayer is eligible to participate in any 
                subsidized health plan maintained by any employer of 
                the taxpayer or of the spouse of the taxpayer, or
                    ``(B) amounts paid for coverage under--
                            ``(i) part B of title XVIII of the Social 
                        Security Act, or
                            ``(ii) a medicare supplemental policy 
                        (within the meaning of section 1882(g)(1) of 
                        the Social Security Act (42 U.S.C. 
                        1395ss(g)(1))) or similar supplemental coverage 
                        provided under a group health plan.
    ``(c) Limitation Based on Adjusted Gross Income.--
            ``(1) In general.--No credit shall be allowed under 
        subsection (a) for any taxable year for which the taxpayer's 
        adjusted gross income exceeds the applicable dollar amount by 
        $10,000 or more.
            ``(2) Phaseout.--If the taxpayer's adjusted gross income 
        for the taxable year exceeds the applicable dollar amount by 
        less than $10,000, the credit which would (but for this 
        subsection and subsection (d)) be allowed under subsection (a) 
        shall be reduced (but not below zero) by an amount which bears 
        the same ratio to such credit as such excess bears to $10,000. 
        Any reduction under the preceding sentence which is not a 
        multiple of $10 shall be rounded to the next lowest $10.
            ``(3) Applicable dollar amount.--The term `applicable 
        dollar amount' means--
                    ``(A) in the case of a taxpayer filing a joint 
                return, $40,000,
                    ``(B) in the case of any other taxpayer (other than 
                a married individual filing a separate return), 
                $25,000, and
                    ``(C) in the case of a married individual filing a 
                separate return, zero.
            ``(4) Special rule for married individuals filing 
        separately and living apart.--A husband and wife who--
                    ``(A) file separate returns for any taxable year, 
                and
                    ``(B) live apart at all times during such taxable 
                year,
        shall not be treated as married individuals for purposes of 
        this paragraph.
    ``(d) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed by subsection (a) for 
        the taxable year (determined after the application of 
        subsections (b) and (c)) shall not exceed the sum of--
                    ``(A) the tax imposed by this chapter for the 
                taxable year (reduced by the credits allowable against 
                such tax other than the credits allowable under this 
                subpart), and
                    ``(B) the taxpayer's social security taxes for such 
                taxable year.
            ``(2) Social security taxes.--For purposes of paragraph 
        (1)--
                    ``(A) In general.--The term `social security taxes' 
                means, with respect to any taxpayer for any taxable 
                year--
                            ``(i) the amount of the taxes imposed by 
                        sections 3101, 3111, 3201(a), and 3221(a) on 
                        amounts received by the taxpayer during the 
                        calendar year in which the taxable year begins,
                            ``(ii) the taxes imposed by section 1401 on 
                        the self-employment income of the taxpayer for 
                        the taxable year, and
                            ``(iii) the taxes imposed by section 
                        3211(a)(1) on amounts received by the taxpayer 
                        during the calendar year in which the taxable 
                        year begins.
                    ``(B) Coordination with special refund of social 
                security taxes.--The term `social security taxes' shall 
                not include any taxes to the extent the taxpayer is 
                entitled to a special refund of such taxes under 
                section 6413(c).
                    ``(C) Special rule.--Any amounts paid pursuant to 
                an agreement under section 3121(l) (relating to 
                agreements entered into by American employers with 
                respect to foreign affiliates) which are equivalent to 
                the taxes referred to in subparagraph (A)(i) shall be 
                treated as taxes referred to in such subparagraph.
    ``(e) Coordination With Other Provisions.--
            ``(1) Deduction for medical expenses.--The amount taken 
        into account in computing the credit under subsection (a) shall 
        not be taken into account in computing the amount allowable to 
        the taxpayer as a deduction under section 213(a).
            ``(2) Deduction for health insurance costs of self-employed 
        individuals.--No amount taken into account under section 162(l) 
        may be taken into account under this section.
    ``(f) 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.
    ``(g) Section Not To Apply to Long-Term Care Insurance.--This 
section shall not apply to insurance which constitutes medical care by 
reason of section 213(d)(1)(C).''
    (b) Clerical Amendment.--The table of sections for subpart C of 
part IV of subchapter A of chapter 1 of such Code is amended by 
striking the last item and inserting the following new items:

                              ``Sec. 35. Health insurance costs of 
                                        employees.
                              ``Sec. 36. Overpayments of tax.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.