19–006 

112TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 112–515 

HEALTH FLEXIBLE SPENDING ARRANGEMENTS 

IMPROVEMENTS ACT OF 2012 

JUNE 5, 2012.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. CAMP, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

together with 

DISSENTING VIEWS 

[To accompany H.R. 1004] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 1004) to amend the Internal Revenue Code of 1986 to increase participation in medical flexible spending arrangements, 

having considered the same, report favorably thereon with an 

amendment and recommend that the bill as amended do pass. 

CONTENTS 

Page 

I. Summary and Background ........................................................................... 2 

II. Explanation of Provision ............................................................................... 3 

A. Taxable Distributions of Unused Balances Under Health Flexible Spending Arrangements (sec. 2 of the bill and sec. 125 

of the Code) ..................................................................................... 3 

III. Votes of the Committee ................................................................................. 6 

IV. Budget Effects of the Provision .................................................................... 7 

V. Other Matters To Be Discussed Under the Rules of the House ................ 13 

VI. Changes in Existing Law Made by Bill, as Reported ................................. 17 

VII. Dissenting Views ........................................................................................... 20 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Health Flexible Spending Arrangements Improvements Act of 2012’’. 


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SEC. 2. TAXABLE DISTRIBUTIONS OF UNUSED BALANCES UNDER HEALTH FLEXIBLE SPENDING ARRANGEMENTS. 

(a) IN GENERAL.—Section 125 of the Internal Revenue Code of 1986 is amended 

by redesignating subsections (k) and (l) as subsections (l) and (m), respectively, and 

by inserting after subsection (j) the following new subsection: 

‘‘(k) TAXABLE DISTRIBUTIONS OF UNUSED BALANCES UNDER HEALTH FLEXIBLE

SPENDING ARRANGEMENTS.— 

‘‘(1) IN GENERAL.—For purposes of this section and sections 105(b) and 106, 

a plan or other arrangement which (but for any qualified distribution) would 

be a health flexible spending arrangement shall not fail to be treated as a cafeteria plan or health flexible spending arrangement (and shall not fail to be 

treated as an accident or health plan) merely because such arrangement provides for qualified distributions. 

‘‘(2) QUALIFIED DISTRIBUTIONS.—For purposes of this subsection, the term 

‘qualified distribution’ means any distribution to an individual under the arrangement referred to in paragraph (1) with respect to any plan year if— 

‘‘(A) such distribution is made after the last date on which requests for 

reimbursement under such arrangement for such plan year may be made 

and not later than the end of the 7th month following the close of such plan 

year, and 

‘‘(B) such distribution does not exceed the lesser of— 

‘‘(i) $500, or 

‘‘(ii) the excess of— 

‘‘(I) the salary reduction contributions made under such arrangement for such plan year, over 

‘‘(II) the reimbursements for expenses incurred for medical care 

made under such arrangement for such plan year. 

‘‘(3) TAX TREATMENT OF QUALIFIED DISTRIBUTIONS.—Qualified distributions 

shall be includible in the gross income of the employee in the taxable year in 

which distributed and shall be taken into account as wages or compensation 

under the applicable provisions of subtitle C when so distributed. 

‘‘(4) COORDINATION WITH QUALIFIED RESERVIST DISTRIBUTIONS.—A qualified reservist distribution (as defined in subsection (h)(2)) shall not be treated as a 

qualified distribution and shall not be taken into account in applying the limitation of paragraph (2)(B)(i).’’. 

(b) CONFORMING AMENDMENT.—Paragraph (1) of section 409A(d) of such Code is 

amended by striking ‘‘and’’ at the end of subparagraph (A), by striking the period 

at the end of subparagraph (B) and inserting ‘‘, and’’, and by adding at the end the 

following new subparagraph: 

‘‘(C) a health flexible spending arrangement to which subsection (h) or (k) 

of section 125 applies.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan 

years beginning after December 31, 2012. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

The bill, H.R. 1004, as reported by the Committee on Ways and 

Means, modifies the so-called ‘‘use-it-or-lose-it’’ rule applicable to 

health flexible spending arrangements (‘‘Health FSAs’’), permitting 

participants to cash out up to $500 in Health FSA balances at the 

end of each year. 

B. BACKGROUND AND NEED FOR LEGISLATION

Over 85 percent of large employers offer health flexible spending 

arrangements (‘‘Health FSAs’’) but only 20–22 percent of eligible 

employees enroll in Health FSAs. One reason often cited for not enrolling, or for underfunding, is fear of the use-it-or-lose-it provision. 

Under current law, employees either must spend their Health FSA 

balances by the end of the year (or by March 15 of the next year 

if their employers adopt the two-and-one-half month grace period) 

or forfeit the money to their employers under the use-it-or-lose-it 

rule. Employers may not return employees’ unused Health FSA 


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1Sec 106. 

balances or allocate funds to them in a way that is directly or indirectly based on their unused Health FSA balances. 

One-in-four Health FSA participants suffer forfeitures of their 

own compensation every year. Other employees may spend money 

on unnecessary items at the end of the year to avoid forfeiture 

(thus potentially contributing to overconsumption of health care). 

Legislation is needed to encourage more Americans to enroll in 

Health FSAs and give those already enrolled confidence to save 

more funds for potential health care expenditures. Further, enrollees should not be encouraged to spend their money frivolously for 

fear of losing their balances, and providing Health FSA participants an appropriate cash-out opportunity will help address that 

concern. 

C. LEGISLATIVE HISTORY

Background 

H.R.1004 was introduced on March 10, 2011, and was referred 

to the Committee on Ways and Means. 

Committee action 

The Committee on Ways and Means marked up H.R. 1004 on 

May 31, 2012, and ordered the bill, as amended, favorably reported 

(with a quorum being present). 

Committee hearings 

The utility of Health FSAs—including the importance of expanding these arrangement to allow more flexibility and control costs— 

was discussed at four hearings during the 112th Congress. 

• Full Committee Hearing on the Health Care Law’s Impact on 

Jobs, Employers, and the Economy (January 26, 2011) 

• Full Committee hearing on the President’s FY 2013 Budget 

Proposal with U.S. Department of Health and Human Services Secretary Sebelius (February 28, 2012) • Health Subcommittee hearing on the Individual and Employer 

Mandates in the Democrats’ Health Care Law (March 29, 2012) • Oversight Subcommittee hearing on the Impact of Limitations 

on the Use of Tax-Advantaged Accounts for the Purchase of OverThe-Counter Medication (April 25, 2012) 

II. EXPLANATION OF PROVISION 

A. TAXABLE DISTRIBUTIONS OF UNUSED BALANCES UNDER HEALTH

FLEXIBLE SPENDING ARRANGEMENTS (sec. 2 of the bill and sec. 

125 of the Code) 

PRESENT LAW

Exclusion from income for employer-provided health coverage 

Employees are not taxed on (that is, may exclude from gross income) the value of employer-provided health coverage under an accident or health plan.1 In addition, any reimbursements under an 

employer-provided accident or health plan for medical care expenses for employees, their spouses, their dependents, and adult 


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2Sec. 105(b). 

3Secs. 3121(a)(2), 3231(e)(1) and 3306(a)(2). 

4Treas. Reg. sec. 1.105–2. 

5Sec. 106. 

6Sec. 125(a). 

children under age 27 generally are excluded from gross income.2

The exclusion applies both to health coverage in the case in which 

an employer directly pays the cost of employees’ medical expenses 

not covered by insurance (i.e., a self-insured plan) as well as in the 

case in which the employer purchases health insurance coverage 

for its employees. There generally is no limit on the amount of employer-provided health coverage that is excludible. A similar rule 

excludes employer-provided health insurance coverage from the 

employees’ wages for employment tax purposes.3

Employers may also provide health coverage in the form of an 

agreement to reimburse medical expenses of their employees, their 

spouses, their dependents, and adult children under age 27, not reimbursed by a health insurance plan, through arrangements which 

allow reimbursement for medical care not in excess of a specified 

dollar amount (either elected by an employee under a cafeteria 

plan or otherwise specified by the employer). An employer may 

agree to reimburse expenses for medical care of its employees (and 

their spouses and dependents), not covered by a health insurance 

plan, through a flexible spending arrangement (‘‘FSA’’) which allows reimbursement for medical expenses not in excess of a specified dollar amount. The amounts available for reimbursement must 

be exclusively for reimbursement for medical care because the exclusion does not apply to amounts which the employee would be entitled to irrespective of whether he or she incurs expenses for medical care.4

Such dollar amount is either elected by an employee under a cafeteria plan (‘‘Health FSA’’) or otherwise specified by the employer 

under a health reimbursement arrangement (‘‘HRA’’). Reimbursements under these arrangements are also excludible from gross income as reimbursements for medical care under employer-provided 

health coverage.5

Cafeteria plan 

General rules 

A cafeteria plan is a separate written plan of an employer under 

which all participants are employees, and participants are permitted to choose among at least one permitted taxable benefit (for 

example, current cash compensation) and at least one qualified 

benefit (generally an employer-provided benefit excludible from 

gross income, such as employer-provided health coverage). If an 

employee receives a qualified benefit based on his or her election 

between the qualified benefit and a taxable benefit under a cafeteria plan, the qualified benefit generally is not includible in gross 

income.6 However, in order to be excludible, any qualified benefit 

elected under a cafeteria plan must independently satisfy any requirements under the Code section that provides the exclusion. The 

amount of the cash compensation forgone pursuant to an election 

under a cafeteria plan is generally referred to as a salary reduction 

contribution. However, if a plan offering an employee an election 

between taxable benefits (including cash) and nontaxable qualified 


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7Prop. Treas. Reg. sec. 1.125–1(b). 

8Sec. 125 and Prop. Treas. Reg. sec. 1.125–5. 

9Sec. 125(i). 

10Sec. 125(d)(2) and Prop. Treas. Reg. sec. 1.125–5(c). 11 Notice 2005–42, 2005–1 C.B. 1204, and Prop. Treas. Reg. sec. 1.125–1(e). 12Prop. Treas. Reg. sec. 1–125–5(b). 13Guidance with respect to HRAs, including the interaction of FSAs and HRAs in the case 

of an individual covered under both, is provided in Notice 2002–45, 2002–2 C.B. 93. 

benefits does not meet the requirements for being a cafeteria plan, 

the election between taxable and nontaxable benefits generally results in gross income to the employee, regardless of what benefit 

is elected and when the election is made.7 A cafeteria plan generally may not provide for deferral of compensation. 

Health flexible spending arrangement under a cafeteria plan 

A flexible spending arrangement for medical expenses under a 

cafeteria plan (commonly called a ‘‘Health FSA’’) is health coverage 

in the form of an arrangement under which employees are given 

the option to reduce their current cash compensation and instead 

have the amount of the salary reduction contributions made available for use in reimbursing the employee for his or her medical expenses.8 For years before 2013, there is no statutory limit on the 

dollar amount of salary reduction contributions that an employer 

may permit to be contributed to a Health FSA under its cafeteria 

plan. Beginning with 2013, the maximum amount of salary reduction contributions for a year is limited to $2,500.9

Health FSAs are subject to the general requirements for cafeteria 

plans, including a requirement that amounts remaining under a 

Health FSA at the end of a plan year must be forfeited by the employee (referred to as the ‘‘use-it-or-lose-it rule’’).10 A Health FSA 

is permitted to allow a grace period not to exceed two and one-half 

months immediately following the end of the plan year during 

which unused amounts may be used.11 A Health FSA can also include employer flex-credits which are nonelective employer contributions that the employer makes for every employee eligible to 

participate in the employer’s cafeteria plan, to be used only for one 

or more excludible qualified benefits (but not as cash or a taxable 

benefit).12

Health reimbursement arrangement 

Rather than offering a Health FSA through a cafeteria plan, an 

employer may specify a dollar amount that is available for medical 

expense reimbursement. These flexible spending arrangements are 

commonly called health reimbursement arrangements (‘‘HRAs’’). 

Some of the rules applicable to HRAs and Health FSAs are similar 

(e.g., the amounts in the arrangements can only be used to reimburse medical expenses and not for other purposes), but the rules 

are not identical. In particular, HRAs cannot include salary reduction contributions and the use-it-or-lose-it rule does not apply. 

Thus, amounts remaining at the end of the year may be carried 

forward to be used to reimburse medical expenses in following 

years.13

REASONS FOR CHANGE

The Committee believes that the use-it-or-lose-it rule for Health 

FSAs discourages the use of FSAs and encourages unnecessary 


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medical expenditures to avoid loss of funds in health FSAs. The 

Committee believes it is therefore appropriate to allow a limited 

amount of funds to be distributed to the taxpayer after the end of 

the plan year, rather than be forfeited to the employer. 

EXPLANATION OF PROVISION

Under the provision, a Health FSA under a cafeteria plan is permitted to provide for distributions of an amount remaining at the 

end of the plan year (or grace period if applicable) that is not used 

to reimburse medical expenses incurred during the plan year (plus 

the plan’s grace period, if any). The amount of the distribution for 

any employee must be limited to the lesser of $500 or the amount 

of salary reduction contributions for the employee reduced by reimbursements for medical expenses for the plan year. Such a distribution is called a ‘‘qualified distribution’’ under the provision. In order 

to be a qualified distribution, the distribution also must be made 

after the deadline for reimbursement of claims for the plan year 

and no later than the end of the seventh month after the close of 

the plan year. 

Under the provision, qualified distributions will not cause the 

cafeteria plan and Health FSA to violate the use-it-lose-it rule or 

the requirement that amounts available for reimbursement for 

medical expenses under a Health FSA not be available for any 

other purpose. The amount of a qualified distribution is includible 

in gross income for the year in which the distribution is made and 

is taken into account as wages for employment tax purposes. 

EFFECTIVE DATE

The provision is effective for plan years beginning after December 31, 2012. 

III. VOTES OF THE COMMITTEE 

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the votes of the Committee on Ways and Means in its consideration of H.R. 1004. 

MOTION TO REPORT RECOMMENDATION

The bill H.R. 1004, as amended, was ordered favorably reported 

by a roll call vote of 23 yeas to 6 nays (with a quorum being 

present). The vote was as follows: 

Representative Yea Nay Present Representative Yea Nay Present 

Mr. Camp .............................. X ........... ............. Mr. Levin .............................. ........... ........... .............

Mr. Herger ............................. X ........... ............. Mr. Rangel ........................... ........... ........... .............

Mr. Johnson ........................... ........... ........... ............. Mr. Stark .............................. ........... X .............

Mr. Brady .............................. X ........... ............. Mr. McDermott ..................... ........... X .............

Mr. Ryan ............................... X ........... ............. Mr. Lewis .............................. ........... X .............

Mr. Nunes ............................. X ........... ............. Mr. Neal ............................... X ........... .............

Mr. Tiberi .............................. X ........... ............. Mr. Becerra .......................... ........... ........... .............

Mr. Davis .............................. X ........... ............. Mr. Doggett .......................... ........... X .............

Mr. Reichert .......................... X ........... ............. Mr. Thompson ...................... ........... X .............

Mr. Boustany ......................... X ........... ............. Mr. Larson ............................ X ........... .............

Mr. Roskam ........................... ........... ........... ............. Mr. Blumenauer ................... ........... X .............

Mr. Gerlach ........................... X ........... ............. Mr. Kind ............................... X ........... .............

Mr. Price ............................... X ........... ............. Mr. Pascrell .......................... ........... ........... .............

Mr. Buchanan ....................... X ........... ............. Ms. Berkley ........................... X ........... .............


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Representative Yea Nay Present Representative Yea Nay Present 

Mr. Smith .............................. X ........... ............. Mr. Crowley .......................... X ........... .............

Mr. Schock ............................ X ........... .............

Ms. Jenkins ........................... X ........... .............

Mr. Paulsen ........................... X ........... .............

Mr. Marchant ........................ ........... ........... .............

Mr. Berg ................................ X ........... .............

Ms. Black .............................. ........... ........... .............

Mr. Reed ............................... X ........... .............

IV. BUDGET EFFECTS OF THE PROVISION 

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the revenue provisions of the 

bill, H.R. 1004 as reported. 

The bill, as reported, is estimated to have the following effects 

on budget receipts for fiscal years 2013–2022: 


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FISCAL YEARS 

[Millions of dollars] 

Item 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013–17 2013–22 

Permit $500 cash out of amounts under Health FSA not 

used to reimburse medical expenses incurred during plan year (plus any grace period) 1 .................................. ¥261 ¥380 ¥383 ¥395 ¥407 ¥419 ¥432 ¥445 ¥459 ¥471 ¥1,826 ¥4,051 

NOTE: Details do not add to totals due to rounding. 1 Estimate includes the following off-budget effects: 

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013–17 2013–22 

¥69 ¥94 ¥93 ¥95 ¥97 ¥99 ¥101 ¥104 ¥106 ¥108 ¥447 ¥965 


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B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee further states that the revenue-reducing tax provisions involve increased tax expenditures. 

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, requiring a cost estimate prepared by 

the CBO, the following statement by the CBO is provided. 

CONGRESSIONAL BUDGET OFFICE, 

U.S. CONGRESS, 

Washington, DC, June 4, 2012. 

Hon. DAVE CAMP, 

Chairman, Committee on Ways and Means, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1004, the Health Flexible 

Spending Arrangements Improvements Act of 2012. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Pamela Greene. 

Sincerely, 

DOUGLAS W. ELMENDORF. 

Enclosure. 

H.R. 1004—Health Flexible Spending Arrangements Improvements 

Act of 2012 

Summary: H.R. 1004 would amend the Internal Revenue Code to 

allow up to $500 of unused balances in health flexible spending arrangements (FSAs) to be distributed back to the account holder 

within seven months of the close of the plan year. The staff of the 

Joint Committee on Taxation (JCT) estimates that enacting H.R. 

1004 would reduce revenues by about $4 billion over the 2012–2022 

period. Of that reduction, about $3 billion would result from 

changes in on-budget revenues, and about $1 billion would result 

from changes in off-budget revenues (from Social Security payroll 

taxes, which are categorized as off-budget revenues). Pay-as-you-go 

procedures apply because enacting the legislation would affect onbudget revenues. 

JCT has determined that the bill contains no intergovernmental 

or private-sector mandates as defined in the Unfunded Mandates 

Reform Act (UMRA). 

Estimated cost to the Federal Ggovernment: The estimated budgetary impact of H.R. 1004 is shown in the following table. 


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By fiscal year, in millions of dollars— 

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2012–2017 2012–2022 

CHANGES IN REVENUES 

Estimated Revenues .......................................... 0 ¥261 ¥380 ¥383 ¥395 ¥407 ¥419 ¥432 ¥445 ¥459 ¥471 ¥1,826 ¥4,051 

On-budget ................................................. 0 ¥192 ¥286 ¥290 ¥300 ¥310 ¥320 ¥331 ¥341 ¥353 ¥363 ¥1,379 ¥3,086 

Off-budget ................................................ 0 ¥69 ¥94 ¥93 ¥95 ¥97 ¥99 ¥101 ¥104 ¥106 ¥108 ¥447 ¥965 

Note: Components may not sum to totals because of rounding. Source: Staff of the Joint Committee on Taxation. 


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Basis of estimate: H.R. 1004 would allow taxpayers to receive 

distributions of unused amounts from their health FSAs at the end 

of the plan year. The distribution would be the lesser of $500 or 

the amount of total contributions less reimbursements for medical 

expenses during the plan year. Under current law, unused balances 

in those FSAs at the end of the plan year are generally forfeited 

by the employee. Under this bill, distributions of unused balances 

would be included in gross income of the individual and would become a tax deductible compensation expense for the employer. By 

lowering the risk to the employee of losing contributed amounts, it 

is expected that the bill would result in increases in the amounts 

contributed to health FSAs, which provide tax-favored treatment 

for medical expenses. JCT estimates that enacting H.R. 1004 would 

reduce on-budget revenues by about $3 billion and reduce off-budget revenues by about $1 billion from 2013 through 2022, thereby 

increasing federal budget deficits by about $4 billion over that period. 

Pay-As-You-Go considerations: The Statutory Pay-As-You-Go Act 

of 2010 establishes budget-reporting and enforcement procedures 

for legislation affecting direct spending or revenues. The net 

changes in revenues that are subject to those pay-as-you-go procedures are shown in the following table. Only on-budget changes to 

outlays or revenues are subject to pay-as-you-go procedures. 


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CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1004, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON MAY 31, 2012 

By fiscal year, in millions of dollars— 

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2012–2017 2012–2022 

NET INCREASE IN THE ON-BUDGET DEFICIT 

Statutory Pay-As-You-Go Impact ....................... 0 192 286 290 300 310 320 331 341 353 363 1,379 3,086 


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Intergovernmental and private-sector impact: JCT has determined that the bill contains no intergovernmental or private-sector 

mandates as defined in UMRA. 

Estimate prepared by: Pamela Greene. 

Estimate approved by: Frank Sammartino, Assistant Director for 

Tax Analysis. 

D. MACROECONOMIC IMPACT ANALYSIS

In compliance with clause 3(h)(2) of rule XIII of the Rules of the 

House of Representatives, the following statement is made by the 

Joint Committee on Taxation with respect to the provisions of the 

bill amending the Internal Revenue Code of 1986: the effects of the 

bill on economic activity are so small as to be incalculable within 

the context of a model of the aggregate economy. 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE 

RULES OF THE HOUSE 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives (relating to oversight findings), the Committee advises that it was as a result of the Committee’s review of 

the provisions of H.R. 1004 that the Committee concluded that it 

is appropriate to report the bill, as amended, favorably to the 

House of Representatives with the recommendation that the bill do 

pass. 

B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

With respect to clause 3(c)(4) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of general performance goals and objectives for any measure that authorizes funding is required. 

C. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the reported bill does not 

contain any Federal private sector mandates within the meaning of 

Public Law No. 104–4, the Unfunded Mandates Reform Act of 

1995. The costs required to comply with each Federal private sector 

mandate generally are no greater than the aggregate estimated 

budget effects of the provision. 

The Committee has determined that the bill does not impose a 

private sector mandate, and has determined that the bill does not 

impose a Federal intergovernmental mandate on State, local, or 

tribal governments. 

D. APPLICABILITY OF HOUSE RULE XXI 5(b) 

Clause 5(b) of rule XXI of the Rules of the House of Representatives provides, in part, that ‘‘A bill or joint resolution, amendment, 

or conference report carrying a Federal income tax rate increase 

may not be considered as passed or agreed to unless so determined 


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by a vote of not less than three-fifths of the Members voting, a 

quorum being present.’’ The Committee has carefully reviewed the 

provisions of the bill, and states that the provisions of the bill do 

not involve any Federal income tax rate increases within the meaning of the rule. 

E. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the ‘‘IRS Reform Act’’) requires the staff 

of the Joint Committee on Taxation (in consultation with the Internal Revenue Service and the Treasury Department) to provide a 

tax complexity analysis. The complexity analysis is required for all 

legislation reported by the Senate Committee on Finance, the 

House Committee on Ways and Means, or any committee of conference if the legislation includes a provision that directly or indirectly amends the Internal Revenue Code and has widespread applicability to individuals or small businesses. Pursuant to clause 

3(h)(1) of rule XIII of the Rules of the House of Representatives, 

for each such provision identified by the staff of the Joint Committee on Taxation, a summary description of the provision is provided along with a discussion regarding the relevant complexity 

and administrative issues. Below is a summary description of the 

provision and discussion regarding the relevant complexity and administrative issues provided by the Internal Revenue Service with 

which the staff of the Joint Committee on Taxation concurs. 


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F. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND

LIMITED TARIFF BENEFITS

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill, and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

VI. CHANGES IN EXISTING LAW MADE BY BILL, AS 

REPORTED 

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

INTERNAL REVENUE CODE OF 1986 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter B—Computation of Taxable Income 

* * * * * * * 

PART III—ITEMS SPECIFICALLY EXCLUDED FROM 

GROSS INCOME 

* * * * * * * 

SEC. 125. CAFETERIA PLANS. 

(a) * * * 

* * * * * * * 

(k) TAXABLE DISTRIBUTIONS OF UNUSED BALANCES UNDER

HEALTH FLEXIBLE SPENDING ARRANGEMENTS.— 

(1) IN GENERAL.—For purposes of this section and sections 

105(b) and 106, a plan or other arrangement which (but for any 

qualified distribution) would be a health flexible spending arrangement shall not fail to be treated as a cafeteria plan or 

health flexible spending arrangement (and shall not fail to be 

treated as an accident or health plan) merely because such arrangement provides for qualified distributions. 

(2) QUALIFIED DISTRIBUTIONS.—For purposes of this subsection, the term ‘‘qualified distribution’’ means any distribution 

to an individual under the arrangement referred to in paragraph (1) with respect to any plan year if— 

(A) such distribution is made after the last date on which 

requests for reimbursement under such arrangement for 


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such plan year may be made and not later than the end of 

the 7th month following the close of such plan year, and 

(B) such distribution does not exceed the lesser of— 

(i) $500, or 

(ii) the excess of— 

(I) the salary reduction contributions made 

under such arrangement for such plan year, over 

(II) the reimbursements for expenses incurred for 

medical care made under such arrangement for 

such plan year. 

(3) TAX TREATMENT OF QUALIFIED DISTRIBUTIONS.—Qualified 

distributions shall be includible in the gross income of the employee in the taxable year in which distributed and shall be 

taken into account as wages or compensation under the applicable provisions of subtitle C when so distributed. 

(4) COORDINATION WITH QUALIFIED RESERVIST DISTRIBUTIONS.—A qualified reservist distribution (as defined in subsection (h)(2)) shall not be treated as a qualified distribution 

and shall not be taken into account in applying the limitation 

of paragraph (2)(B)(i). 

ø(k)¿ (l) CROSS REFERENCE.—For reporting and recordkeeping requirements, see section 6039D. 

ø(l)¿ (m) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section. 

* * * * * * * 

Subchapter D—Deferred Compensation, Etc 

* * * * * * * 

PART I—PENSION, PROFIT-SHARING, STOCK BONUS 

PLANS, ETC 

* * * * * * * 

Subpart A—General Rule 

* * * * * * * 

SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER NONQUALIFIED DEFERRED COMPENSATION 

PLANS. 

(a) * * * 

* * * * * * * 

(d) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of 

this section: 

(1) NONQUALIFIED DEFERRED COMPENSATION PLAN.—The 

term ‘‘nonqualified deferred compensation plan’’ means any 

plan that provides for the deferral of compensation, other 

than— 

(A) a qualified employer plan, øand¿ 

(B) any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit planø.¿, and 


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(C) a health flexible spending arrangement to which subsection (h) or (k) of section 125 applies. 

* * * * * * * 


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VII. DISSENTING VIEWS 

We voted against this bill because it costs $4 billion in lost tax 

revenues and this revenue loss is not offset. When combined with 

the three other health care measures under consideration at the 

Markup, the total cost for all bills is nearly $42 billion—and the 

Majority has not set forth any options to pay for this cost. Not one 

option was set forth at the Markup. It is simply unacceptable in 

this time of fiscal austerity to not pay the cost of these bills. It is 

irresponsible to add nearly $42 billion to the deficit. 

This Markup continues the Majority’s attempt to repeal the Affordable Care Act (ACA) without offering a replacement. In January of 2009, the Majority voted to repeal and replace the ACA. If 

their replacement solution is expanded access to Health Flexible 

Spending Accounts and Health Savings Accounts, then it falls far 

short of the needs of American families. Neither Health Flexible 

Spending Accounts nor Health Savings Accounts provide health 

coverage to participants. They only provide tax breaks for certain 

health costs. They are not real solutions to the problems facing our 

nation with respect to health care and insurance coverage. 

SANDER M. LEVIN. 

FORTNEY PETE STARK. 

JIM MCDERMOTT. 

JOHN B. LEWIS. 

XAVIER BECERRA. 

EARL BLUMENAUER. 

Æ 


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