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Union Calendar No. 363 

112TH CONGRESS 

2D SESSION H. R. 1004 

[Report No. 112–515] 

To amend the Internal Revenue Code of 1986 to increase participation in 

medical flexible spending arrangements. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 10, 2011 

Mr. BOUSTANY (for himself, Mr. LARSON of Connecticut, Mr. PAULSEN, Mr. 

JOHNSON of Illinois, Mr. BISHOP of Georgia, and Mr. BURTON of Indiana) introduced the following bill; which was referred to the Committee 

on Ways and Means 

JUNE 5, 2012 

Additional sponsors: Mr. SCHOCK, Ms. SPEIER, Mr. PAUL, Mr. REICHERT, 

Mr. HIMES, Mr. TIBERI, Mr. MURPHY of Connecticut, Mr. GERLACH, 

Mr. DAVIS of Kentucky, Mr. ROSKAM, Mr. AUSTRIA, Mr. GRIFFIN of Arkansas, Mr. CICILLINE, Mr. HARRIS, Ms. HERRERA BEUTLER, Mr. 

COURTNEY, Mr. HULTGREN, Mr. NUNES, Mrs. BLACK, Mr. BERG, Mr. 

SAM JOHNSON of Texas, Mr. BARTLETT, Mr. SCHILLING, Mr. TERRY, 

Mr. AMODEI, Mr. BUCHANAN, and Mr. WALSH of Illinois 

JUNE 5, 2012 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 


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A BILL 

To amend the Internal Revenue Code of 1986 to increase 

participation in medical flexible spending arrangements. 


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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Medical FSA Improve5 ment Act of 2011’’. 

6 SEC. 2. ADDITION OF TAXABLE DISTRIBUTIONS. 

7 (a) TREATMENT OF AMOUNTS EXPENDED FOR MED8 ICAL CARE.—Section 105 of the Internal Revenue Code 

9 of 1986 (relating to amounts received under accident and 

10 health plans) is amended by inserting at the end the fol11 lowing new subsection: 

12 ‘‘(k) AMOUNTS PAID UNDER MEDICAL FLEXIBLE

13 SPENDING ARRANGEMENTS.— 

14 ‘‘(1) APPLICATION OF SUBSECTION (b) AND

15 SECTION 106.—For purposes of subsection (b) and 

16 section 106, a plan shall not fail to be treated as 

17 flexible spending arrangement solely because such 

18 plan, in addition to reimbursing expenses incurred 

19 for medical care (as defined in subsection (b)) dur20 ing the plan year, distributes for the plan year all 

21 or a portion of the employee’s balance. 

22 ‘‘(2) LIMITATION.—Paragraph (1) shall apply 

23 only in the case that the balance under such ar24 rangement for a plan year is distributed after the 

25 close of the plan year to which the balance relates 


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1 and not later than the end of the 7th month fol2 lowing the close of such plan year. 

3 ‘‘(3) TAX TREATMENT OF DISTRIBUTION.—Any 

4 distribution to which paragraph (1) applies shall be 

5 treated as remuneration of the employee for employ6 ment for the taxable year in which it is distributed. 

7 ‘‘(4) FLEXIBLE SPENDING ARRANGEMENT.— 

8 The term ‘flexible spending arrangement’ means a 

9 benefit program within the meaning of section 

10 106(c)(2) (relating to long-term care benefits).’’. 

11 (b) ADDITIONAL DEFERRED COMPENSATION EXCEP12 TION.—Paragraph (2) of section 125(d) of such Code (re13 lating to deferred compensation under a cafeteria plan) 

14 is amended by inserting at the end the following new sub15 paragraph: 

16 ‘‘(E) EXCEPTION FOR CERTAIN FLEXIBLE

17 SPENDING ARRANGEMENTS.—Subparagraph (A) 

18 shall not apply to a flexible spending arrange19 ment (within the meaning of section 106(c)(2)) 

20 as a result of amounts being distributed to the 

21 covered employee in accordance with section 

22 105(k).’’. 

23 (c) CONFORMING AMENDMENT.—Section 409A(d)(1) 

24 of such Code is amended by striking ‘‘and’’ at the end 

25 of subparagraph (A), by striking the period at the end 


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1 of subparagraph (B) and inserting ‘‘, and’’, and by adding 

2 at the end the following: 

3 ‘‘(C) a flexible spending arrangement 

4 which is subject to section 105(k).’’. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to plan years beginning after De7 cember 31, 2012. 

8 (e) TRANSITION RULES.—In the case of plan years 

9 that begin before the date of the enactment of this Act, 

10 in implementing the amendments made by this section a 

11 flexible spending arrangement may allow an individual to 

12 make a new election or to revise an existing election under 

13 such arrangement so long as such new or revised election 

14 is made within 90 days after the date of the enactment 

15 of this Act. 

16 SECTION 1. SHORT TITLE. 

17 This Act may be cited as the ‘‘Health Flexible Spend18 ing Arrangements Improvements Act of 2012’’. 

19 SEC. 2. TAXABLE DISTRIBUTIONS OF UNUSED BALANCES 

20 UNDER HEALTH FLEXIBLE SPENDING AR21 RANGEMENTS. 

22 (a) IN GENERAL.—Section 125 of the Internal Revenue 

23 Code of 1986 is amended by redesignating subsections (k) 

24 and (l) as subsections (l) and (m), respectively, and by in25 serting after subsection (j) the following new subsection: 


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1 ‘‘(k) TAXABLE DISTRIBUTIONS OF UNUSED BALANCES

2 UNDER HEALTH FLEXIBLE SPENDING ARRANGEMENTS.— 

3 ‘‘(1) IN GENERAL.—For purposes of this section 

4 and sections 105(b) and 106, a plan or other arrange5 ment which (but for any qualified distribution) would 

6 be a health flexible spending arrangement shall not 

7 fail to be treated as a cafeteria plan or health flexible 

8 spending arrangement (and shall not fail to be treat9 ed as an accident or health plan) merely because such 

10 arrangement provides for qualified distributions. 

11 ‘‘(2) QUALIFIED DISTRIBUTIONS.—For purposes 

12 of this subsection, the term ‘qualified distribution’ 

13 means any distribution to an individual under the 

14 arrangement referred to in paragraph (1) with re15 spect to any plan year if— 

16 ‘‘(A) such distribution is made after the last 

17 date on which requests for reimbursement under 

18 such arrangement for such plan year may be 

19 made and not later than the end of the 7th 

20 month following the close of such plan year, and 

21 ‘‘(B) such distribution does not exceed the 

22 lesser of— 

23 ‘‘(i) $500, or 

24 ‘‘(ii) the excess of— 


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1 ‘‘(I) the salary reduction contribu2 tions made under such arrangement 

3 for such plan year, over 

4 ‘‘(II) the reimbursements for ex5 penses incurred for medical care made 

6 under such arrangement for such plan 

7 year. 

8 ‘‘(3) TAX TREATMENT OF QUALIFIED DISTRIBU9 TIONS.—Qualified distributions shall be includible in 

10 the gross income of the employee in the taxable year 

11 in which distributed and shall be taken into account 

12 as wages or compensation under the applicable provi13 sions of subtitle C when so distributed. 

14 ‘‘(4) COORDINATION WITH QUALIFIED RESERVIST

15 DISTRIBUTIONS.—A qualified reservist distribution 

16 (as defined in subsection (h)(2)) shall not be treated 

17 as a qualified distribution and shall not be taken into 

18 account in applying the limitation of paragraph 

19 (2)(B)(i).’’. 

20 (b) CONFORMING AMENDMENT.—Paragraph (1) of sec21 tion 409A(d) of such Code is amended by striking ‘‘and’’ 

22 at the end of subparagraph (A), by striking the period at 

23 the end of subparagraph (B) and inserting ‘‘, and’’, and 

24 by adding at the end the following new subparagraph: 


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1 ‘‘(C) a health flexible spending arrangement 

2 to which subsection (h) or (k) of section 125 ap3 plies.’’. 

4 (c) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply to plan years beginning after December 

6 31, 2012. 


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Union Calendar No. 363 

112TH CONGRESS 

2D SESSION H. R. 1004 

[Report No. 112–515] 

A BILL 

To amend the Internal Revenue Code of 1986 to 

arrangements. increase participation in medical flexible spending 

JUNE 5, 2012 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union, 


srobinson on DSK4SPTVN1PROD with BILLS