II 

110TH CONGRESS 

1ST SESSION S. 1556 

To amend the Internal Revenue Code of 1986 to extend the exclusion from 

gross income for employer-provided health coverage to designated plan 

beneficiaries of employees, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 6, 2007 

Mr. SMITH (for himself, Ms. CANTWELL, Mr. LIEBERMAN, Mr. WYDEN, Mr. 

KERRY, Mr. AKAKA, Mrs. MURRAY, and Mr. DODD) 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 extend 

the exclusion from gross income for employer-provided 

health coverage to designated plan beneficiaries of employees, 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 for Domes5 tic Partner and Health Plan Beneficiaries Act’’. 


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1 SEC. 2. APPLICATION OF ACCIDENT AND HEALTH PLANS 

2 TO ELIGIBLE BENEFICIARIES. 

3 (a) EXCLUSION OF CONTRIBUTIONS.—Section 106 of 

4 the Internal Revenue Code of 1986 (relating to contribu5 tions by employer to accident and health plans) is amend6 ed by adding at the end the following new subsection: 

7 ‘‘(f) COVERAGE PROVIDED FOR ELIGIBLE BENE8 FICIARIES OF EMPLOYEES.— 

9 ‘‘(1) IN GENERAL.—Subsection (a) shall apply 

10 with respect to an eligible beneficiary and any quali11 fying child who is a dependent of the eligible bene12 ficiary. 

13 ‘‘(2) QUALIFYING CHILD; DEPENDENT.—For 

14 purposes of this subsection— 

15 ‘‘(A) QUALIFYING CHILD.—The term 

16 ‘qualifying child’ has the meaning given such 

17 term by section 152(c). 

18 ‘‘(B) DEPENDENT.—The term ‘dependent’ 

19 has the meaning given such term by section 

20 105(b).’’. 

21 (b) EXCLUSION OF AMOUNTS EXPENDED FOR MED22 ICAL CARE.—The first sentence of section 105(b) of such 

23 Code (relating to amounts expended for medical care) is 

24 amended— 

25 (1) by striking ‘‘and his dependents’’ and in26 serting ‘‘his dependents’’, and 


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1 (2) by inserting before the period at the end of 

2 the first sentence the following: ‘‘, an eligible bene3 ficiary with respect to the taxpayer, and any quali4 fying child of an eligible beneficiary (within the 

5 meaning of section 106(f)) with respect to the tax6 payer’’. 

7 (c) PAYROLL TAXES.— 

8 (1) Section 3121(a)(2) of such Code is amend9 ed— 

10 (A) by striking ‘‘or any of his dependents’’ 

11 both places it appears and inserting ‘‘, any of 

12 his dependents, any eligible beneficiary with re13 spect to the employee, or any qualifying chil14 dren of such eligible beneficiary (within the 

15 meaning of section 106(f)),’’, 

16 (B) by striking ‘‘and their dependents’’ the 

17 first place it appears and inserting ‘‘, their de18 pendents, eligible beneficiaries with respect to 

19 employees, and qualifying children of such eligi20 ble beneficiaries (within the meaning of section 

21 106(f)),’’, and 

22 (C) by striking ‘‘and their dependents’’ the 

23 second place it appears and inserting ‘‘, their 

24 dependents, eligible beneficiaries with respect to 

25 employees, and qualifying children of such eligiVerDate Aug 31 2005 04:43 Jun 08, 2007 Jkt 059200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1556.IS S1556

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1 ble beneficiaries (within the meaning of section 

2 106(f))’’. 

3 (2) Section 3231(e)(1) of such Code is amend4 ed— 

5 (A) by striking ‘‘or any of his dependents’’ 

6 and inserting ‘‘, any of his dependents, any eli7 gible beneficiary with respect to the employee, 

8 or any qualifying children of such eligible bene9 ficiary (within the meaning of section 106(f)),’’, 

10 (B) by striking ‘‘and their dependents’’ the 

11 first place it appears and inserting ‘‘, their de12 pendents, eligible beneficiaries with respect to 

13 employees, and qualifying children of such eligi14 ble beneficiaries (within the meaning of section 

15 106(f)),’’, and 

16 (C) by striking ‘‘and their dependents’’ the 

17 second place it appears and inserting ‘‘, their 

18 dependents, eligible beneficiaries with respect to 

19 employees, and qualifying children of such eligi20 ble beneficiaries (within the meaning of section 

21 106(f))’’. 

22 (3) Section 3306(b)(2) of such Code is amend23 ed— 

24 (A) by striking ‘‘or any of his dependents’’ 

25 both places it appears and inserting ‘‘, any of 


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1 his dependents, any eligible beneficiary with re2 spect to the employee, or any qualifying chil3 dren of such eligible beneficiary (within the 

4 meaning of section 106(f)),’’, 

5 (B) by striking ‘‘and their dependents’’ the 

6 first place it appears and inserting ‘‘, their de7 pendents, eligible beneficiaries with respect to 

8 employees, and qualifying children of such eligi9 ble beneficiaries (within the meaning of section 

10 106(f)),’’, and 

11 (C) by striking ‘‘and their dependents’’ the 

12 second place it appears and inserting ‘‘, their 

13 dependents, eligible beneficiaries with respect to 

14 employees, and qualifying children of such eligi15 ble beneficiaries (within the meaning of section 

16 106(f))’’. 

17 (4) Section 3401(a) of such Code is amended 

18 by striking ‘‘or’’ at the end of paragraph (21), by 

19 striking the period at the end of paragraph (22) and 

20 inserting ‘‘; or’’, and by inserting after paragraph 

21 (22) the following new paragraph: 

22 ‘‘(23) for any payment made to or for the ben23 efit of an employee or his eligible beneficiary or any 

24 qualifying children of his eligible beneficiary (within 

25 the meaning of section 106(f)) if at the time of such 


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1 payment it is reasonable to believe that the employee 

2 will be able to exclude such payment from income 

3 under section 106(f) or under section 105 by ref4 erence in section 105(b) to section 106(f).’’. 

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2006. 

8 SEC. 3. EXPANSION OF DEPENDENCY FOR PURPOSES OF 

9 DEDUCTION FOR HEALTH INSURANCE COSTS 

10 OF SELF-EMPLOYED INDIVIDUALS. 

11 (a) IN GENERAL.—Paragraph (1) of section 162(l) 

12 of the Internal Revenue Code of 1986 (relating to special 

13 rules for health insurance costs of self-employed individ14 uals) is amended to read as follows: 

15 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case 

16 of a taxpayer who is an employee within the mean17 ing of section 401(c)(1), there shall be allowed as a 

18 deduction under this section an amount equal to the 

19 amount paid during the taxable year for insurance 

20 which constitutes medical care for— 

21 ‘‘(A) the taxpayer, 

22 ‘‘(B) the taxpayer’s spouse, 

23 ‘‘(C) the taxpayer’s dependents, 

24 ‘‘(D) an individual— 


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1 ‘‘(i) who satisfies the age require2 ments of section 152(c)(3)(A), 

3 ‘‘(ii) who bears a relationship to the 

4 taxpayer described in section 

5 152(d)(2)(H), and 

6 ‘‘(iii) meets the requirements of sec7 tion 152(d)(1)(C), and 

8 ‘‘(E) an individual who— 

9 ‘‘(i) is designated by the taxpayer for 

10 purposes of this paragraph, 

11 ‘‘(ii) bears a relationship to the tax12 payer described in section 152(d)(2)(H), 

13 ‘‘(iii) meets the requirements of sec14 tion 152(d)(1)(D), and 

15 ‘‘(iv) is not the spouse of the taxpayer 

16 and does not bear any relationship to the 

17 taxpayer described in subparagraphs (A) 

18 through (G) of section 152(d)(2). 

19 For purposes of subparagraph (E)(i), not more 

20 than 1 person may be designated by the tax21 payer for any taxable year.’’. 

22 (b) CONFORMING AMENDMENT.—Subparagraph (B) 

23 of section 162(l)(2) of the Internal Revenue Code of 1986 

24 is amended by striking ‘‘or of the spouse of the taxpayer’’ 


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1 and inserting ‘‘, of the spouse of the taxpayer, or of any 

2 individual described in paragraph (1)(E)’’. 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2006. 

6 SEC. 4. EXTENSION TO ELIGIBLE BENEFICIARIES OF SICK 

7 AND ACCIDENT BENEFITS PROVIDED TO 

8 MEMBERS OF A VOLUNTARY EMPLOYEES’ 

9 BENEFICIARY ASSOCIATION AND THEIR DE10 PENDENTS. 

11 (a) IN GENERAL.—Section 501(c)(9) of the Internal 

12 Revenue Code of 1986 (relating to list of exempt organiza13 tions) is amended by adding at the end the following new 

14 sentence: ‘‘For purposes of providing for the payment of 

15 sick and accident benefits to members of such an associa16 tion and their dependents, the term ‘dependents’ shall in17 clude any individual who is an eligible beneficiary and any 

18 qualifying child of an eligible beneficiary (within the mean19 ing of section 106(f)), as determined under the terms of 

20 a medical benefit, health insurance, or other program 

21 under which members and their dependents are entitled 

22 to sick and accident benefits.’’. 

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

24 this section shall apply to taxable years beginning after 

25 December 31, 2006. 


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1 SEC. 5. FLEXIBLE SPENDING ARRANGEMENTS AND HEALTH 

2 REIMBURSEMENT ARRANGEMENTS. 

3 The Secretary of Treasury shall issue guidance of 

4 general applicability providing that medical expenses that 

5 otherwise qualify— 

6 (1) for reimbursement from a flexible spending 

7 arrangement under regulations in effect on the date 

8 of the enactment of this Act may be reimbursed 

9 from an employee’s flexible spending arrangement, 

10 notwithstanding the fact that such expenses are at11 tributable to any individual who is an eligible bene12 ficiary under the flexible spending arrangement or to 

13 any qualifying child of such an eligible beneficiary 

14 (within the meaning of section 106(f) of the Internal 

15 Revenue Code of 1986), and 

16 (2) for reimbursement from a health reimburse17 ment arrangement under administrative guidance in 

18 effect on the date of the enactment of this Act may 

19 be reimbursed from an employee’s health reimburse20 ment arrangement, notwithstanding the fact that 

21 such expenses are attributable to an individual who 

22 is not a spouse or dependent within the meaning of 

23 section 152 of such Code but who is designated by 

24 the employee as eligible to have his or her expenses 

25 reimbursed under the health reimbursement ar26 rangement. 


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1 SEC. 6. EXTENSION OF QUALIFIED MEDICAL EXPENSES 

2 FROM HEALTH SAVINGS ACCOUNTS. 

3 (a) IN GENERAL.—Subparagraph (A) of section 

4 223(d)(2) of the Internal Revenue Code of 1986 (relating 

5 to qualified medical expenses) is amended— 

6 (1) by striking ‘‘and any dependent’’ and in7 serting ‘‘any dependent’’, and 

8 (2) by inserting ‘‘, and any qualified bene9 ficiary’’ after ‘‘thereof)’’. 

10 (b) QUALIFIED BENEFICIARY.—Section 223(d)(2) of 

11 such Code is amended by inserting after subparagraph (C) 

12 the following new subparagraph: 

13 ‘‘(D) QUALIFIED BENEFICIARY.—For pur14 poses of subparagraph (A), the term ‘qualified 

15 beneficiary’ means any individual who is de16 scribed in subparagraph (D) or (E) of section 

17 162(l)(1).’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2007. 

Æ 


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