II 

110TH CONGRESS 

1ST SESSION S. 397 

To amend the Internal Revenue Code of 1986 to allow individuals a refundable credit against income tax for the purchase of private health insurance, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 25, 2007 

Mr. MARTINEZ (for himself, Mr. COBURN, Mr. COLEMAN, Mr. CORNYN, Mr. 

INHOFE, and Mr. SESSIONS) 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 individuals a refundable credit against income tax for the 

purchase of private health insurance, and for other purposes. 

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 ‘‘Tax Equity and Af5 fordability Act of 2007’’. 


bajohnson on PROD1PC77 with BILLS
2 

•S 397 IS

1 SEC. 2. REFUNDABLE CREDIT FOR HEALTH INSURANCE 

2 COVERAGE. 

3 (a) IN GENERAL.—Subpart C of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to refundable credits) is amended by redes6 ignating section 36 as section 37 and by inserting after 

7 section 35 the following new section: 

8 ‘‘SEC. 36. HEALTH INSURANCE COSTS. 

9 ‘‘(a) IN GENERAL.—In the case of an individual, 

10 there shall be allowed as a credit against the tax imposed 

11 by this subtitle an amount equal to the amount paid dur12 ing the taxable year for qualified health insurance for the 

13 taxpayer and the taxpayer’s spouse or dependent. 

14 ‘‘(b) LIMITATIONS.— 

15 ‘‘(1) IN GENERAL.—The amount allowed as a 

16 credit under subsection (a) to the taxpayer for the 

17 taxable year shall not exceed the sum of the monthly 

18 limitations for coverage months during such taxable 

19 year for the individual referred to in subsection (a) 

20 for whom the taxpayer paid during the taxable year 

21 any amount for coverage under qualified health in22 surance. 

23 ‘‘(2) PARTIAL PHASEOUT OF CREDIT

24 AMOUNT.— 

25 ‘‘(A) 37.5 PERCENT REDUCTION BASED ON

26 ADJUSTED GROSS INCOME.—37.5 percent of the 


bajohnson on PROD1PC77 with BILLS
3 

•S 397 IS

1 amount determined under paragraph (1) for 

2 any taxable year shall be reduced by the 

3 amount determined under subparagraph (B). 

4 ‘‘(B) AMOUNT OF REDUCTION.—The 

5 amount determined under this subparagraph 

6 shall be the amount which bears the same ratio 

7 to 37.5 percent of such amount determined 

8 under paragraph (1) as— 

9 ‘‘(i) the excess of— 

10 ‘‘(I) the taxpayer’s adjusted 

11 gross income for such taxable year, 

12 over 

13 ‘‘(II) the applicable dollar 

14 amount, bears to 

15 ‘‘(ii) $15,000 ($30,000 in the case of 

16 a joint return). 

17 The rule of section 219(g)(2)(C) shall apply to 

18 any reduction under this subparagraph. 

19 ‘‘(C) DEFINITIONS.—For purposes of this 

20 paragraph— 

21 ‘‘(i) adjusted gross income shall be de22 termined in the same manner as under sec23 tion 408A(c)(3)(C)(i), and 

24 ‘‘(ii) the applicable dollar amount is— 


bajohnson on PROD1PC77 with BILLS
4 

•S 397 IS

1 ‘‘(I) in the case of a taxpayer fil2 ing a joint return, $30,000, and 

3 ‘‘(II) in the case of any other 

4 taxpayer, $15,000. 

5 ‘‘(D) NO REDUCTION DURING PERIOD OF

6 UNEMPLOYMENT.—In the case of any coverage 

7 month (not to exceed 12 consecutive coverage 

8 months) during which the taxpayer is unem9 ployed, this paragraph shall not apply to the 

10 amount otherwise determined under paragraph 

11 (1). In the case of a self-employed individual, 

12 rules similar to the rules under section 

13 72(t)(2)(D)(iii) shall apply for purposes of the 

14 preceding sentence. 

15 ‘‘(3) MONTHLY LIMITATION.— 

16 ‘‘(A) IN GENERAL.—The monthly limita17 tion for an individual for each coverage month 

18 of such individual during the taxable year is the 

amount equal to 1 19 ⁄12th of the qualified health 

20 insurance amount. 

21 ‘‘(B) QUALIFIED HEALTH INSURANCE

22 AMOUNT.—For purposes of this paragraph, the 

23 qualified health insurance amount is— 

24 ‘‘(i) $2,000 if such individual is the 

25 taxpayer, and 


bajohnson on PROD1PC77 with BILLS
5 

•S 397 IS

1 ‘‘(ii) $2,000 if such individual is— 

2 ‘‘(I) the spouse of the taxpayer, 

3 the taxpayer and such spouse are 

4 married as of the first day of such 

5 month, and the taxpayer files a joint 

6 return for the taxable year, or 

7 ‘‘(II) an individual for whom a 

8 deduction under section 151(c) is al9 lowable to the taxpayer for such tax10 able year. 

11 ‘‘(C) LIMITATION TO SPOUSE OR DEPEND12 ENT.—Not more than 1 individual may be 

13 taken into account by the taxpayer under sub14 paragraph (B)(ii). 

15 ‘‘(4) COVERAGE MONTH.—For purposes of this 

16 subsection— 

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

18 month’ means, with respect to an individual, 

19 any month if— 

20 ‘‘(i) as of the first day of such month 

21 such individual is covered by qualified 

22 health insurance, and 

23 ‘‘(ii) the premium for coverage under 

24 such insurance for such month is paid by 

25 the taxpayer. 


bajohnson on PROD1PC77 with BILLS
6 

•S 397 IS

1 ‘‘(B) EMPLOYER-SUBSIDIZED COV2 ERAGE.— 

3 ‘‘(i) IN GENERAL.—Such term shall 

4 not include any month for which such indi5 vidual is eligible to participate in any sub6 sidized health plan (within the meaning of 

7 section 162(l)(2)) maintained by any em8 ployer of the taxpayer or of the spouse of 

9 the taxpayer. 

10 ‘‘(ii) PREMIUMS TO NONSUBSIDIZED

11 PLANS.—If an employer of the taxpayer or 

12 the spouse of the taxpayer maintains a 

13 health plan which is not a subsidized 

14 health plan (as so defined) and which con15 stitutes qualified health insurance, em16 ployee contributions to the plan shall be 

17 treated as amounts paid for qualified 

18 health insurance. 

19 ‘‘(C) CAFETERIA PLAN AND FLEXIBLE

20 SPENDING ACCOUNT BENEFICIARIES.—Such 

21 term shall not include any month during a tax22 able year if any amount is not includible in the 

23 gross income of the taxpayer for such year 

24 under section 106 with respect to— 


bajohnson on PROD1PC77 with BILLS
7 

•S 397 IS

1 ‘‘(i) a benefit chosen under a cafeteria 

2 plan (as defined in section 125(d)), or 

3 ‘‘(ii) a benefit provided under a flexi4 ble spending or similar arrangement. 

5 ‘‘(D) MEDICARE AND MEDICAID.—Such 

6 term shall not include any month with respect 

7 to an individual if, as of the first day of such 

8 month, such individual— 

9 ‘‘(i) is entitled to any benefits under 

10 title XVIII of the Social Security Act, or 

11 ‘‘(ii) is a participant in the program 

12 under title XIX or XXI of such Act. 

13 ‘‘(E) CERTAIN OTHER COVERAGE.—Such 

14 term shall not include any month during a tax15 able year with respect to an individual if, at any 

16 time during such year, any benefit is provided 

17 to such individual under— 

18 ‘‘(i) chapter 89 of title 5, United 

19 States Code, 

20 ‘‘(ii) chapter 55 of title 10, United 

21 States Code, 

22 ‘‘(iii) chapter 17 of title 38, United 

23 States Code, or 

24 ‘‘(iv) any medical care program under 

25 the Indian Health Care Improvement Act. 


bajohnson on PROD1PC77 with BILLS
8 

•S 397 IS

1 ‘‘(F) PRISONERS.—Such term shall not in2 clude any month with respect to an individual 

3 if, as of the first day of such month, such indi4 vidual is imprisoned under Federal, State, or 

5 local authority. 

6 ‘‘(G) INSUFFICIENT PRESENCE IN UNITED

7 STATES.—Such term shall not include any 

8 month during a taxable year with respect to an 

9 individual if such individual is present in the 

10 United States on fewer than 183 days during 

11 such year (determined in accordance with sec12 tion 7701(b)(7)). 

13 ‘‘(c) QUALIFIED HEALTH INSURANCE.—For pur14 poses of this section— 

15 ‘‘(1) IN GENERAL.—The term ‘qualified health 

16 insurance’ means insurance which constitutes med17 ical care as defined in section 213(d) without regard 

18 to— 

19 ‘‘(A) paragraph (1)(C) thereof, and 

20 ‘‘(B) so much of paragraph (1)(D) thereof 

21 as relates to qualified long-term care insurance 

22 contracts. 

23 ‘‘(2) EXCLUSION OF CERTAIN OTHER CON24 TRACTS.—Such term shall not include insurance if a 


bajohnson on PROD1PC77 with BILLS
9 

•S 397 IS

1 substantial portion of its benefits are excepted bene2 fits (as defined in section 9832(c)). 

3 ‘‘(d) ARCHER MSA AND HEALTH SAVINGS ACCOUNT

4 CONTRIBUTIONS.— 

5 ‘‘(1) IN GENERAL.—If a deduction would (but 

6 for paragraph (2)) be allowed under section 220 or 

7 223 to the taxpayer for a payment for the taxable 

8 year to the Archer MSA or health savings account 

9 of an individual, subsection (a) shall be applied by 

10 treating such payment as a payment for qualified 

11 health insurance for such individual. 

12 ‘‘(2) DENIAL OF DOUBLE BENEFIT.—No deduc13 tion shall be allowed under section 220 or 223 for 

14 that portion of the payments otherwise allowable as 

15 a deduction under section 220 or 223 for the taxable 

16 year which is equal to the amount of credit allowed 

17 for such taxable year by reason of this subsection. 

18 ‘‘(e) SPECIAL RULES.—For purposes of this sec19 tion— 

20 ‘‘(1) MARRIED COUPLES MUST FILE JOINT RE21 TURN.—If the taxpayer is married at the close of 

22 the taxable year, the credit shall be allowed under 

23 subsection (a) only if the taxpayer and the tax24 payer’s spouse file a joint return for the taxable 

25 year. 


bajohnson on PROD1PC77 with BILLS
10 

•S 397 IS

1 ‘‘(2) DENIAL OF CREDIT TO DEPENDENTS.—No 

2 credit shall be allowed under this section to any indi3 vidual with respect to whom a deduction under sec4 tion 151 is allowable to another taxpayer for a tax5 able year beginning in the calendar year in which 

6 such individual’s taxable year begins. 

7 ‘‘(3) DENIAL OF DOUBLE BENEFIT.—No credit 

8 shall be allowed under subsection (a) if the credit 

9 under section 35 is allowed and no credit shall be al10 lowed under 35 if a credit is allowed under this sec11 tion. 

12 ‘‘(4) COORDINATION WITH DEDUCTION FOR

13 HEALTH INSURANCE COSTS.—In the case of a tax14 payer who is eligible to deduct any amount under 

15 section 162(l) or 213 for the taxable year, this sec16 tion shall apply only if the taxpayer elects not to 

17 claim any amount as a deduction under such section 

18 for such year. 

19 ‘‘(5) ELECTION NOT TO CLAIM CREDIT.—This 

20 section shall not apply to a taxpayer for any taxable 

21 year if such taxpayer elects to have this section not 

22 apply for such taxable year. 

23 ‘‘(6) INFLATION ADJUSTMENT.—In the case of 

24 any taxable year beginning in a calendar year after 

25 2008, each dollar amount contained in subsection 


bajohnson on PROD1PC77 with BILLS
11 

•S 397 IS

1 (b)(2)(B) shall be increased by an amount equal 

2 to— 

3 ‘‘(A) such dollar amount, multiplied by 

4 ‘‘(B) the cost-of-living adjustment deter5 mined under section 1(f)(3) for the calendar 

6 year in which the taxable year begins, deter7 mined by substituting ‘calendar year 2007’ for 

8 ‘calendar year 1992’ in subparagraph (B) 

9 thereof. 

10 Any increase determined under the preceding sen11 tence shall be rounded to the nearest multiple of 

12 $50.’’. 

13 (b) INFORMATION REPORTING.— 

14 (1) IN GENERAL.—Subpart B of part III of 

15 subchapter A of chapter 61 of the Internal Revenue 

16 Code of 1986 (relating to information concerning 

17 transactions with other persons) is amended by in18 serting after section 6050V the following new sec19 tion: 

20 ‘‘SEC. 6050W. RETURNS RELATING TO PAYMENTS FOR 

21 QUALIFIED HEALTH INSURANCE. 

22 ‘‘(a) IN GENERAL.—Any person who, in connection 

23 with a trade or business conducted by such person, re24 ceives payments during any calendar year from any indi25 vidual for coverage of such individual or any other indiVerDate Aug 31 2005 03:38 Jan 30, 2007 Jkt 059200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S397.IS S397

bajohnson on PROD1PC77 with BILLS
12 

•S 397 IS

1 vidual under creditable health insurance, shall make the 

2 return described in subsection (b) (at such time as the 

3 Secretary may by regulations prescribe) with respect to 

4 each individual from whom such payments were received. 

5 ‘‘(b) FORM AND MANNER OF RETURNS.—A return 

6 is described in this subsection if such return— 

7 ‘‘(1) is in such form as the Secretary may pre8 scribe, and 

9 ‘‘(2) contains— 

10 ‘‘(A) the name, address, and TIN of the 

11 individual from whom payments described in 

12 subsection (a) were received, 

13 ‘‘(B) the name, address, and TIN of each 

14 individual who was provided by such person 

15 with coverage under creditable health insurance 

16 by reason of such payments and the period of 

17 such coverage, and 

18 ‘‘(C) such other information as the Sec19 retary may reasonably prescribe. 

20 ‘‘(c) CREDITABLE HEALTH INSURANCE.—For pur21 poses of this section, the term ‘creditable health insurance’ 

22 means qualified health insurance (as defined in section 

23 36(c)) other than— 

24 ‘‘(1) insurance under a subsidized group health 

25 plan maintained by an employer, or 


bajohnson on PROD1PC77 with BILLS
13 

•S 397 IS

1 ‘‘(2) to the extent provided in regulations pre2 scribed by the Secretary, any other insurance cov3 ering an individual if no credit is allowable under 

4 section 36 with respect to such coverage. 

5 ‘‘(d) STATEMENTS TO BE FURNISHED TO INDIVID6 UALS WITH RESPECT TO WHOM INFORMATION IS RE7 QUIRED.—Every person required to make a return under 

8 subsection (a) shall furnish to each individual whose name 

9 is required under subsection (b)(2)(A) to be set forth in 

10 such return a written statement showing— 

11 ‘‘(1) the name and address of the person re12 quired to make such return and the phone number 

13 of the information contact for such person, 

14 ‘‘(2) the aggregate amount of payments de15 scribed in subsection (a) received by the person re16 quired to make such return from the individual to 

17 whom the statement is required to be furnished, and 

18 ‘‘(3) the information required under subsection 

19 (b)(2)(B) with respect to such payments. 

20 The written statement required under the preceding sen21 tence shall be furnished on or before January 31 of the 

22 year following the calendar year for which the return 

23 under subsection (a) is required to be made. 

24 ‘‘(e) RETURNS WHICH WOULD BE REQUIRED TO BE

25 MADE BY 2 OR MORE PERSONS.—Except to the extent 


bajohnson on PROD1PC77 with BILLS
14 

•S 397 IS

1 provided in regulations prescribed by the Secretary, in the 

2 case of any amount received by any person on behalf of 

3 another person, only the person first receiving such 

4 amount shall be required to make the return under sub5 section (a).’’. 

6 (2) ASSESSABLE PENALTIES.— 

7 (A) Subparagraph (B) of section 

8 6724(d)(1) of such Code (relating to defini9 tions) is amended by redesignating clauses (xv) 

10 through (xx) as clauses (xvi) through (xxi), re11 spectively, and by inserting after clause (xi) the 

12 following new clause: 

13 ‘‘(xv) section 6050W (relating to re14 turns relating to payments for qualified 

15 health insurance),’’. 

16 (B) Paragraph (2) of section 6724(d) of 

17 such Code is amended by striking the period at 

18 the end of subparagraph (CC) and inserting ‘‘, 

19 or’’ and by adding at the end the following new 

20 subparagraph: 

21 ‘‘(DD) section 6050W(d) (relating to re22 turns relating to payments for qualified health 

23 insurance).’’. 

24 (3) CLERICAL AMENDMENT.—The table of sec25 tions for subpart B of part III of subchapter A of 


bajohnson on PROD1PC77 with BILLS
15 

•S 397 IS

1 chapter 61 of such Code is amended by inserting 

2 after the item relating to section 6050V the fol3 lowing new item: 

‘‘Sec. 6050W. Returns relating to payments for qualified health insurance.’’. 

4 (c) CONFORMING AMENDMENTS.— 

5 (1) Paragraph (2) of section 1324(b) of title 

6 31, United States Code, is amended by inserting be7 fore the period ‘‘, or from section 36 of such Code’’. 

8 (2) The table of sections for subpart C of part 

9 IV of subchapter A of chapter 1 of the Internal Rev10 enue Code of 1986 is amended by striking the last 

11 item and inserting the following new items: 

‘‘Sec. 36. Health insurance costs. 

‘‘Sec. 37. Overpayments of tax.’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2007. 

15 SEC. 3. ADVANCE PAYMENT OF CREDIT FOR PURCHASERS 

16 OF QUALIFIED HEALTH INSURANCE. 

17 (a) IN GENERAL.—Chapter 77 of the Internal Rev18 enue Code of 1986 (relating to miscellaneous provisions) 

19 is amended by adding at the end the following new section: 


bajohnson on PROD1PC77 with BILLS
16 

•S 397 IS

1 ‘‘SEC. 7529. ADVANCE PAYMENT OF HEALTH INSURANCE 

2 CREDIT FOR PURCHASERS OF QUALIFIED 

3 HEALTH INSURANCE. 

4 ‘‘(a) GENERAL RULE.—In the case of an eligible indi5 vidual, the Secretary shall make payments to the provider 

6 of such individual’s qualified health insurance equal to 

7 such individual’s qualified health insurance credit advance 

8 amount with respect to such provider. 

9 ‘‘(b) ELIGIBLE INDIVIDUAL.—For purposes of this 

10 section, the term ‘eligible individual’ means any indi11 vidual— 

12 ‘‘(1) who purchases qualified health insurance 

13 (as defined in section 36(c)), and 

14 ‘‘(2) for whom a qualified health insurance 

15 credit eligibility certificate is in effect. 

16 ‘‘(c) QUALIFIED HEALTH INSURANCE CREDIT ELIGI17 BILITY CERTIFICATE.—For purposes of this section, a 

18 qualified health insurance credit eligibility certificate is a 

19 statement furnished by an individual to the Secretary 

20 which— 

21 ‘‘(1) certifies that the individual will be eligible 

22 to receive the credit provided by section 36 for the 

23 taxable year, 

24 ‘‘(2) estimates the amount of such credit for 

25 such taxable year, and 


bajohnson on PROD1PC77 with BILLS
17 

•S 397 IS

1 ‘‘(3) provides such other information as the 

2 Secretary may require for purposes of this section. 

3 ‘‘(d) QUALIFIED HEALTH INSURANCE CREDIT AD4 VANCE AMOUNT.—For purposes of this section, the term 

5 ‘qualified health insurance credit advance amount’ means, 

6 with respect to any provider of qualified health insurance, 

7 the Secretary’s estimate of the amount of credit allowable 

8 under section 36 to the individual for the taxable year 

9 which is attributable to the insurance provided to the indi10 vidual by such provider. 

11 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

12 such regulations as may be necessary to carry out the pur13 poses of this section.’’. 

14 (b) CLERICAL AMENDMENT.—The table of sections 

15 for chapter 77 of the Internal Revenue Code of 1986 is 

16 amended by adding at the end the following new item: 

‘‘Sec. 7529. Advance payment of health insurance credit for purchasers of 

qualified health insurance.’’. 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2007. 

20 SEC. 4. LIMITATION ON EMPLOYER-PROVIDED HEALTH 

21 CARE COVERAGE. 

22 (a) IN GENERAL.—Section 106 of the Internal Rev23 enue Code of 1986 (relating to contributions by employer 


bajohnson on PROD1PC77 with BILLS
18 

•S 397 IS

1 to accident and health plans) is amended by adding at the 

2 end the following new subsection: 

3 ‘‘(e) LIMITATION ON EMPLOYER-PROVIDED HEALTH

4 CARE COVERAGE.— 

5 ‘‘(1) IN GENERAL.—The amount of any exclu6 sion under subsection (a) for any taxable year with 

7 respect to— 

8 ‘‘(A) any employer-provided coverage 

9 under an accident or health plan which con10 stitutes medical care, and 

11 ‘‘(B) any employer contribution to an Ar12 cher MSA or a health savings account which is 

13 treated by subsection (b) or (d) as employer14 provided coverage for medical expenses under 

15 an accident or health plan, 

16 shall not exceed $5,000 per employee for self-only 

17 coverage and $11,500 for family coverage. 

18 ‘‘(2) INFLATION ADJUSTMENT.—In the case of 

19 any taxable year beginning in a calendar year after 

20 2008, each dollar amount contained in paragraph 

21 (1) shall be increased by an amount equal to— 

22 ‘‘(A) such dollar amount, multiplied by 

23 ‘‘(B) the cost-of-living adjustment deter24 mined under section 1(f)(3) for the calendar 

25 year in which the taxable year begins, deterVerDate Aug 31 2005 03:38 Jan 30, 2007 Jkt 059200 PO 00000 Frm 00018 Fmt 6652 Sfmt 6201 E:\BILLS\S397.IS S397

bajohnson on PROD1PC77 with BILLS
19 

•S 397 IS

1 mined by substituting ‘calendar year 2007’ for 

2 ‘calendar year 1992’ in subparagraph (B) 

3 thereof. 

4 Any increase determined under the preceding sen5 tence shall be rounded to the nearest multiple of 

6 $50. 

7 ‘‘(3) MEDICAL CARE DEFINED.—For purposes 

8 of paragraph (1), the term ‘medical care’ has the 

9 meaning given to such term in section 213(d) deter10 mined without regard to— 

11 ‘‘(A) paragraph (1)(C) thereof, and 

12 ‘‘(B) so much of paragraph (1)(D) thereof 

13 as relates to qualified long-term care insur14 ance.’’. 

15 (b) EFFECTIVE DATE.—The amendment made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2007. 

Æ 


bajohnson on PROD1PC77 with BILLS