II 

108TH CONGRESS 

2D SESSION S. 2245

To amend the Internal Revenue Code of 1986 to provide a small business 

health tax credit. 

IN THE SENATE OF THE UNITED STATES 

MARCH 26, 2004

Mr. DASCHLE 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 provide 

a small business health tax credit.

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 ‘‘Small Business Health 

5 Tax Credit Act’’. 

6 SEC. 2. SMALL BUSINESS TAX CREDIT FOR 50 PERCENT OF 

7 HEALTH PREMIUMS. 

8 (a) IN GENERAL.—Subpart D of part IV of sub9 chapter A of chapter 1 of the Internal Revenue Code of 
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1 1986 (relating to business-related credits) is amended by 

2 adding at the end the following: 

3 ‘‘SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES. 

4 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

5 in the case of a qualified small employer, the employee 

6 health insurance expenses credit determined under this 

7 section is an amount equal to the applicable percentage 

8 of the amount paid by the taxpayer during the taxable 

9 year for qualified employee health insurance expenses. 

10 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 

11 subsection (a), the applicable percentage is equal to—

12 ‘‘(1) 50 percent in the case of an employer with 

13 less than 26 qualified employees, 

14 ‘‘(2) 40 percent in the case of an employer with 

15 more than 25 but less than 36 qualified employees, 

16 and 

17 ‘‘(3) 30 percent in the case of an employer with 

18 more than 35 but less than 51 qualified employees. 

19 ‘‘(c) PER EMPLOYEE DOLLAR LIMITATION.—The 

20 amount of qualified employee health insurance expenses 

21 taken into account under subsection (a) with respect to 

22 any qualified employee for any taxable year shall not ex23 ceed the maximum employer contribution for self-only cov24 erage or family coverage (as applicable) determined under 
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1 section 8906(a) of title 5, United States Code, for the cal2 endar year in which such taxable year begins. 

3 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur4 poses of this section—

5 ‘‘(1) QUALIFIED SMALL EMPLOYER.—

6 ‘‘(A) IN GENERAL.—The term ‘qualified 

7 small employer’ means any small employer 

8 which provides eligibility for health insurance 

9 coverage (after any waiting period (as defined 

10 in section 9801(b)(4))) to all qualified employ11 ees of the employer. 

12 ‘‘(B) SMALL EMPLOYER.—

13 ‘‘(i) IN GENERAL.—For purposes of 

14 this paragraph, the term ‘small employer’ 

15 means, with respect to any calendar year, 

16 any employer if such employer employed 

17 an average of not less than 2 and not more 

18 than 50 qualified employees on business 

19 days during either of the 2 preceding cal20 endar years. For purposes of the preceding 

21 sentence, a preceding calendar year may be 

22 taken into account only if the employer 

23 was in existence throughout such year.

24 ‘‘(ii) EMPLOYERS NOT IN EXISTENCE

25 IN PRECEDING YEAR.—In the case of an 
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1 employer which was not in existence 

2 throughout the 1st preceding calendar 

3 year, the determination under clause (i) 

4 shall be based on the average number of 

5 qualified employees that it is reasonably 

6 expected such employer will employ on 

7 business days in the current calendar year. 

8 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR9 ANCE EXPENSES.—

10 ‘‘(A) IN GENERAL.—The term ‘qualified 

11 employee health insurance expenses’ means any 

12 amount paid by an employer for health insur13 ance coverage to the extent such amount is at14 tributable to coverage provided to any employee 

15 while such employee is a qualified employee. 

16 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

17 UNDER SALARY REDUCTION ARRANGEMENTS.—

18 No amount paid or incurred for health insur19 ance coverage pursuant to a salary reduction 

20 arrangement shall be taken into account under 

21 subparagraph (A). 

22 ‘‘(C) HEALTH INSURANCE COVERAGE.—

23 The term ‘health insurance coverage’ has the 

24 meaning given such term by paragraph (1) of 

25 section 9832(b) (determined by disregarding 
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1 the last sentence of paragraph (2) of such sec2 tion). 

3 ‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali4 fied employee’ means an employee of an employer

5 who, with respect to any period, is not provided 

6 health insurance coverage under—

7 ‘‘(A) a health plan of the employee’s 

8 spouse, 

9 ‘‘(B) title XVIII, XIX, or XXI of the So10 cial Security Act, 

11 ‘‘(C) chapter 17 of title 38, United States 

12 Code, 

13 ‘‘(D) chapter 55 of title 10, United States 

14 Code, 

15 ‘‘(E) chapter 89 of title 5, United States 

16 Code, or 

17 ‘‘(F) any other provision of law. 

18 ‘‘(4) EMPLOYEE—The term ‘employee’—

19 ‘‘(A) means any individual, with respect to 

20 any calendar year, who is reasonably expected 

21 to receive at least $5,000 of compensation from 

22 the employer during such year, 

23 ‘‘(B) does not include an employee within 

24 the meaning of section 401(c)(1), and 
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1 ‘‘(C) includes a leased employee within the 

2 meaning of section 414(n). 

3 ‘‘(5) COMPENSATION.—The term ‘compensa4 tion’ means amounts described in section 

5 6051(a)(3). 

6 ‘‘(e) CERTAIN RULES MADE APPLICABLE.—For pur7 poses of this section, rules similar to the rules of section 

8 52 shall apply. 

9 ‘‘(f) DENIAL OF DOUBLE BENEFIT.—No deduction 

10 or credit under any other provision of this chapter shall 

11 be allowed with respect to qualified employee health insur12 ance expenses taken into account under subsection (a).’’. 

13 (b) CREDIT TO BE PART OF GENERAL BUSINESS

14 CREDIT.—Section 38(b) of the Internal Revenue Code of 

15 1986 (relating to current year business credit) is amended 

16 by striking ‘‘plus’’ at the end of paragraph (14), by strik17 ing the period at the end of paragraph (15) and inserting 

18 ‘‘, plus’’, and by adding at the end the following: 

19 ‘‘(16) the employee health insurance expenses 

20 credit determined under section 45G.’’. 

21 (c) CREDIT ALLOWED AGAINST MINIMUM TAX.—

22 (1) IN GENERAL.—Subsection (c) of section 38 

23 of the Internal Revenue Code of 1986 (relating to 

24 limitation based on amount of tax) is amended by 

25 redesignating paragraph (4) as paragraph (5) and 
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1 by inserting after paragraph (3) the following new 

2 paragraph: 

3 ‘‘(4) SPECIAL RULES FOR EMPLOYEE HEALTH

4 INSURANCE CREDIT.—

5 ‘‘(A) IN GENERAL.—In the case of the em6 ployee health insurance credit—

7 ‘‘(i) this section and section 39 shall 

8 be applied separately with respect to the 

9 credit, and 

10 ‘‘(ii) in applying paragraph (1) to the 

11 credit—

12 ‘‘(I) the amounts in subpara13 graphs (A) and (B) thereof shall be 

14 treated as being zero, and 

15 ‘‘(II) the limitation under para16 graph (1) (as modified by subclause 

17 (I)) shall be reduced by the credit al18 lowed under subsection (a) for the 

19 taxable year (other than the employee 

20 health insurance credit). 

21 ‘‘(B) EMPLOYEE HEALTH INSURANCE

22 CREDIT.—For purposes of this subsection, the 

23 term ‘employee health insurance credit’ means 

24 the credit allowable under subsection (a) by rea25 son of section 45G(a).’’. 
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1 (2) CONFORMING AMENDMENTS.—

2 (A) Subclause (II) of section 

3 38(c)(2)(A)(ii) of such Code is amended by in4 serting ‘‘or the employee health insurance cred5 it’’ after ‘‘employee credit’’. 

6 (B) Subclause (II) of section 

7 38(c)(3)(A)(ii) of such Code is amended by in8 serting ‘‘or the employee health insurance cred9 it’’ after ‘‘employee credit’’.

10 (d) NO CARRYBACKS.—Subsection (d) of section 39 

11 of the Internal Revenue Code of 1986 (relating to 

12 carryback and carryforward of unused credits) is amended 

13 by adding at the end the following: 

14 ‘‘(11) NO CARRYBACK OF SECTION 45G CREDIT

15 BEFORE EFFECTIVE DATE.—No portion of the un16 used business credit for any taxable year which is 

17 attributable to the employee health insurance ex18 penses credit determined under section 45G may be 

19 carried back to a taxable year ending before the date 

20 of the enactment of section 45G.’’.

21 (e) CLERICAL AMENDMENT.—The table of sections 

22 for subpart D of part IV of subchapter A of chapter 1 

23 of the Internal Revenue Code of 1986 is amended by add24 ing at the end the following:

‘‘Sec. 45G. Employee health insurance expenses.’’.
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1 (f) EMPLOYER OUTREACH.—The Internal Revenue 

2 Service shall, in conjunction with the Small Business Ad3 ministration, develop materials and implement an edu4 cational program to ensure that business personnel are 

5 aware of—

6 (1) the eligibility criteria for the tax credit pro7 vided under section 45G of the Internal Revenue 

8 Code of 1986 (as added by this section), 

9 (2) the methods to be used in calculating such 

10 credit, 

11 (3) the documentation needed in order to claim 

12 such credit, and 

13 (4) any available health plan purchasing alli14 ances established under title II, 

15 so that the maximum number of eligible businesses may 

16 claim the tax credit.

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

18 this section shall apply to amounts paid or incurred in tax19 able years beginning after the date of the enactment of 

20 this Act.

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