I

107TH CONGRESS

1ST SESSION H. R. 1590

To amend the Internal Revenue Code of 1986 to allow up to $500 of

health benefits and dependent care assistance in flexible spending accounts and similar arrangements to be carried forward to the succeeding

taxable year or to be included in gross income upon termination of

such accounts and arrangements.

IN THE HOUSE OF REPRESENTATIVES

APRIL 25, 2001

Mr. RAMSTAD introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to allow up

to $500 of health benefits and dependent care assistance

in flexible spending accounts and similar arrangements

to be carried forward to the succeeding taxable year

or to be included in gross income upon termination of

such accounts and arrangements.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. $500 OF HEALTH BENEFITS AND DEPENDENT

2 CARE ASSISTANCE IN FLEXIBLE SPENDING

3 ACCOUNTS CARRIED FORWARD TO SUC4 CEEDING TAXABLE YEAR AND INCLUDED IN

5 GROSS INCOME UPON TERMINATION OF AC6 COUNTS.

7 (a) IN GENERAL.—Section 125 of the Internal Rev8 enue Code of 1986 (relating to cafeteria plans) is amended

9 by redesignating subsections (h) and (i) as subsections (i)

10 and (j) and by inserting after subsection (g) the following:

11 ‘‘(h) CARRYFORWARDS OF CERTAIN UNUSED

12 HEALTH BENEFITS AND DEPENDENT CARE ASSISTANCE

13 TO SUCCEEDING TAXABLE YEAR; INCOME INCLUSION

14 UPON TERMINATION.—

15 ‘‘(1) IN GENERAL.—For purposes of this title—

16 ‘‘(A) a plan or other arrangement shall not

17 fail to be treated as a cafeteria plan or flexible

18 spending or similar arrangement, and

19 ‘‘(B) no amount shall be required to be in20 cluded in gross income by reason of this section

21 or any other provision of this chapter,

22 solely because under such plan or other arrangement

23 an employee may make the election described in

24 paragraph (3).

25 ‘‘(2) LIMITATION.—Paragraph (1) shall not

26 apply to more than $500 of benefits which are un-
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1 used as of the close of the taxable year or as of the

2 date of termination of the plan or arrangement.

3 ‘‘(3) ELECTION.—

4 ‘‘(A) IN GENERAL.—For purposes of para5 graph (1), the election described in this para6 graph is an election—

7 ‘‘(i)(I) to carry forward to the suc8 ceeding taxable year health benefits and

9 dependent care assistance (as defined in

10 section 129(e)(1)) which are unused as of

11 the close of a taxable year, or

12 ‘‘(II) to include the amount of such

13 unused benefits in gross income for the

14 taxable year,

15 ‘‘(ii) upon the termination of the plan

16 or arrangement, to include the amount of

17 such unused benefits in gross income for

18 the taxable year ending within or with the

19 end of the year in which such termination

20 occurs, and

21 ‘‘(iii) upon failure to re-enroll in such

22 plan or arrangement, to include the

23 amount of such unused benefits in gross

24 income for the last taxable year of enroll25 ment in such plan or arrangement.
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1 ‘‘(B) WHEN MADE.—The election de2 scribed in subparagraph (A) shall be made be3 fore the close of the fiscal year of the plan or

4 arrangement.’’.

5 (b) CARRYFORWARD SUBJECT TO EXCLUSION LIMI6 TATION.—Subparagraph (A) of section 129(a)(2) of such

7 Code (relating to general limitation of exclusion under de8 pendent care assistance programs) is amended by insert9 ing before the period at the end the following: ‘‘, reduced

10 by the amount carried forward to such taxable year under

11 section 125(h)’’.

12 (c) EFFECTIVE DATE.—The amendment made by

13 subsection (a) shall apply to taxable years beginning after

14 the date of the enactment of this Act.

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