Dependent Care Savings Account Act of 2014

Summary: Dependent Care Savings Account Act of 2014 - Amends the Internal Revenue Code to: (1) establish tax-exempt dependent care savings accounts to pay the employment-related expenses of caring for a dependent of the taxpayer, (2) allow a deduction from gross income (above-the-line deduction) of up to $5,000 in a taxable year for cash contributions to such accounts, (3) set forth rules for the tax treatment of&nbsp;account distributions and for excess contributions to an account, and (4) impose a tax on employers who fail to make&nbsp;comparable contributions to a dependent savings account for all participating employees. 

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Dependent Care Savings Account Act 
of 2014''.

SEC. 2. DEPENDENT CARE SAVINGS ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by redesignating section 224 
as section 225 and inserting after section 223 the following new 
section:

``SEC. 224. DEPENDENT CARE SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual, 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 the individual to a dependent care savings account of such 
individual.
    ``(b) Limitation.--
            ``(1) In general.--The amount allowable as a deduction 
        under subsection (a) to an individual for the taxable year 
        shall not exceed the lesser of--
                    ``(A) $5,000, or
                    ``(B) the individual's earned income (within the 
                meaning of section 21) for such taxable year.
            ``(2) Coordination with dependent care assistance 
        benefits.--The limitation which would (but for this paragraph) 
        apply under paragraph (1) to an individual for any taxable year 
        shall be reduced (but not below zero) by the aggregate amount 
        excludable from the individual's gross income for such taxable 
        year under section 129.
    ``(c) Dependent Care Savings Account.--For purposes of this 
section--
            ``(1) In general.--The term `dependent care savings 
        account' means a trust created or organized in the United 
        States as a dependent care savings account exclusively for the 
        purpose of paying the qualified dependent care 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 (e)(5), no contribution will be 
                accepted unless it is in cash, and contributions will 
                not be accepted for the taxable year on behalf of any 
                account beneficiary in excess of $10,000.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)) or such other person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such other 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 dependent care expenses.--The term 
        `qualified dependent care expenses' means the employment-
        related expenses (as defined in section 21(b)(2)) of the 
        account beneficiary with respect to any qualifying individual 
        (as defined in section 21(b)(1)) of the account beneficiary. 
        Such term includes qualified long-term care services (as 
        defined in section 7702B(c)), and amounts paid for qualified 
        long-term care insurance contracts (as defined in section 
        7702B(b)), with respect to such qualifying individuals of the 
        account beneficiary.
            ``(3) Account beneficiary.--The term `account beneficiary' 
        means the individual on whose behalf the dependent care 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) Except as provided in section 129, section 
                219(f)(3) (relating to time when contributions deemed 
                made).
                    ``(C) Section 219(f)(5) (relating to employer 
                payments).
                    ``(D) Section 223(b)(6) (relating to denial of 
                deduction to dependents).
                    ``(E) Section 408(g) (relating to community 
                property laws).
                    ``(F) Section 408(h) (relating to custodial 
                accounts).
    ``(d) Tax Treatment of Accounts.--
            ``(1) In general.--A dependent care savings account is 
        exempt from taxation under this subtitle unless such account 
        has ceased to be a dependent care savings account. 
        Notwithstanding the preceding sentence, any such account is 
        subject to the taxes imposed by section 511.
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to 
        dependent care savings accounts, and any amount treated as 
        distributed under such rules shall be treated as not used to 
        pay qualified dependent care expenses.
    ``(e) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified dependent care expenses.--
        Any amount paid or distributed out of a dependent care savings 
        account which is used exclusively to pay qualified dependent 
        care expenses of any account beneficiary shall not be 
        includible in gross income.
            ``(2) Inclusion of amounts not used for qualified dependent 
        care expenses.--Any amount paid or distributed out of a 
        dependent care savings account which is not used exclusively to 
        pay the qualified dependent care 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 dependent care 
                savings account of an individual, paragraph (2) shall 
                not apply to distributions from the dependent care 
                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)) which is neither excludable 
                from gross income under section 129 nor deductible 
                under this section.
            ``(4) Additional tax on distributions not used for 
        qualified dependent care 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 
                dependent care savings account of such beneficiary 
                which is includible in gross income under paragraph (2) 
                shall be increased by 20 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.
            ``(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 dependent care 
                savings account to the account beneficiary to the 
                extent the amount received is paid into a dependent 
                care 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 dependent care 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 dependent 
                care savings account which was not includible in the 
                individual's gross income because of the application of 
                this paragraph.
            ``(6) Coordination with dependent care credit.--For 
        purposes of determining the amount of the credit under section 
        21, any payment or distribution out of a dependent care savings 
        account for qualified dependent care expenses shall not be 
        treated as employment-related expenses.
            ``(7) Transfer of account incident to divorce; treatment 
        after death.--Rules similar to the rules of paragraphs (7) and 
        (8) of section 223 shall apply with respect to dependent care 
        savings accounts.
    ``(f) Reports.--The Secretary may require the trustee of a 
dependent care 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. 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 in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of the Internal Revenue Code of 1986 is 
amended by inserting before the last sentence the following new 
paragraph:
            ``(22) Dependent care savings accounts.--The deduction 
        allowed by section 224(a).''.
    (c) Exclusion of Employer Contributions.--Section 129 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new subsection:
    ``(f) Contributions to Dependent Care Savings Accounts.--
            ``(1) In general.--Gross income of an employee does not 
        include amounts contributed by an employee's employer to any 
        dependent care savings account (as defined in section 224) of 
        such employee to the extent such amounts do not exceed the 
        limitation under section 224(b)(1) which is applicable to such 
        employee for such taxable year.
            ``(2) Cross reference.--For penalty on failure by employer 
        to make comparable contributions to the dependent care savings 
        accounts of comparable employees, see section 4980H.''.
    (d) Tax on Excess Contributions.--Section 4973 of the Internal 
Revenue Code of 1986 is amended--
            (1) in subsection (a), by striking ``or'' at the end of 
        paragraph (4), by adding ``or'' at the end of paragraph (5), 
        and by inserting after paragraph (5) the following new 
        paragraph:
            ``(6) a dependent care savings account (as defined in 
        section 224),'', and
            (2) by adding at the end the following new subsection:
    ``(h) Excess Contributions to Dependent Care Savings Accounts.--For 
purposes of this section, in the case of a dependent care savings 
account (as defined in section 224), the term `excess contributions' 
means the sum of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the account (other than a rollover contribution described in 
        section 224(e)(5)) which is neither excludable from gross 
        income under section 129 nor allowable as a deduction under 
        section 224 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 account which 
                were included in gross income under section 224(e)(2), 
                and
                    ``(B) the excess (if any) of--
                            ``(i) the maximum amount allowable as a 
                        deduction under section 224(b)(1) for the 
                        taxable year, over
                            ``(ii) the amount contributed to the 
                        account for the taxable year.''.
    (e) Failure of Employer To Make Comparable Dependent Care Savings 
Account Contributions.--Chapter 43 of the Internal Revenue Code of 
1986, as amended by the Patient Protection and Affordable Care Act, is 
amended by adding at the end the following new section:

``SEC. 4980J. FAILURE OF EMPLOYER TO MAKE COMPARABLE DEPENDENT CARE 
              SAVINGS ACCOUNT CONTRIBUTIONS.

    ``(a) General Rule.--In the case of an employer who makes a 
contribution to the dependent care 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.
    ``(d) Exception.--For purposes of applying section 4980E to a 
contribution to a dependent care savings account of an employee who is 
not a highly compensated employee (as defined in section 414(q)), 
highly compensated employees shall not be treated as comparable 
participating employees.''.
    (f) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 of the Internal Revenue Code of 1986 is amended by 
        redesignating the item relating to section 224 as an item 
        relating to section 225, and by inserting before such item the 
        following new item:

``Sec. 224. Dependent care savings accounts.''.
            (2) The table of sections for chapter 43 of such Code, as 
        amended by the Patient Protection and Affordable Care Act, is 
        amended by adding at the end the following new item:

``Sec. 4980J. Failure of employer to make comparable dependent care 
                            savings account contributions.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.