‘‘(2) AMOUNTS
PAID
UNDER
SALARY
REDUC-
TION ARRANGEMENTS.—No amount paid or incurred 
pursuant to a salary reduction arrangement shall be 
taken into account under subsection (a). 
‘‘(3) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning in a calendar year after 
2006, each dollar amount contained in subsections 
(c)(1) and (d)(2)(B) shall be increased by an 
amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 2005’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
Any increase determined under the preceding sen-
tence shall be rounded to the nearest multiple of 
$50. 
‘‘(f) TERMINATION.—This section shall not apply to 
expenses paid or incurred by an employer with respect to 
any arrangement established on or after January 1, 
2012.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) of such Code (relating to current
year business credit) is amended by striking ‘‘plus’’ at the 
end of paragraph (25), by striking the period at the end 
of paragraph (26) and inserting ‘‘, plus’’, and by adding 
at the end the following: 
‘‘(27) in the case of a small employer (as de-
fined in section 45N(d)(3)), the health insurance 
credit determined under section 45N(a).’’. 
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C of 
such Code is amended by adding at the end the following 
new subsection: 
‘‘(e) 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-
lowable as a deduction) taken into account in deter-
mining the credit under section 45N for the taxable 
year which is equal to the amount of the credit de-
termined for such taxable year under section 
45N(a). 
‘‘(2) CONTROLLED
GROUPS.—Persons treated 
as a single employer under subsection (a) or (b) of 
section 52 shall be treated as 1 person for purposes 
of this section.’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1
of such Code is amended by adding at the end the fol-
lowing: 
‘‘Sec. 45N. Small business health insurance expenses.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2005, for ar-
rangements established after the date of the enactment 
of this Act. 
SEC. 4. REFUNDABLE HEALTH INSURANCE COSTS CREDIT. 
(a) ALLOWANCE OF CREDIT.— 
(1) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code 
of 1986 (relating to refundable personal credits) is 
amended by redesignating section 36 as section 37 
and by inserting after section 35 the following new 
section: 
‘‘SEC. 36. HEALTH INSURANCE COSTS FOR UNINSURED IN-
DIVIDUALS. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax 
imposed by this subtitle for the taxable year an amount 
equal to the amount paid by the taxpayer during such tax-
able year for qualified health insurance for the taxpayer 
and the taxpayer’s spouse and dependents.