I 
110TH CONGRESS 
2D SESSION 
H. R. 7314 
To amend the Internal Revenue Code of 1986 to provide tax relief to the 
unemployed, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
DECEMBER 9, 2008 
Mr. MICHAUD 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 relief to the unemployed, and for other purposes. 
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 ‘‘Workforce Fairness 
and Tax Relief Act of 2008’’. 
SEC. 2. REPEAL OF TAX ON UNEMPLOYMENT COMPENSA-
TION. 
(a) IN GENERAL.—Section 85 of the Internal Rev-
enue Code of 1986 is hereby repealed. 
(b) CONFORMING AMENDMENTS.— 
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(1) Subsection (p) of section 3402 of such Code 
is amended by striking paragraph (2) and by redes-
ignating paragraph (3) as paragraph (2). 
(2) Section 6050B of such Code (relating to re-
turns relating to unemployment compensation) is 
hereby repealed. 
(3) The table of sections for part II of sub-
chapter B of chapter 1 of such Code is amended by 
striking the item relating to section 85. 
(4) The table of sections for subpart B of part 
III of subchapter A of chapter 61 of such Code is 
amended by striking the item relating to section 
6050B. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts received after Decem-
ber 31, 2008. 
SEC. 3. UNLIMITED PENALTY-FREE DISTRIBUTIONS FROM 
QUALIFIED RETIREMENT PLANS TO INDIVID-
UALS AFTER SEPARATION FROM EMPLOY-
MENT. 
(a) UNLIMITED PENALTY-FREE DISTRIBUTIONS TO 
UNEMPLOYED
INDIVIDUALS.—Clause (i) of section 
72(t)(2)(D) of the Internal Revenue Code of 1986 is 
amended to read as follows: 
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‘‘(i) IN GENERAL.—Distributions from 
a qualified retirement plan to an individual 
after separation from employment if— 
‘‘(I) the individual has received 
unemployment compensation for 12 
consecutive weeks under any Federal 
or State unemployment compensation 
law by reason of such separation; and 
‘‘(II) such distributions are made 
during any taxable year during which 
such unemployment compensation is 
paid or the succeeding taxable year.’’. 
(b) CONFORMING AMENDMENT.—Subparagraph (D) 
of section 72(t)(2) of such Code is amended in the heading 
by striking ‘‘FOR HEALTH INSURANCE PREMIUMS’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after Decem-
ber 31, 2008. 
SEC. 4. LIMITED EXCLUSION FROM INCOME OF EMPLOY-
MENT SEVERANCE PAYMENTS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by inserting after section 139B the following new section: 
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‘‘SEC. 139C. CERTAIN EMPLOYMENT SEVERANCE PAY-
MENTS. 
‘‘(a) IN GENERAL.—Gross income shall not include 
amounts received by an employee (or former employee) 
from an employer solely in connection with a termination 
of employment if such amount is received in cash contem-
poraneously with such termination. 
‘‘(b) LIMITATION.—If the amount which would (but 
for this subsection) be excluded from gross income under 
subsection (a) in connection with any termination of em-
ployment exceeds $10,000, such amount shall be reduced 
(but not below zero) by an amount which bears the same 
proportion to such amount as— 
‘‘(1) the excess of— 
‘‘(A) such amount, over 
‘‘(B) $10,000, bears to 
‘‘(2) $10,000. 
‘‘(c) EMPLOYMENT TAXES.—Amounts excluded from 
gross income under subsection (a) shall not be taken into 
account as wages for purposes of chapters 21, 22, 23, 
23A, and 24.’’. 
(b) SOCIAL SECURITY TRUST FUNDS HELD HARM-
LESS.—There is hereby appropriated (out of any money 
in the Treasury not otherwise appropriated) for each fiscal 
year to each fund under the Social Security Act an amount 
equal to the reduction in the transfers to such fund for 
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