II 

108TH CONGRESS 

1ST SESSION S. 1702

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 

OCTOBER 2, 2003

Mr. SMITH (for himself, Mr. GRAHAM of Florida, Mrs. BOXER, Mr. CHAFEE, 

Mr. CORZINE, and Mr. WYDEN) 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 ‘‘Domestic Partner 

5 Health Benefits Equity Act’’. 
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•S 1702 IS 

1 SEC. 2. EXTENSION OF EXCLUSION FOR AMOUNTS RE2 CEIVED BY AN EMPLOYEE THROUGH ACCI3 DENT OR HEALTH INSURANCE AS REIM4 BURSEMENT FOR EXPENSES FOR MEDICAL 

5 CARE. 

6 (a) IN GENERAL.—Section 105(b) of the Internal 

7 Revenue Code of 1986 (relating to amounts expended for 

8 medical care) is amended—

9 (1) by striking ‘‘Except in the case’’ and insert10 ing the following: 

11 ‘‘(1) IN GENERAL.—Except in the case’’, 

12 (2) by adding at the end of paragraph (1) as 

13 redesignated in paragraph (1) the following new sen14 tence: ‘‘For the purposes of this subsection, the term 

15 ‘dependents’ shall include any individual who is an 

16 eligible beneficiary as defined in the employer’s acci17 dent or health insurance arrangement.’’, and 

18 (3) by adding at the end the following new 

19 paragraph: 

20 ‘‘(2) APPLICABLE PERCENTAGE OF EXCLUSION

21 FOR CERTAIN AMOUNTS.—

22 ‘‘(A) IN GENERAL.—In the case of taxable 

23 years beginning after December 31, 2004, and 

24 before January 1, 2011, the exclusion from in25 come applicable by reason of the third sentence 

26 of paragraph (1) shall be equal to the applicable 
3

•S 1702 IS 

1 percentage of the amount which would (but for 

2 this paragraph) be the amount of such exclu3 sion. 

4 ‘‘(B) APPLICABLE PERCENTAGE.—For 

5 purposes of subparagraph (A), the applicable 

6 percentage shall be determined in accordance 

7 with the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2004. 

11 SEC. 3. EXTENSION OF EXCLUSION FOR CONTRIBUTIONS 

12 BY EMPLOYER TO ACCIDENT AND HEALTH 

13 PLANS. 

14 (a) IN GENERAL.—Section 106 of the Internal Rev15 enue Code of 1986 (relating to contributions by employer 

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

17 end the following new subsection: 

18 ‘‘(d) COVERAGE PROVIDED FOR ELIGIBLE BENE19 FICIARIES OF EMPLOYEES.—

20 ‘‘(1) IN GENERAL.—Subsection (a) shall not fail 

21 to apply by reason of the coverage of an eligible ben22 eficiary as defined in the employer’s accident or 

23 health plan. 
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1 ‘‘(2) APPLICABLE PERCENTAGE OF EXCLUSION

2 FOR CERTAIN COVERAGE.—

3 ‘‘(A) IN GENERAL.—In the case of taxable 

4 years beginning after December 31, 2004, and 

5 before January 1, 2011, the exclusion from in6 come applicable by reason of paragraph (1) 

7 shall be equal to the applicable percentage of 

8 the amount which would (but for this para9 graph) be the amount of such exclusion. 

10 ‘‘(B) APPLICABLE PERCENTAGE.—For 

11 purposes of subparagraph (A), the applicable 

12 percentage shall be determined in accordance 

13 with the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

14 (b) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 December 31, 2004. 

17 SEC. 4. EXTENSION OF DEDUCTION FOR HEALTH INSUR18 ANCE COSTS OF SELF-EMPLOYED INDIVID19 UALS. 

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

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

22 rules for health insurance costs of self-employed individ23 uals) is amended to read as follows:
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•S 1702 IS 

1 ‘‘(1) ALLOWANCE OF DEDUCTION.—

2 ‘‘(A) IN GENERAL.—In the case of an indi3 vidual who is an employee within the meaning 

4 of section 401(c)(1), there shall be allowed as 

5 a deduction under this section an amount equal 

6 to the amount paid during the taxable year for 

7 insurance which constitutes medical care for the 

8 taxpayer, his spouse, and dependents. For the 

9 purposes of this subparagraph, the term ‘de10 pendents’ shall include any individual who is an 

11 eligible beneficiary as defined in the insurance 

12 arrangement which constitutes medical care. 

13 ‘‘(B) APPLICABLE PERCENTAGE OF DE14 DUCTION FOR CERTAIN AMOUNTS.—

15 ‘‘(i) IN GENERAL.—In the case of tax16 able years beginning after December 31, 

17 2004, and before January 1, 2011, the de18 duction applicable by reason of the second 

19 sentence of subparagraph (A) shall be 

20 equal to the applicable percentage of the 

21 amount which would (but for this subpara22 graph) be the amount of such deduction. 

23 ‘‘(ii) APPLICABLE PERCENTAGE.—For 

24 purposes of clause (i), the applicable per-
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•S 1702 IS 

1 centage shall be determined in accordance 

2 with the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2004. 

6 SEC. 5. EXTENSION OF SICK AND ACCIDENT BENEFITS PRO7 VIDED TO MEMBERS OF A VOLUNTARY EM8 PLOYEES’ BENEFICIARY ASSOCIATION AND 

9 THEIR DEPENDENTS. 

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

11 Revenue Code of 1986 (relating to list of exempt organiza12 tions) is amended by adding at the end the following new 

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

14 sick and accident benefits to members of such an associa15 tion and their dependents, the term ‘dependents’ shall in16 clude any individual who is an eligible beneficiary as deter17 mined under the terms of a medical benefit, health insur18 ance, or other program under which members and their 

19 dependents are entitled to sick and accident benefits.’’. 

20 (b) APPLICABLE PERCENTAGE OF PAYMENT OF CER21 TAIN SICK AND ACCIDENT BENEFITS.—Section 501 of the 

22 Internal Revenue Code of 1986 (relating to exemption 

23 from tax on corporations, certain trusts, etc.) is amended 
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1 by redesignating subsection (p) as subsection (q) and by 

2 inserting after subsection (o) the following new subsection: 

3 ‘‘(p) APPLICABLE PERCENTAGE OF PAYMENT OF

4 CERTAIN SICK AND ACCIDENT BENEFITS.—

5 ‘‘(1) IN GENERAL.—In the case of taxable years 

6 beginning after December 31, 2004, and before Jan7 uary 1, 2011, the exemption from tax applicable by 

8 reason of the second sentence of subsection (c)(9) 

9 shall be equal to the applicable percentage of the 

10 amount which would (but for this subsection) be the 

11 amount of such exemption. 

12 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

13 of paragraph (1), the applicable percentage shall be 

14 determined in accordance with the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

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

16 this section shall apply to taxable years beginning after 

17 December 31, 2004. 

18 SEC. 6. AMENDMENTS TO VARIOUS DEFINITIONS. 

19 (a) FICA.—

20 (1) IN GENERAL.—Section 3121 of the Internal 

21 Revenue Code of 1986 (relating to definitions) is 

22 amended by adding at the end the following new 

23 subsection: 
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1 ‘‘(z) EXCLUSION OF CERTAIN AMOUNTS FROM

2 WAGES.—

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

4 subsection (a) with respect to expenses described in 

5 paragraph (2)(B) of such subsection, the term ‘de6 pendents’ shall include any individual who is an eli7 gible beneficiary as defined in the plan or system es8 tablished by the employer. 

9 ‘‘(2) APPLICABLE PERCENTAGE OF EXCLUSION

10 FROM WAGES.—

11 ‘‘(A) IN GENERAL.—In the case of taxable 

12 years beginning after December 31, 2004, and 

13 before January 1, 2011, the exclusion from 

14 wages applicable by reason of paragraph (1) 

15 shall be equal to the applicable percentage of 

16 the amount which would (but for this para17 graph) be the amount of such exclusion. 

18 ‘‘(B) APPLICABLE PERCENTAGE.—For 

19 purposes of subparagraph (A), the applicable 

20 percentage shall be determined in accordance 

21 with the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

22 (2) CONFORMING AMENDMENT.—Section 209 

23 of the Social Security Act (42 U.S.C. 409) is amend-
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1 ed by adding at the end the following new sub2 section: 

3 ‘‘(l)(1) For purposes of applying subsection (a) with 

4 respect to medical or hospitalization expenses described in 

5 paragraph (2) thereof, the term ‘dependents’ shall include 

6 any individual who is an eligible beneficiary as defined in 

7 the plan or system established by the employer. 

8 ‘‘(2)(A) In the case of taxable years beginning after 

9 December 31, 2004, and before January 1, 2011, the ex10 clusion from wages applicable by reason of paragraph (1) 

11 shall be equal to the applicable percentage of the amount 

12 which would (but for this paragraph) be the amount of 

13 such exclusion. 

14 ‘‘(B) For purposes of subparagraph (A), the applica15 ble percentage shall be determined in accordance with the 

16 following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

17 (b) RAILROAD RETIREMENT.—

18 (1) IN GENERAL.—Section 3231(e) of the Inter19 nal Revenue Code of 1986 (defining compensation) 

20 is amended by adding at the end the following new 

21 paragraph: 

22 ‘‘(11) TREATMENT OF CERTAIN DEPEND23 ENTS.—
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1 ‘‘(A) IN GENERAL.—For purposes of ap2 plying this subsection with respect to medical or 

3 hospitalization expenses described in paragraph 

4 (1)(i), the term ‘dependents’ shall include any 

5 individual who is an eligible beneficiary as de6 fined in the plan or system established by the 

7 employer. 

8 ‘‘(B) APPLICABLE PERCENTAGE OF EX9 CLUSION FROM COMPENSATION.—

10 ‘‘(i) IN GENERAL.—In the case of tax11 able years beginning after December 31, 

12 2004, and before January 1, 2011, the ex13 clusion from compensation applicable by 

14 reason of subparagraph (A) shall be equal 

15 to the applicable percentage of the amount 

16 which would (but for this subparagraph) 

17 be the amount of such exclusion. 

18 ‘‘(ii) APPLICABLE PERCENTAGE.—For 

19 purposes of clause (i), the applicable per20 centage shall be determined in accordance 

21 with the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

22 (2) CONFORMING AMENDMENT.—Section 1(h) 

23 of the Railroad Retirement Act of 1974 (45 U.S.C. 
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1 231(h)) is amended by adding at the end the fol2 lowing new paragraph: 

3 ‘‘(9)(A) For purposes of applying this subsection, 

4 with respect to medical or hospitalization expenses de5 scribed in paragraph (6)(v), the term ‘dependents’ shall 

6 include any individual who is an eligible beneficiary as de7 fined in the plan or system established by the employer. 

8 ‘‘(B)(i) In the case of taxable years beginning after 

9 December 31, 2004, and before January 1, 2011, the ex10 clusion from compensation applicable by reason of sub11 paragraph (A) shall be equal to the applicable percentage 

12 of the amount which would (but for this subparagraph) 

13 be the amount of such exclusion. 

14 ‘‘(ii) For purposes of clause (i), the applicable per15 centage shall be determined in accordance with the fol16 lowing table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

17 (c) FUTA.—Section 3306 of the Internal Revenue 

18 Code of 1986 (relating to definitions) is amended by add19 ing at the end the following new subsection: 

20 ‘‘(v) EXCLUSION OF CERTAIN AMOUNTS FROM

21 WAGES.—

22 ‘‘(1) IN GENERAL.—For purposes of applying 

23 subsection (b) with respect to expenses described in 
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1 paragraph (2)(B) of such subsection, the term ‘de2 pendents’ shall include any individual who is an eli3 gible beneficiary as defined in the plan or system es4 tablished by the employer. 

5 ‘‘(2) APPLICABLE PERCENTAGE OF EXCLUSION

6 FROM WAGES.—

7 ‘‘(A) IN GENERAL.—In the case of taxable 

8 years beginning after December 31, 2004, and 

9 before January 1, 2011, the exclusion from 

10 wages applicable by reason of paragraph (1) 

11 shall be equal to the applicable percentage of 

12 the amount which would (but for this para13 graph) be the amount of such exclusion. 

14 ‘‘(B) APPLICABLE PERCENTAGE.—For 

15 purposes of subparagraph (A), the applicable 

16 percentage shall be determined in accordance 

17 with the following table:

‘‘For taxable years beginning 

in calendar year—

The applicable percentage is—

2005, 2006, or 2007 ................................................................ 25

2008, 2009, 2010 .................................................................... 50.’’.

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

19 this section shall apply to remuneration paid after Decem20 ber 31, 2004.

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