SEC. 2. REFUNDABLE CREDIT FOR SMALL BUSINESSES 
WHICH PROVIDE HEALTH CARE COVERAGE 
FOR EMPLOYEES. 
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to refundable credits) is amended by redes-
ignating section 36 as section 37 and by inserting after 
section 35 the following new section: 
‘‘SEC. 36. SMALL BUSINESSES PROVIDING HEALTH CARE 
COVERAGE FOR EMPLOYEES. 
‘‘(a) IN GENERAL.—In the case of an eligible small 
business, there shall be allowed as a credit against the tax 
imposed by this subtitle for the taxable year an amount 
equal to the applicable percentage of the expenses paid 
or incurred by the taxpayer for qualified health care cov-
erage of eligible employees, their spouses, and dependents 
(within the meaning of section 213(a)). 
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 
this section, the term ‘applicable percentage’ means— 
‘‘(1) 50 percent if qualified health care coverage 
is provided by the taxpayer to an average (on days 
during the taxable year) of 10 or fewer eligible em-
ployees of the taxpayer, 
‘‘(2) 25 percent if qualified health care coverage 
is provided by the taxpayer to an average (on such 
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days) of at least 10 but not more than 25 eligible 
employees of the taxpayer, and 
‘‘(3) 15 percent if qualified health care coverage 
is provided by the taxpayer to an average (on such 
days) of more than 25 eligible employees of the tax-
payer. 
‘‘(c) ELIGIBLE SMALL BUSINESS.—For purposes of 
this section, the term ‘eligible small business’ means any 
taxpayer engaged in a trade or business if the taxpayer 
meets the requirements of the following paragraphs: 
‘‘(1) 50 OR FEWER EMPLOYEES.— 
‘‘(A) IN GENERAL.—A taxpayer meets the 
requirements of this paragraph if the taxpayer 
employs an average of 50 or fewer employees on 
business days during the preceding taxable 
year. 
‘‘(B) TAXPAYER NOT IN EXISTENCE.—In 
any case in which the taxpayer is an entity and 
is not in existence throughout the preceding 
taxable year, subparagraph (A) shall be applied 
by substituting ‘taxable year’ for ‘preceding tax-
able year’. 
‘‘(2) GROSS RECEIPTS LIMITATION.— 
‘‘(A) IN GENERAL.—A taxpayer meets the 
requirements of this paragraph if the gross re-
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ceipts of the taxpayer for the preceding taxable 
year do not exceed $10,000,000. 
‘‘(B) TAXPAYER NOT IN EXISTENCE.—In 
any case in which the taxpayer is an entity and 
is not in existence throughout the preceding 
taxable year, subparagraph (A) shall be applied 
by substituting ‘taxable year’ for ‘preceding tax-
able year’. 
‘‘(C) SPECIAL
RULES.—For purposes of 
subparagraph (A), the rules of subparagraphs 
(B) and (C) of section 448(c)(3) shall apply. 
‘‘(3) PLAN OFFERING REQUIREMENT.—A tax-
payer meets the requirements of the paragraph if— 
‘‘(A) the taxpayer offers qualified health 
coverage, on the same terms and conditions, to 
at least 90 percent of the taxpayer’s eligible 
employees, and 
‘‘(B) such offering is made at least annu-
ally and at such other times and in such man-
ner as the Secretary shall prescribe. 
‘‘(4) PLAN PARTICIPATION REQUIREMENT.— 
‘‘(A) IN GENERAL.—A taxpayer meets the 
requirements of the paragraph if the average 
daily percentage of eligible employees who are 
provided with qualified health coverage by the 
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taxpayer during the taxable year is not less 
than such average for the preceding taxable 
year. 
‘‘(B) EXCEPTIONS.— 
‘‘(i) NOT
IN
EXISTENCE.—Subpara-
graph (A) shall not apply if the trade or 
business was not in existence throughout 
the preceding taxable year. 
‘‘(ii) 
BUSINESS
DECLINE.—Under 
regulations prescribed by the Secretary, 
subparagraph (A) shall not apply to the 
extent that any reduction in such percent-
age is the result of a reduction in the num-
ber of employees of the taxpayer on ac-
count of a reduction in the gross receipts 
of the taxpayer. 
‘‘(5) MINIMUM EMPLOYER PAYMENT.—A tax-
payer meets the requirements of the paragraph if at 
least 65 percent of the cost of qualified health cov-
erage provided to each eligible employee is borne by 
the employer (determined without regard to this sec-
tion). 
‘‘(d) ELIGIBLE EMPLOYEES.—For purposes of this 
section, the term ‘eligible employee’ means any employee 
of the taxpayer if— 
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‘‘(1) such employee is not covered under— 
‘‘(A) any health plan of the employee’s 
spouse, 
‘‘(B) title XVIII, XIX, or XXI of the So-
cial Security Act, 
‘‘(C) chapter 17 of title 38, United States 
Code, 
‘‘(D) chapter 55 of title 10, United States 
Code, 
‘‘(E) chapter 89 of title 5, United States 
Code, or 
‘‘(F) any other provision of law, and 
‘‘(2) such employee is not a part-time or sea-
sonal employee. 
‘‘(e) QUALIFIED HEALTH COVERAGE.—For purposes 
of this section, the term ‘qualified health coverage’ means 
coverage under a health plan provided by the employer 
which is substantially equivalent on an actuarial basis to 
coverage provided chapter 89 of title 5, United States 
Code. 
‘‘(f) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(1) TREATMENT
OF
PREDECESSORS.—Any 
reference in paragraphs (1), (2), and (4) of sub-
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section (c) to an entity shall include a reference to 
any predecessor of such entity. 
‘‘(2) CONTROLLED GROUPS.—All persons treat-
ed as a single employer under subsection (b) or (c) 
of section 52 shall be treated as 1 person. 
‘‘(3) 
MERGERS
AND
ACQUISITIONS.—Rules 
similar to the rules of subparagraphs (A) and (B) of 
section 41(f)(3) shall apply. 
‘‘(4) 
EMPLOYEE
TO
INCLUDE
SELF-EM-
PLOYED.—The term ‘employee’ includes an indi-
vidual who is an employee within the meaning of 
section 401(c)(1) (relating to self-employed individ-
uals). 
‘‘(5) EXCEPTION FOR AMOUNTS PAID UNDER 
SALARY REDUCTION ARRANGEMENTS.—No amount 
paid or incurred pursuant to a salary reduction ar-
rangement shall be taken into account under sub-
section (a).’’. 
(b) DENIAL OF DOUBLE BENEFIT.—Section 280C of 
such Code is amended by adding at the end the following 
new subsection: 
‘‘(h) CREDIT FOR SMALL BUSINESS HEALTH INSUR-
ANCE EXPENSES.— 
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed for that portion of the expenses (otherwise al-
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