II 

108TH CONGRESS 

2D SESSION S. 2359 

To amend the Internal Revenue Code of 1986 to provide a refundable tax 

credit for small business health insurance costs, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 28, 2004 

Mr. REID 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 refundable tax credit for small business health insurance costs, 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 ‘‘Healthy Employees, 

5 Healthy Small Businesses Act of 2004’’. 

6 SEC. 2. FINDINGS. 

7 Congress finds the following: 

8 (1) In 2002, 44,000,000 Americans were with9 out health insurance for the entire year, and the 
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1 vast majority of these uninsured people are in work2 ing families. 

3 (2) The number of employees in a business 

4 greatly affects the likelihood of whether or not its 

5 employees are offered health insurance. In 2003, 98 

6 percent of firms with over 200 employees offered 

7 health benefits, while only 55 percent of firms with 

8 under 10 workers did. 

9 (3) Among uninsured workers in 2001, over 

10 half held jobs with companies having fewer than 100 

11 employees. 

12 (4) The cost of health insurance for employers 

13 is very high. On average, in 2003, the total cost of 

14 an individual health plan was $3,383, of which the 

15 employee paid an average of $508 and the employer 

16 paid an average of $2875. For a family policy, the 

17 average cost was $9,068, with the employer bearing 

18 $6,656 and the employee shouldering $2,412. 

19 SEC. 3. REFUNDABLE CREDIT FOR SMALL BUSINESS EM20 PLOYEE HEALTH INSURANCE EXPENSES. 

21 (a) IN GENERAL.—Subpart C of part IV of sub22 chapter A of chapter 1 of the Internal Revenue Code of 

23 1986 (relating to refundable credits) is amended by redes24 ignating section 36 as section 37 and inserting after sec25 tion 35 the following new section: 
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1 ‘‘SEC. 36. SMALL BUSINESS EMPLOYEE HEALTH INSURANCE 

2 EXPENSES. 

3 ‘‘(a) DETERMINATION OF AMOUNT.—In the case of 

4 a qualified small employer, there shall be allowed as a 

5 credit against the tax imposed by this subtitle for the tax6 able year an amount equal to the expense amount de7 scribed in subsection (b) paid by the taxpayer during the 

8 taxable year. 

9 ‘‘(b) SUBSECTION (b) EXPENSE AMOUNT.—For pur10 poses of this section— 

11 ‘‘(1) IN GENERAL.—The expense amount de12 scribed in this subsection is the applicable percent13 age of the amount of qualified employee health in14 surance expenses of each qualified employee. 

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

16 of paragraph (1), the applicable percentage is equal 

17 to— 

18 ‘‘(A) for any qualified small employer de19 scribed in subparagraph (A) of paragraph (4), 

20 50 percent, 

21 ‘‘(B) for any qualified small employer de22 scribed in subparagraph (B) of paragraph (4), 

23 35 percent, and 

24 ‘‘(C) for any qualified small employer de25 scribed in subparagraph (C) of paragraph (4), 

26 25 percent. 
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1 ‘‘(3) PER EMPLOYEE DOLLAR LIMITATION.— 

2 ‘‘(A) IN GENERAL.—The amount of quali3 fied employee health insurance expenses taken 

4 into account under paragraph (1) with respect 

5 to any qualified employee for any taxable year 

6 shall not exceed— 

7 ‘‘(i) for any qualified small employer 

8 described in subparagraph (A) of para9 graph (4)— 

10 ‘‘(I) $1,500 in the case of self11 only coverage, and 

12 ‘‘(II) $3,400 in the case of family 

13 coverage, 

14 ‘‘(ii) for any qualified small employer 

15 described in subparagraph (B) of para16 graph (4)— 

17 ‘‘(I) $1,100 in the case of self18 only coverage, and 

19 ‘‘(II) $2,400 in the case of family 

20 coverage, and 

21 ‘‘(iii) for any qualified small employer 

22 described in subparagraph (C) of para23 graph (4)— 

24 ‘‘(I) $750 in the case of self-only 

25 coverage, and 
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1 ‘‘(II) $1,700 in the case of family 

2 coverage. 

3 ‘‘(B) INFLATION ADJUSTMENT.— 

4 ‘‘(i) IN GENERAL.—In the case of any 

5 taxable year beginning after 2006, each 

6 dollar amount referred to in subparagraph 

7 (A) shall be increased by an amount equal 

8 to— 

9 ‘‘(I) such dollar amount, multi10 plied by 

11 ‘‘(II) the cost-of-living adjust12 ment determined under section 

13 (1)(f)(3) for the calendar year in 

14 which the taxable year begins, by sub15 stituting ‘2005’ for ‘1992’. 

16 ‘‘(ii) ROUNDING.—If any amount as 

17 adjusted under clause (i) is not a multiple 

18 of $100, such amount shall be rounded to 

19 the next lowest multiple of $100. 

20 ‘‘(4) QUALIFIED SMALL EMPLOYERS DE21 SCRIBED.—A qualified small employer is described 

22 in— 

23 ‘‘(A) this subparagraph if such employer 

24 employed an average of 9 or fewer employees 

25 (as determined under subsection (c)(1)(A)(ii)), 
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1 ‘‘(B) this subparagraph if such employer 

2 employed an average of more than 9 but less 

3 than 25 employees (as so determined), and 

4 ‘‘(C) this subparagraph if such employer 

5 employed an average of more than 24 but not 

6 more than 50 employees (as so determined). 

7 ‘‘(c) DEFINITIONS.—For purposes of this section— 

8 ‘‘(1) QUALIFIED SMALL EMPLOYER.— 

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

10 small employer’ means, with respect to any cal11 endar year, any employer if— 

12 ‘‘(i) such employer pays or incurs at 

13 least 75 percent of the qualified employee 

14 health insurance expenses of each qualified 

15 employee (determined without regard to 

16 subsection (b)(3)), and 

17 ‘‘(ii) such employer employed an aver18 age of 50 or fewer employees on business 

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

21 For purposes of clause (ii), a preceding cal22 endar year may be taken into account only if 

23 the employer was in existence throughout such 

24 year. 
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1 ‘‘(B) EMPLOYERS NOT IN EXISTENCE IN

2 PRECEDING YEAR.—In the case of an employer 

3 which was not in existence throughout the 1st 

4 preceding calendar year, the determination 

5 under subparagraph (A)(ii) shall be based on 

6 the average number of employees that it is rea7 sonably expected such employer will employ on 

8 business days in the current calendar year. 

9 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR10 ANCE EXPENSES.— 

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

12 employee health insurance expenses’ means any 

13 amount paid by an employer for health insur14 ance coverage (as defined in section 9832(b)(1)) 

15 to the extent such amount is attributable to 

16 coverage provided to any employee while such 

17 employee is a qualified employee. 

18 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

19 UNDER SALARY REDUCTION ARRANGEMENTS.— 

20 No amount paid or incurred for health insur21 ance coverage pursuant to a salary reduction 

22 arrangement shall be taken into account under 

23 subparagraph (A). 

24 ‘‘(3) QUALIFIED EMPLOYEE.— 
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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 employee’ means, with respect to any period, an 

3 employee of an employer if— 

4 ‘‘(i) the annual amount of hours in 

5 the employ of such employer by such em6 ployee is at least 400 hours, 

7 ‘‘(ii) the total amount of wages paid 

8 or incurred by such employer to such em9 ployee at an annual rate during the taxable 

10 year is at least $5,000, and 

11 ‘‘(iii) such employee is not eligible 

12 for— 

13 ‘‘(I) any benefits under title 

14 XVIII, XIX, or XXI of the Social Se15 curity Act, or 

16 ‘‘(II) any other publicly-spon17 sored health insurance program. 

18 ‘‘(B) TREATMENT OF CERTAIN EMPLOY19 EES.—For purposes of subparagraph (A), the 

20 term ‘employee’— 

21 ‘‘(i) shall not include an employee 

22 within the meaning of section 401(c)(1), 

23 and 

24 ‘‘(ii) shall include a leased employee 

25 within the meaning of section 414(n). 
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1 ‘‘(C) WAGES.—The term ‘wages’ has the 

2 meaning given such term by section 3121(a) 

3 (determined without regard to any dollar limita4 tion contained in such section). 

5 ‘‘(d) CERTAIN RULES MADE APPLICABLE.—For pur6 poses of this section, rules similar to the rules of section 

7 52 shall apply. 

8 ‘‘(e) COORDINATION WITH DEDUCTION FOR HEALTH

9 INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.— 

10 In the case of a taxpayer who is eligible to deduct any 

11 amount under section 162(l) for the taxable year, this sec12 tion shall apply only if the taxpayer elects not to claim 

13 any amount as a deduction under such section for such 

14 year.’’. 

15 (b) CONFORMING AMENDMENTS.— 

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

17 31, United States Code, is amended by inserting be18 fore the period ‘‘, or from section 36 of such Code’’. 

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

20 IV of subchapter A of chapter 1 of the Internal Rev21 enue Code of 1986 is amended by striking the last 

22 item and inserting the following new items: 

‘‘Sec. 36. Small business employee health insurance expenses. 

‘‘Sec. 37. Overpayments of tax.’’. 
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1 (e) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to amounts paid or incurred in tax3 able years beginning after December 31, 2004. 

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