II

106TH CONGRESS

1ST SESSION S. 825

To amend the Internal Revenue Code of 1986 to allow small business employers a credit against income tax for employee health insurance expenses

paid or incurred by the employer.

IN THE SENATE OF THE UNITED STATES

APRIL 15, 1999

Mr. DURBIN (for himself and Mr. SCHUMER) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to allow small

business employers a credit against income tax for employee health insurance expenses paid or incurred by

the employer.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. CREDIT FOR EMPLOYEE HEALTH INSURANCE

4 EXPENSES.

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code of

7 1986 (relating to business-related credits) is amended by

8 adding at the end the following:
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1 ‘‘SEC. 45D. EMPLOYEE HEALTH INSURANCE EXPENSES.

2 ‘‘(a) GENERAL RULE.—For purposes of section 38,

3 in the case of a small employer, the employee health insur4 ance expenses credit determined under this section is an

5 amount equal to the applicable percentage of the amount

6 paid by the taxpayer during the taxable year for qualified

7 employee health insurance expenses.

8 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

9 subsection (a), the applicable percentage is equal to—

10 ‘‘(1) 60 percent in the case of self-only cov11 erage, and

12 ‘‘(2) 70 percent in the case of family coverage

13 (as defined in section 220(c)(5)).

14 ‘‘(c) PER EMPLOYEE DOLLAR LIMITATION.—The

15 amount of qualified employee health insurance expenses

16 taken into account under subsection (a) with respect to

17 any qualified employee for any taxable year shall not

18 exceed—

19 ‘‘(1) $600 in the case of self-only coverage, and

20 ‘‘(2) $1,200 in the case of family coverage (as

21 so defined).

22 ‘‘(d) DEFINITIONS.—For purposes of this section—

23 ‘‘(1) SMALL EMPLOYER.—

24 ‘‘(A) IN GENERAL.—The term ‘small em25 ployer’ means, with respect to any calendar

26 year, any employer if such employer employed
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1 an average of 9 or fewer employees on business

2 days during either of the 2 preceding calendar

3 years. For purposes of the preceding sentence,

4 a preceding calendar year may be taken into ac5 count only if the employer was in existence

6 throughout such year.

7 ‘‘(B) EMPLOYERS NOT IN EXISTENCE IN

8 PRECEDING YEAR.—In the case of an employer

9 which was not in existence throughout the 1st

10 preceding calendar year, the determination

11 under subparagraph (A) shall be based on the

12 average number of employees that it is reason13 ably expected such employer will employ on

14 business days in the current calendar year.

15 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR16 ANCE EXPENSES.—

17 ‘‘(A) IN GENERAL.—The term ‘qualified

18 employee health insurance expenses’ means any

19 amount paid by an employer for health insur20 ance coverage to the extent such amount is at21 tributable to coverage provided to any employee

22 while such employee is a qualified employee.

23 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

24 UNDER SALARY REDUCTION ARRANGEMENTS.—

25 No amount paid or incurred for health insur-
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1 ance coverage pursuant to a salary reduction

2 arrangement shall be taken into account under

3 subparagraph (A).

4 ‘‘(C) HEALTH INSURANCE COVERAGE.—

5 The term ‘health insurance coverage’ has the

6 meaning given such term by section 9832(b)(1).

7 ‘‘(3) QUALIFIED EMPLOYEE.—

8 ‘‘(A) IN GENERAL.—The term ‘qualified

9 employee’ means, with respect to any period, an

10 employee of an employer if the total amount of

11 wages paid or incurred by such employer to

12 such employee at an annual rate during the

13 taxable year exceeds $5,000 but does not exceed

14 $16,000.

15 ‘‘(B) TREATMENT OF CERTAIN EMPLOY16 EES.—For purposes of subparagraph (A), the

17 term ‘employee’ shall include—

18 ‘‘(i) an employee within the meaning

19 of section 401(c)(1), and

20 ‘‘(ii) a leased employee within the

21 meaning of section 414(n).

22 ‘‘(C) WAGES.—The term ‘wages’—

23 ‘‘(i) has the meaning given such term

24 by section 3121(a) (determined without re-
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1 gard to any dollar limitation contained in

2 such section), and

3 ‘‘(ii) in the case of an employee de4 scribed in subparagraph (B)(i), includes

5 the net earnings from self-employment (as

6 defined in section 1402(a) and as so deter7 mined).

8 ‘‘(D) INFLATION ADJUSTMENT.—

9 ‘‘(i) IN GENERAL.—In the case of any

10 taxable year beginning in a calendar year

11 after 1999, the $16,000 amount contained

12 in subparagraph (A) shall be increased by

13 an amount equal to—

14 ‘‘(I) such dollar amount, multi15 plied by

16 ‘‘(II) the cost-of-living adjust17 ment under section 1(f)(3) for the cal18 endar year in which the taxable year

19 begins, determined by substituting

20 ‘calendar year 1998’ for ‘calendar

21 year 1992’ in subparagraph (B) there22 of.

23 ‘‘(ii) ROUNDING.—If any increase de24 termined under clause (i) is not a multiple
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1 of $100, such amount shall be rounded to

2 the nearest multiple of $100.

3 ‘‘(e) CERTAIN RULES MADE APPLICABLE.—For pur4 poses of this section, rules similar to the rules of section

5 52 shall apply.

6 ‘‘(f) DENIAL OF DOUBLE BENEFIT.—No deduction

7 or credit under any other provision of this chapter shall

8 be allowed with respect to qualified employee health insur9 ance expenses taken into account under subsection (a).’’

10 (b) CREDIT TO BE PART OF GENERAL BUSINESS

11 CREDIT.—Section 38(b) of the Internal Revenue Code of

12 1986 (relating to current year business credit) is amended

13 by striking ‘‘plus’’ at the end of paragraph (11), by strik14 ing the period at the end of paragraph (12) and inserting

15 ‘‘, plus’’, and by adding at the end the following:

16 ‘‘(13) the employee health insurance expenses

17 credit determined under section 45D.’’

18 (c) NO CARRYBACKS.—Subsection (d) of section 39

19 of the Internal Revenue Code of 1986 (relating to

20 carryback and carryforward of unused credits) is amended

21 by adding at the end the following:

22 ‘‘(9) NO CARRYBACK OF SECTION 45D CREDIT

23 BEFORE EFFECTIVE DATE.—No portion of the un24 used business credit for any taxable year which is

25 attributable to the employee health insurance ex-
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1 penses credit determined under section 45D may be

2 carried back to a taxable year ending before the date

3 of the enactment of section 45D.’’

4 (d) CLERICAL AMENDMENT.—The table of sections

5 for subpart D of part IV of subchapter A of chapter 1

6 of the Internal Revenue Code of 1986 is amended by add7 ing at the end the following:

‘‘Sec. 45D. Employee health insurance expenses.’’

8 (e) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to amounts paid or incurred in tax10 able years beginning after the date of the enactment of

11 this Act.

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