I 
111TH CONGRESS 
1ST SESSION H. R. 2526 
To amend the Internal Revenue Code of 1986 to increase participation in 
medical flexible spending arrangements. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 20, 2009 
Mr. LARSON of Connecticut (for himself, Mr. CAMP, Mr. KIND, and Mr. 
BOUSTANY) introduced the following bill; which was referred to the Com-
mittee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to increase 
participation in medical flexible spending arrangements. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Medical FSA Improve-
ment Act of 2009’’. 
SEC. 2. ADDITION OF TAXABLE DISTRIBUTIONS. 
(a) TREATMENT OF AMOUNTS EXPENDED FOR MED-
ICAL CARE.—Section 105 of the Internal Revenue Code 
of 1986 (relating to amounts received under accident and 
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‘‘(4) FLEXIBLE
SPENDING
ARRANGEMENT.— 
The term ‘flexible spending arrangement’ means a 
benefit program within the meaning of section 
106(c)(2) (relating to long-term care benefits). 
‘‘(5) TERMINATION.—Paragraph (1) shall not 
apply to any distribution for a plan year beginning 
after December 31, 2011.’’. 
(b) ADDITIONAL DEFERRED COMPENSATION EXCEP-
TION.—Paragraph (2) of section 125(d) of such Code (re-
lating to deferred compensation under a cafeteria plan) 
is amended by inserting at the end the following new sub-
paragraph: 
‘‘(E) EXCEPTION FOR CERTAIN FLEXIBLE 
SPENDING ARRANGEMENTS.—Subparagraph (A) 
shall not apply to a flexible spending arrange-
ment (within the meaning of section 106(c)(2)) 
as a result of amounts being distributed to the 
covered employee in accordance with section 
105(k).’’. 
(c) CONFORMING AMENDMENT.—Section 409A(d)(1) 
of such Code is amended by striking ‘‘and’’ at the end 
of subparagraph (A), by striking the period at the end 
of subparagraph (B) and inserting ‘‘, and’’, and by adding 
at the end the following: 
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‘‘(C) a flexible spending arrangement 
which is subject to section 105(k).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2008. 
(e) TRANSITION RULES.—In the case of plan years 
that begin before the date of the enactment of this Act, 
in implementing the amendments made by this section a 
flexible spending arrangement may allow an individual to 
make a new election or to revise an existing election under 
such arrangement so long as such new or revised election 
is made within 90 days after the date of the enactment 
of this Act. 
SEC. 3. SELF-EMPLOYED INDIVIDUALS. 
(a) IN GENERAL.—Subsection (d) of section 125 of 
the Internal Revenue Code of 1986 (defining cafeteria 
plan) is amended by adding at the end the following new 
paragraph: 
‘‘(3) 
EMPLOYEE
TO
INCLUDE
SELF-EM-
PLOYED.—In the case of a medical flexible spending 
arrangement— 
‘‘(A) IN GENERAL.—The term ‘employee’ 
includes an individual who is an employee with-
in the meaning of section 401(c)(1) (relating to 
self-employed individuals). 
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‘‘(B) LIMITATION.—The amount which 
may be excluded under subsection (a) with re-
spect to a participant in a cafeteria plan by rea-
son of being an employee under subparagraph 
(A) shall not exceed the lesser of— 
‘‘(i) the employee’s earned income 
(within the meaning of section 401(c)) de-
rived from the trade or business with re-
spect to which the cafeteria plan is estab-
lished, or 
‘‘(ii) $5,000.’’. 
(b) APPLICATION
TO BENEFITS WHICH MAY BE 
PROVIDED UNDER CAFETERIA PLAN.— 
(1) ACCIDENT
AND
HEALTH
PLANS.—Sub-
section (g) of section 105 of such Code is amended 
to read as follows: 
‘‘(g) EMPLOYEE INCLUDES SELF-EMPLOYED.—For 
purposes of this section, the term ‘employee’ includes an 
individual who is an employee within the meaning of sec-
tion 401(c)(1) (relating to self-employed individuals).’’. 
(2) CONTRIBUTIONS BY EMPLOYERS TO ACCI-
DENT AND HEALTH PLANS.— 
(A) IN
GENERAL.—Section 106 of such 
Code is amended by adding after subsection (e) 
the following new subsection: 
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‘‘(f) EMPLOYER TO INCLUDE SELF-EMPLOYED.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, in the case of a medical flexible spending ac-
count the term ‘employee’ includes an individual who 
is an employee within the meaning of section 
401(c)(1) (relating to self-employed individuals). 
‘‘(2) LIMITATION.—The amount which may be 
excluded under subsection (a) with respect to an in-
dividual treated as an employee by reason of para-
graph (1) shall not exceed the lesser of— 
‘‘(A) the employee’s earned income (within 
the meaning of section 401(c)) derived from the 
trade or business with respect to which the acci-
dent or health insurance was established, or 
‘‘(B) $5,000. 
‘‘(3) TAX TREATMENT OF DISTRIBUTION.—Any 
distribution to which 105(k) applies shall be treated 
as self-employment income (as defined in section 
1402(b)) of the employee for the taxable year in 
which it is distributed. 
‘‘(4) ELECTION.—Paragraph (1) shall not apply 
for any taxable year if the employee elects to have 
paragraph (1) not apply for such taxable year.’’. 
(B) 
COORDINATION
WITH
SECTION 
106(f).—Paragraph (2) of section 162(l) of 
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such Code is amended by adding at the end the 
following new subparagraph: 
‘‘(D) 
COORDINATION
WITH
SECTION 
106(f).—No deduction shall be allowed under 
paragraph (1) for any amount with respect to 
which an election is in effect under section 
106(f)(4).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to plan years beginning after De-
cember 31, 2008. 
(d) TRANSITION RULES.—In the case of plan years 
that begin before the date of the enactment of this Act, 
in implementing the amendments made by this section a 
flexible spending arrangement may allow an individual to 
make an election under such arrangement so long as such 
election is made within 90 days after the date of the enact-
ment of this Act. 
Æ 
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