I 

108TH CONGRESS 

2D SESSION H. R. 5355

To amend the Internal Revenue Code of 1986 to provide tax incentives 

to encourage small business health plans. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 9, 2004

Mr. BOSWELL (for himself and Mr. OSBORNE) 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 provide 

tax incentives to encourage small business health plans.

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 ‘‘Health Care Relief 

5 Act of 2004’’. 

6 SEC. 2. FIRST $2,000 OF HEALTH INSURANCE PREMIUMS 

7 FULLY DEDUCTIBLE. 

8 (a) IN GENERAL.—Subsection (a) of section 213 of 

9 the Internal Revenue Code of 1986 (relating to medical, 

10 dental, etc., expenses) is amended to read as follows: 
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1 ‘‘(a) ALLOWANCE OF DEDUCTION.—There shall be 

2 allowed as a deduction the following amounts not com3 pensated for by insurance or otherwise—

4 ‘‘(1) the amount by which the amount of ex5 penses paid during the taxable year (reduced by the 

6 amount deductible under paragraph (2)) for medical 

7 care of the taxpayer, the taxpayer’s spouse, and the 

8 taxpayer’s dependents (as defined in section 152) ex9 ceeds 7.5 percent of adjusted gross income, plus 

10 ‘‘(2) so much of the expenses paid during the 

11 taxable year for insurance which constitutes medical 

12 care under subsection (d)(1)(D) (other than for a 

13 qualified long-term care insurance contract) for such 

14 taxpayer, spouse, and dependents as does not exceed 

15 $2,000.’’. 

16 (b) DEDUCTION ALLOWED WHETHER OR NOT TAX17 PAYER ITEMIZES DEDUCTION.—Section 62(a) of the In18 ternal Revenue Code of 1986 (defining adjusted gross in19 come) is amended by inserting after paragraph (18) the 

20 following new paragraph: 

21 ‘‘(19) HEALTH INSURANCE PREMIUMS.—The 

22 deduction allowed by section 213(a)(2).’’. 

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

24 this section shall apply to taxable years beginning after 

25 December 31, 2003. 
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1 SEC. 3. CREDIT FOR HEALTH INSURANCE EXPENSES OF 

2 SMALL BUSINESSES. 

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to business-related credits) is amended by 

6 adding at the end the following: 

7 ‘‘SEC. 45G. SMALL BUSINESS HEALTH INSURANCE EX8 PENSES. 

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

10 in the case of a small employer, the health insurance credit 

11 determined under this section for the taxable year is an 

12 amount equal to the applicable percentage of the expenses 

13 paid by the taxpayer during the taxable year for health 

14 insurance coverage for such year provided under a new 

15 health plan for employees of such employer. 

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

17 subsection (a), the applicable percentage is—

18 ‘‘(1) in the case of insurance purchased as a 

19 member of a health benefit purchasing coalition (as 

20 defined in regulations prescribed by the Secretary), 

21 40 percent, and 

22 ‘‘(2) in the case of insurance not described in 

23 paragraph (1), 30 percent. 

24 ‘‘(c) LIMITATIONS.—

25 ‘‘(1) PER EMPLOYEE DOLLAR LIMITATION.—

26 The amount of expenses taken into account under 
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1 subsection (a) with respect to any employee for any 

2 taxable year shall not exceed—

3 ‘‘(A) in the case of insurance purchased as 

4 a member of a coalition referred to in sub5 section (b)(1)—

6 ‘‘(i) $800 in the case of self-only cov7 erage, and 

8 ‘‘(ii) $2,000 in the case of family cov9 erage, and 

10 ‘‘(B) in any other case—

11 ‘‘(i) $600 in the case of self-only cov12 erage, and 

13 ‘‘(ii) $1,500 in the case of family cov14 erage. 

15 In the case of an employee who is covered by a new 

16 health plan of the employer for only a portion of 

17 such taxable year, the limitation under the preceding 

18 sentence shall be an amount which bears the same 

19 ratio to such limitation (determined without regard 

20 to this sentence) as such portion bears to the entire 

21 taxable year. 

22 ‘‘(2) PERIOD OF COVERAGE.—Expenses may be 

23 taken into account under subsection (a) only with 

24 respect to coverage for the 4-year period beginning 
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1 on the date the employer establishes a new health 

2 plan. 

3 ‘‘(3) EMPLOYER MUST BEAR 65 PERCENT OF

4 COST.—Expenses may be taken into account under 

5 subsection (a) only if at least 65 percent of the cost 

6 of the coverage (without regard to this section) is 

7 borne by the employer. 

8 ‘‘(d) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) HEALTH INSURANCE COVERAGE.—The 

10 term ‘health insurance coverage’ has the meaning 

11 given such term by section 9832(b)(1). 

12 ‘‘(2) NEW HEALTH PLAN.—

13 ‘‘(A) IN GENERAL.—The term ‘new health 

14 plan’ means any arrangement of the employer 

15 which provides health insurance coverage to em16 ployees if—

17 ‘‘(i) such employer (and any prede18 cessor employer) did not establish or main19 tain such arrangement (or any similar ar20 rangement) at any time during the 2 tax21 able years ending prior to the taxable year 

22 in which the credit under this section is 

23 first allowed, and 

24 ‘‘(ii) such arrangement provides 

25 health insurance coverage to at least 70 
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1 percent of the qualified employees of such 

2 employer. 

3 ‘‘(B) QUALIFIED EMPLOYEE.—

4 ‘‘(i) IN GENERAL.—The term ‘quali5 fied employee’ means any employee of an 

6 employer and shall include a leased em7 ployee within the meaning of section 

8 414(n). 

9 ‘‘(3) SMALL EMPLOYER.—The term ‘small em10 ployer’ has the meaning given to such term by sec11 tion 4980D(d)(2); except that—

12 ‘‘(A) only qualified employees shall be 

13 taken into account, and 

14 ‘‘(B) such section shall be applied by sub15 stituting ‘100 employees’ for ‘50 employees’. 

16 ‘‘(e) SPECIAL RULES.—

17 ‘‘(1) CERTAIN RULES MADE APPLICABLE.—For 

18 purposes of this section, rules similar to the rules of 

19 section 52 shall apply. 

20 ‘‘(2) AMOUNTS PAID UNDER SALARY REDUC21 TION ARRANGEMENTS.—No amount paid or incurred 

22 pursuant to a salary reduction arrangement shall be 

23 taken into account under subsection (a). 

24 ‘‘(3) INFLATION ADJUSTMENT.—In the case of 

25 any taxable year beginning in a calendar year after 
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1 2004, each dollar amount contained in subsections 

2 (c)(1) and (d)(2)(B) shall be increased by an 

3 amount equal to—

4 ‘‘(A) such dollar amount, multiplied by 

5 ‘‘(B) the cost-of-living adjustment deter6 mined under section 1(f)(3) for the calendar 

7 year in which the taxable year begins, deter8 mined by substituting ‘calendar year 2003’ for 

9 ‘calendar year 1992’ in subparagraph (B) 

10 thereof. 

11 Any increase determined under the preceding sen12 tence shall be rounded to the nearest multiple of 

13 $50. 

14 ‘‘(f) TERMINATION.—This section shall not apply to 

15 expenses paid or incurred by an employer with respect to 

16 any arrangement established on or after January 1, 

17 2010.’’. 

18 (b) CREDIT TO BE PART OF GENERAL BUSINESS

19 CREDIT.—Section 38(b) of such Code (relating to current 

20 year business credit) is amended by striking ‘‘plus’’ at the 

21 end of paragraph (13), by striking the period at the end 

22 of paragraph (14) and inserting ‘‘, plus’’, and by adding 

23 at the end the following: 
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1 ‘‘(15) in the case of a small employer (as de2 fined in section 45G(d)(3)), the health insurance 

3 credit determined under section 45G(a).’’. 

4 (c) NO CARRYBACKS.—Subsection (d) of section 39 

5 of such Code (relating to carryback and carryforward of 

6 unused credits) is amended by adding at the end the fol7 lowing: 

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

9 BEFORE EFFECTIVE DATE.—No portion of the un10 used business credit for any taxable year which is 

11 attributable to the employee health insurance ex12 penses credit determined under section 45G may be 

13 carried back to a taxable year beginning before Jan14 uary 1, 2004.’’. 

15 (d) DENIAL OF DOUBLE BENEFIT.—Section 280C of 

16 such Code is amended by adding at the end the following 

17 new subsection: 

18 ‘‘(d) CREDIT FOR SMALL BUSINESS HEALTH INSUR19 ANCE EXPENSES.—

20 ‘‘(1) IN GENERAL.—No deduction shall be al21 lowed for that portion of the expenses (otherwise al22 lowable as a deduction) taken into account in deter23 mining the credit under section 45G for the taxable 

24 year which is equal to the amount of the credit de-
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1 termined for such taxable year under section 

2 45G(a). 

3 ‘‘(2) CONTROLLED GROUPS.—Persons treated 

4 as a single employer under subsection (a) or (b) of 

5 section 52 shall be treated as 1 person for purposes 

6 of this section.’’. 

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

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

9 of such Code is amended by adding at the end the fol10 lowing:

‘‘Sec. 45G. Small business health insurance expenses.’’.

11 (f) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to amounts paid or incurred in tax13 able years beginning after December 31, 2003, for ar14 rangements established after the date of the enactment 

15 of this Act. 

16 SEC. 4. REFUNDABLE HEALTH INSURANCE COSTS CREDIT. 

17 (a) ALLOWANCE OF CREDIT.—

18 (1) IN GENERAL.—Subpart C of part IV of sub19 chapter A of chapter 1 of the Internal Revenue Code 

20 of 1986 (relating to refundable personal credits) is 

21 amended by redesignating section 36 as section 37 

22 and by inserting after section 35 the following new 

23 section: 
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1 ‘‘SEC. 36. HEALTH INSURANCE COSTS FOR UNINSURED IN2 DIVIDUALS. 

3 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in4 dividual, there shall be allowed as a credit against the tax 

5 imposed by this subtitle for the taxable year an amount 

6 equal to the amount paid by the taxpayer during such tax7 able year for qualified health insurance for the taxpayer 

8 and the taxpayer’s spouse and dependents. 

9 ‘‘(b) LIMITATION.—The amount allowed as a credit 

10 under subsection (a) for a taxable year shall not exceed 

11 $500. 

12 ‘‘(c) QUALIFIED HEALTH INSURANCE.—For pur13 poses of this section, the term ‘qualified health insurance’ 

14 means health insurance coverage (as defined in section 

15 9832(b)(1)). 

16 ‘‘(d) SPECIAL RULES.—

17 ‘‘(1) COORDINATION WITH MEDICAL EXPENSE

18 DEDUCTION.—The amount which would (but for this 

19 paragraph) be taken into account by the taxpayer 

20 under section 213 for the taxable year shall be re21 duced by the credit (if any) allowed by this section 

22 to the taxpayer for such year. 

23 ‘‘(2) COORDINATION WITH DEDUCTION FOR

24 HEALTH INSURANCE COSTS OF SELF-EMPLOYED IN25 DIVIDUALS.—In the case of a taxpayer who is eligi26 ble to deduct any amount under section 162(l) for 
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1 the taxable year, this section shall apply only if the 

2 taxpayer elects not to claim any amount as a deduc3 tion under such section for such year. 

4 ‘‘(3) COORDINATION WITH DEDUCTION FOR AR5 CHER MSAS AND HSAS.—In the case of a taxpayer 

6 who is eligible to deduct any amount under section 

7 220 or 223 for the taxable year, this section shall 

8 apply only if the taxpayer elects not to claim any 

9 amount as a deduction under such section for such 

10 year. 

11 ‘‘(4) DENIAL OF CREDIT TO DEPENDENTS.—No 

12 credit shall be allowed under this section to any indi13 vidual with respect to whom a deduction under sec14 tion 151 is allowable to another taxpayer for a tax15 able year beginning in the calendar year in which 

16 such individual’s taxable year begins. 

17 ‘‘(5) COORDINATION WITH SECTION 35.—If a 

18 taxpayer is eligible for the credit allowed under this 

19 section and section 35 for any taxable year, the tax20 payer shall elect which credit is to be allowed. 

21 ‘‘(e) EXPENSES MUST BE SUBSTANTIATED.—A pay22 ment for insurance to which subsection (a) applies may 

23 be taken into account under this section only if the tax24 payer substantiates such payment in such form as the Sec25 retary may prescribe. 
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1 ‘‘(f) REGULATIONS.—The Secretary may prescribe 

2 such regulations as may be necessary to carry out the pur3 poses of this section.’’. 

4 (b) CONFORMING AMENDMENTS.—

5 (1) Section 162(l) of the Internal Revenue Code 

6 of 1986 is amended by adding at the end the fol7 lowing: 

8 ‘‘(6) ELECTION TO HAVE SUBSECTION

9 APPLY.—No deduction shall be allowed under para10 graph (1) for a taxable year unless the taxpayer 

11 elects to have this subsection apply for such year.’’. 

12 (2) Section 220(b) of such Code is amended by 

13 adding at the end the following: 

14 ‘‘(8) ELECTION TO HAVE SUBSECTION

15 APPLY.—No deduction shall be allowed under sub16 section (a) for a taxable year unless the taxpayer 

17 elects to have this section apply for such year.’’. 

18 (3) Section 223(b) of such Code is amended by 

19 adding at the end the following: 

20 ‘‘(8) ELECTION TO HAVE SUBSECTION

21 APPLY.—No deduction shall be allowed under sub22 section (a) for a taxable year unless the taxpayer 

23 elects to have this section apply for such year.’’. 
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1 (4) Paragraph (2) of section 1324(b) of title 

2 31, United States Code, is amended by inserting be3 fore the period ‘‘, or from section 36 of such Code’’. 

4 (5) The table of sections for subpart C of part 

5 IV of subchapter A of chapter 1 of the Internal Rev6 enue Code of 1986 is amended by striking the last 

7 item and inserting the following:

‘‘Sec. 36. Health insurance costs for uninsured individuals. 

‘‘Sec. 37. Overpayments of tax.’’.

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2003.

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