To amend the Internal Revenue Code of 1986 to provide incentives to small businesses to provide health insurance to their employees.

Summary: Small Business Health Insurance Affordability Act of 2002 - Amends the Internal Revenue Code to permit a limited tax credit for employers of 15 or fewer employees based on premiums paid for health insurance for employees. Denies an employer the credit if the relevant employee earned at least $40,000 or worked less than 400 hours for the year. Provides an adjustment for inflation.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Health Insurance 
Affordability Act of 2002''.

SEC. 2. REFUNDABLE CREDIT FOR SMALL BUSINESSES PROVIDING HEALTH 
              INSURANCE COVERAGE FOR 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 credits) 
is amended by redesignating section 35 as section 36 and by inserting 
after section 34 the following new section:

``SEC. 35. SMALL BUSINESS COST OF PROVIDING HEALTH INSURANCE COVERAGE 
              FOR EMPLOYEES.

    ``(a) In General.--At the election of the employer, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to the applicable percentage of the 
qualified premiums paid during the taxable year by the taxpayer.
    ``(b) Applicable Percentage.--For purposes of subsection (a), the 
applicable percentage shall be determined in accordance with the 
following table:

``Total number of employees of      The applicable percentage is:
        taxpayer:
    10 or fewer....................
                                        50 percent.
    11 to 15.......................
                                        25 percent.
    16 or more.....................
                                        0 percent.
    ``(c) Limitations.--
            ``(1) Maximum employee compensation.--No amount paid for a 
        qualified premium shall be taken into account under subsection 
        (a) if such amount is paid or incurred with respect to any 
        employee to whom the taxpayer paid wages of $40,000 or more for 
        the calendar year ending with or in the taxable year of the 
        taxpayer.
            ``(2) Minimum employee service.--No amount paid for a 
        qualified premium shall be taken into account under subsection 
        (a) if such amount is paid or incurred with respect to any 
        employee unless such employee has performed at least 400 hours 
        of service for the employer during the taxable year of the 
        employer.
            ``(3) Inflation adjustment.--In the case of a calendar year 
        after 2003, the dollar amount contained in paragraph (1) 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 such calendar year by 
                substituting `calendar year 2002' for `calendar year 
                1992' in subparagraph (B) thereof.
        Any increase under this paragraph which is not a multiple of 
        $100 shall be rounded to the next lowest multiple of $100.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified premiums.--The term `qualified premiums' 
        means premiums paid by the taxpayer for qualified health 
        insurance for any employee of the taxpayer, and the employee's 
        spouse and dependents, but only if the employer pays not less 
        than 75 percent of the aggregate premiums for such insurance 
        for the taxable year. For purposes of the preceding sentence, 
        the term `premium' shall have the same meaning as when used in 
        section 4980B(f)(4).
            ``(2) Qualified health insurance.--The term `qualified 
        health insurance' means insurance which constitutes medical 
        care (as defined in section 213(d)); except that such term 
        shall not include any insurance if substantially all of its 
        coverage is of excepted benefits described in section 9832(c).
            ``(3) Wages.--The term `wages' shall have the meaning given 
        to such term by subsection (b) of section 3306 (determined 
        without regard to any dollar limitation contained in such 
        section).
            ``(4) Aggregation rule.--For purposes of this section, all 
        persons treated as a single employer under subsection (a) or 
        (b) of section 52 or subsection (n) or (o) of section 414 shall 
        be treated as one person.
    ``(e) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2007.''.
    (b) Technical Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``or from section 35 of 
        such Code'' before the period at the end.
            (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 35 and 
        inserting the following new items:

                              ``Sec. 35. Small business cost of 
                                        providing health insurance 
                                        coverage for employees.
                              ``Sec. 36. Overpayment of taxes.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.