‘‘PART IX—COBRA PREMIUM PAYMENT 
ACCOUNTS 
‘‘Sec. 530A. COBRA Premium Payment Accounts. 
‘‘SEC. 530A. COBRA PREMIUM PAYMENT ACCOUNTS. 
‘‘(a) GENERAL RULE.—A COBRA premium payment 
account shall be exempt from taxation under this subtitle. 
Notwithstanding the preceding sentence, any COBRA pre-
mium payment account shall be subject to the taxes im-
posed by section 511 (relating to imposition of tax on un-
related business income of charitable, etc., organizations). 
‘‘(b) COBRA PREMIUM PAYMENT ACCOUNT.—For 
purposes of this title, the term ‘COBRA premium payment 
account’ means a trust created or organized in the United 
States for the exclusive benefit of an individual or his 
beneficiaries, but only if the written governing instrument 
creating the trust meets the following requirements: 
‘‘(1) Except in the case of a qualified rollover 
(as defined in subsection (f)(3)), no contribution will 
be accepted unless it is in cash, and contributions 
will not be accepted for the taxable year on behalf 
of any individual in excess of the amount in effect 
for such taxable year under section 224(b). 
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)). 
‘‘(3) The trust funds may only be invested in 
interest-bearing securities of the United States. 
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‘‘(4) The requirements of paragraphs (3) 
through (6) of section 408(a) are met. 
‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.— 
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of a 
COBRA premium payment account shall be includ-
ible in the gross income of the payee or distributee, 
as the case may be, in the manner as provided in 
section 72. 
‘‘(2) DISTRIBUTIONS FOR COBRA PREMIUM PAY-
MENTS.—No amount shall be includible in gross in-
come under paragraph (1) if the qualified COBRA 
premium payments of the designated beneficiary 
during the taxable year, reduced by any credit al-
lowed under this chapter with respect to such pay-
ments for the taxable year, are not less than the ag-
gregate distributions during the taxable year. 
‘‘(3) DISTRIBUTIONS
IN
EXCESS
OF
PAY-
MENTS.—If such aggregate distributions exceed such 
payments (as so reduced) during the taxable year, 
the amount otherwise includible in gross income 
under paragraph (1) shall be reduced by the amount 
which bears the same ratio to the amount which 
would be includible in gross income under paragraph 
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(1) (without regard to this paragraph) as the quali-
fied COBRA premium payments (as so reduced) 
bear to such aggregate distributions. 
‘‘(4) MEDICARE
ELIGIBILITY.—Paragraph (2) 
shall not apply to any distribution to a beneficiary 
after the date on which such individual is entitled to 
benefits under part A of title XVIII of the Social Se-
curity Act or is enrolled under part B of such title. 
‘‘(d) QUALIFIED COBRA PREMIUM PAYMENTS.— 
For purposes of this section— 
‘‘(1) 
IN
GENERAL.—The 
term 
‘qualified 
COBRA premium payments’ means any premium 
paid for COBRA continuation coverage. 
‘‘(2) COBRA CONTINUATION COVERAGE.—The 
term ‘COBRA continuation coverage’ means con-
tinuation coverage provided pursuant to part 6 of 
subtitle B of title I of the Employee Retirement In-
come Security Act of 1974 (other than under section 
609), title XXII of the Public Health Service Act, 
section 4980B of this title (other than subsection 
(f)(1) of such section insofar as it relates to pedi-
atric vaccines), or section 8905a of title 5, United 
States Code, or under a State program that provides 
comparable continuation coverage. Such term in-
cludes coverage under a health flexible spending ar-
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rangement under a cafeteria plan within the mean-
ing of section 125 of the Internal Revenue Code of 
1986 if, at the time of the qualifying event (as de-
fined in section 4980B(f)(3)), the taxpayer was cov-
ered under such coverage. 
‘‘(e) TAX TREATMENT OF ACCOUNTS.— 
‘‘(1) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section, 
rules similar to the rules of section 408(e) shall 
apply. 
‘‘(2) OTHER RULES TO APPLY.—Rules similar 
to the rules of paragraphs (4), (5), and (6) of sec-
tion 408(d) shall apply for purposes of this section. 
‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
‘‘(1) ALL
ACCOUNTS
TREATED
AS
ONE
AC-
COUNT.—All COBRA premium payment accounts of 
a qualified individual shall be treated as 1 account. 
‘‘(2) TIME
WHEN
CONTRIBUTIONS
DEEMED 
MADE.—A taxpayer shall be deemed to have made a 
contribution to a COBRA premium payment account 
on the last day of the preceding taxable year if the 
contribution is made on account of such taxable year 
and is made not later than the time prescribed by 
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law for filing the return for such taxable year (not 
including extensions thereof). 
‘‘(3) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from a 
COBRA premium payment account of a taxpayer 
into another such account established for the benefit 
of— 
‘‘(A) such taxpayer, or 
‘‘(B) any qualified individual who is— 
‘‘(i) the spouse of such taxpayer, or 
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer. 
Rules similar to the rules of section 408(d)(3) shall 
apply for purposes of this paragraph. 
‘‘(4) CUSTODIAL ACCOUNTS.—Rules similar to 
the rules of section 408(h) shall apply. 
‘‘(5) REPORTS.—The trustee of a COBRA pre-
mium payment account shall make such reports re-
garding such account to the Secretary and to the in-
dividual for whom the account is maintained with re-
spect to contributions (and the years to which they 
relate), distributions, and such other matters as the 
Secretary may require under regulations. The re-
ports required by this paragraph— 
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‘‘(A) shall be filed at such time and in 
such manner as the Secretary prescribes in 
such regulations, and 
‘‘(B) shall be furnished to individuals— 
‘‘(i) not later than January 31 of the 
calendar year following the calendar year 
to which such reports relate, and 
‘‘(ii) in such manner as the Secretary 
prescribes in such regulations. 
‘‘(6) INVESTMENT IN COLLECTIBLES TREATED 
AS DISTRIBUTIONS.—Rules similar to the rules of 
section 408(m) shall apply. 
‘‘(g) PENALTY FOR DISTRIBUTIONS NOT USED FOR 
QUALIFIED COBRA PREMIUM PAYMENTS.— 
‘‘(1) IN GENERAL.—If any amount distributed 
from a COBRA premium payment account is includ-
ible in gross income under subsection (c), the tax 
imposed by this chapter for the taxable year of such 
distribution shall be increased by 20 percent of such 
amount which is includible in gross income. For pur-
poses of the preceding sentence, distributions which 
are includible in gross income shall be treated as 
first attributable to amounts contributed under sub-
section (d) to the extent thereof. 
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‘‘(2) EXCEPTION
FOR
CERTAIN
DISTRIBU-
TIONS.—Paragraph (1) shall not apply to distribu-
tions which are— 
‘‘(A) made to a beneficiary (or the estate 
of the account holder) on or after the death of 
the account holder, or 
‘‘(B) attributable to the account holder’s 
being disabled within the meaning of section 
72(m)(7).’’. 
(b) DEDUCTION FOR CONTRIBUTIONS.— 
(1) IN GENERAL.—Part VII of subchapter B of 
chapter I of the Internal Revenue Code of 1986 (re-
lating to additional itemized deductions for individ-
uals) is amended by redesignating section 224 as 
section 225 and by inserting after section 223 the 
following new section: 
‘‘SEC. 224. CONTRIBUTIONS TO COBRA PREMIUM PAYMENT 
ACCOUNT. 
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an 
individual, there shall be allowed as a deduction for the 
taxable year an amount equal to the contributions of the 
individual to a COBRA premium payment account. 
‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.— 
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‘‘(1) DOLLAR LIMITATION.—The amount allow-
able as a deduction under subsection (a) for a tax-
able year shall not exceed the lesser of— 
‘‘(A) $2,500, 
‘‘(B) the amount equal to the excess of— 
‘‘(i) the aggregate contributions to all 
COBRA premium payment accounts of the 
individual for all prior taxable years, over 
‘‘(ii) $11,814 ($27,286 in the case of 
a joint return), or 
‘‘(C) an amount equal to the compensation 
includible in the individual’s gross income for 
such taxable year. 
‘‘(2) LIMITATION BASED ON ADJUSTED GROSS 
INCOME.— 
‘‘(A) IN
GENERAL.—Each of the dollar 
limitations contained in subparagraphs (A) and 
(B) of paragraph (1) for such taxable year shall 
be reduced (but not below zero) by the amount 
determined under subparagraph (B). 
‘‘(B) AMOUNT OF REDUCTION.— 
‘‘(i) IN GENERAL.—The amount de-
termined under this subparagraph with re-
spect to any dollar limitation shall be the 
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amount which bears the same ratio to such 
limitation as— 
‘‘(I) the excess of— 
‘‘(aa) the taxpayer’s ad-
justed gross income for such tax-
able year, over 
‘‘(bb) the applicable dollar 
amount, bears to 
‘‘(II) $10,000 ($20,000 in the 
case of a joint return). 
‘‘(ii) NO
REDUCTION
BELOW
$200 
UNTIL COMPLETE PHASE-OUT.—No dollar 
limitation shall be reduced below $200 
under paragraph (1) unless (without re-
gard to this subparagraph) such limitation 
is reduced to zero. 
‘‘(iii) ROUNDING.—Any amount deter-
mined under this subparagraph which is 
not a multiple of $10 shall be rounded to 
the next lowest $10. 
‘‘(C) ADJUSTED GROSS INCOME; APPLICA-
BLE DOLLAR AMOUNT.—For purposes of this 
paragraph— 
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‘‘(i) ADJUSTED GROSS INCOME.—Ad-
justed gross income of any taxpayer shall 
be determined— 
‘‘(I) after application of sections 
86 and 469, and 
‘‘(II) without regard to sections 
135, 137, 199, 221, 222, and 911 or 
the deduction allowable under this 
section. 
‘‘(ii) APPLICABLE DOLLAR AMOUNT.— 
The 
term 
‘applicable 
dollar 
amount’ 
means, with respect to a taxable year, the 
applicable amount determined under sec-
tion 219(g)(3)(B) for the taxable year. 
‘‘(c) OTHER LIMITATIONS AND RESTRICTIONS.— 
‘‘(1) BENEFICIARY
MUST
NOT
BE
MEDICARE 
ELIGIBLE.—No deduction shall be allowed under 
this section with respect to any contribution to a 
COBRA premium payment account for the benefit 
of an individual after the date on which such indi-
vidual is entitled to benefits under part A of title 
XVIII of the Social Security Act or is enrolled under 
part B of such title. 
‘‘(2) RECONTRIBUTED
AMOUNTS.—No deduc-
tion shall be allowed under this section with respect 
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to a rollover contribution described in section 
530A(f)(3). 
‘‘(3) DENIAL
OF
DEDUCTION
FOR
AMOUNT 
CONTRIBUTED TO INHERITED ACCOUNTS.—No de-
duction shall be allowed under this section with re-
spect to any amount paid to an inherited COBRA 
premium payment account (within the meaning of 
section 408(d)(3)(C)(ii)) by reason of the last sen-
tence of section 530A(f)(3). 
‘‘(d) COBRA PREMIUM PAYMENT ACCOUNT.—For 
purposes of this section, the term ‘COBRA premium pay-
ment account’ has the meaning given such term by section 
530A. 
‘‘(e) APPLICABLE DEFINITIONS AND RULES.—For 
purposes of this section, definitions and rules similar to 
the definitions and rules of section 219(f) (other than 
paragraphs (5) and (8)) shall apply. 
‘‘(f) INFLATION ADJUSTMENT.—In the case of any 
taxable year beginning after December 31, 2011, each dol-
lar amount in subsection (b)(1) shall be increased by an 
amount equal to the product of— 
‘‘(1) such amount, and 
‘‘(2) the cost-of-living adjustment determined 
under section 213(d)(10)(B) for the calendar year in 
which the taxable year begins by substituting ‘cal-
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endar year 2010’ for ‘calendar year 1997’ in clause 
(i) thereof. 
If any amount as adjusted under the preceding sentence 
is not a multiple of $100, such amount shall be rounded 
to the nearest multiple of $100. 
‘‘(g) REGULATIONS.—The Secretary shall issue such 
regulations as may be necessary or appropriate to carry 
out this section.’’. 
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part VII of subchapter B of chapter 1 of 
such Code is amended by striking the item relating 
to section 224 and inserting the following: 
‘‘Sec. 224. Contributions to COBRA premium payment account. 
‘‘Sec. 225. Cross reference.’’. 
(c) TAX ON EXCESS CONTRIBUTIONS.— 
(1) TAX IMPOSED.—Subsection (a) of section 
4973 of such Code is amended by striking ‘‘or’’ at 
the end of paragraph (4), by redesignating para-
graph (5) as paragraph (6), and by inserting after 
paragraph (4) the following new paragraph: 
‘‘(5) a COBRA premium payment account 
(within the meaning of section 530A(b)), or’’. 
(2) EXCESS CONTRIBUTIONS.—Section 4973 of 
such Code is amended by adding at the end the fol-
lowing subsection: 
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‘‘(h) COBRA PREMIUM PAYMENT ACCOUNTS.—For 
purposes of this section, in the case of COBRA premium 
payment accounts, the term ‘excess contributions’ means 
the sum of— 
‘‘(1) the excess (if any) of— 
‘‘(A) the amount contributed for the tax-
able year to the accounts (other than a quali-
fied rollover, as defined in section 530A(f)(3)), 
over 
‘‘(B) the amount allowable under section 
224 for such contributions, and 
‘‘(2) the amount determined under this sub-
section for the preceding taxable year reduced by the 
sum of— 
‘‘(A) the distributions out of the accounts 
for the taxable year which were included in the 
gross income of the payee under section 
530A(c)(1), 
‘‘(B) the distributions out of the accounts 
for the taxable year to which rules similar to 
the rules of section 408(d)(5) apply by reason 
of section 530A(e)(2), and 
‘‘(C) the excess (if any) of the maximum 
amount allowable as a contribution under sec-
tion 224 for the taxable year over the amount 
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contributed to the account for the taxable year 
(other than a contribution under section 
530A(f)(3)). 
For purposes of this subsection, any contribution which 
is distributed from the COBRA premium payment account 
in a distribution to which rules similar to the rules of sec-
tion 408(d)(4) apply by reason of section 530A(e)(2) shall 
be treated as an amount not contributed.’’. 
(d) TAX ON PROHIBITED TRANSACTIONS.—Section 
4975 of such Code is amended— 
(1) by adding at the end of subsection (c) the 
following paragraph: 
‘‘(7) SPECIAL RULE FOR COBRA PREMIUM PAY-
MENT ACCOUNTS.—An individual for whose benefit a 
COBRA premium payment account is established 
and any contributor to such account shall be exempt 
from the tax imposed by this section with respect to 
any transaction concerning such account (which 
would otherwise be taxable under this section) if, 
with respect to such transaction, the account ceases 
to be a COBRA premium payment account by rea-
son of the application of section 530A(e)(1) to such 
account.’’, and 
(2) in subsection (e)(1), by striking ‘‘or’’ at the 
end of subparagraph (F), by redesignating subpara-
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graph (G) as subparagraph (H), and by inserting 
after subparagraph (F) the following new subpara-
graph: 
‘‘(G) a COBRA premium payment account 
described in section 530A(b), or’’. 
(e) FAILURE TO PROVIDE REPORTS
ON COBRA 
PREMIUM PAYMENT ACCOUNTS.—Paragraph (2) of sec-
tion 6693(a) of such Code is amended by striking ‘‘and’’ 
at the end of subparagraph (D), by striking the period 
and inserting ‘‘, and’’ at the end of subparagraph (E), 
and by inserting after subparagraph (E) the following new 
subparagraph: 
‘‘(F) 
section 
530A(f)(5) 
(relating 
to 
COBRA premium payment accounts).’’. 
(f) PENALTY NOT PART OF REGULAR TAX.—Para-
graph (2) of section 26(b) of such Code is amended by 
striking ‘‘and’’ at the end of subparagraph (W), by strik-
ing the period at the end of subparagraph (X) and insert-
ing ‘‘, and’’, and by inserting after subparagraph (X) the 
following new subparagraph: 
‘‘(Y) section 530A(g) (relating to penalty 
for distributions not used for Qualified COBRA 
premium payments).’’. 
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(g) CLERICAL AMENDMENT.—The table of parts for 
subchapter F of chapter 1 of such Code is amended by 
adding at the end the following new item: 
‘‘PART IX. COBRA PREMIUM PAYMENT ACCOUNTS.’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 3. COBRA ELECTION OF DIFFERENT COVERAGE. 
(a) 
IN
GENERAL.—Paragraph 
(2) 
of 
section 
4980B(f) of the Internal Revenue Code of 1986 is amend-
ed by adding at the end the following: 
‘‘(F) ELECTION
OF
DIFFERENT
COV-
ERAGE.— 
‘‘(i) IN GENERAL.—In lieu of subpara-
graph (A), coverage meets the require-
ments of this subparagraph if the qualified 
beneficiary may elect to enroll in coverage 
under a plan offered by the employer in-
volved, or the employee organization in-
volved (including, for this purpose, a joint 
board of trustees of a multiemployer trust 
affiliated with one or more multiemployer 
plans), that is different than coverage 
under the plan in which such individual 
was enrolled at the time the qualifying 
event occurred. 
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‘‘(ii) 
REQUIREMENTS.—A 
qualified 
beneficiary may make an election under 
clause (i) only if— 
‘‘(I) the employer involved has 
made a determination that such em-
ployer will permit qualified bene-
ficiaries to enroll in different coverage 
as provided for this subparagraph, 
‘‘(II) the premium for such dif-
ferent coverage does not exceed the 
premium for coverage in which the in-
dividual was enrolled at the time the 
qualifying event occurred, 
‘‘(III) the different coverage in 
which the individual elects to enroll is 
coverage that is also offered to the ac-
tive employees of the employer at the 
time at which such election is made, 
and 
‘‘(IV) the different coverage is 
coverage other than nonqualifying cov-
erage. 
‘‘(iii) NONQUALIFYING COVERAGE DE-
SCRIBED.—For purposes of clause (ii)(IV), 
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the term ‘nonqualifying coverage’ means 
coverage which is— 
‘‘(I) coverage that provides only 
dental, vision, counseling, or referral 
services (or a combination of such 
services), 
‘‘(II) a flexible spending arrange-
ment (as defined in section 106(c)(2)) 
in which the individual is not a partic-
ipant on the date of the qualifying 
event, or 
‘‘(III) coverage that provides cov-
erage for services or treatments fur-
nished in an on-site medical facility 
maintained by the employer and that 
consists primarily of first-aid services, 
prevention and wellness care, or simi-
lar care (or a combination of such 
care). 
‘‘(iv) 
FSA 
CONTRIBUTIONS.—For 
purposes of this paragraph, an employer 
making contributions to a flexible spending 
arrangement (as so defined) of an em-
ployee prior to the qualifying event is not 
obligated to continue making contributions 
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to such arrangement of such employee 
after the qualifying event.’’. 
(b) EFFECTIVE DATE.— 
(1) IN
GENERAL.—The amendment made by 
this section shall apply with respect to qualifying 
events occurring on or after the date of the enact-
ment of this Act. 
(2) QUALIFYING
EVENTS
BEFORE
ENACT-
MENT.—In the case of a qualifying event occurring 
before the date of the enactment of this Act, if the 
election period specified in section 4980B(f)(5) of 
the Internal Revenue Code of 1986 with respect to 
such qualifying event has not expired on the date of 
the enactment of this Act, then the amendment 
made by this section shall apply with respect to such 
qualifying event and such election period shall not 
expire until the later of— 
(A) the 60-day period beginning on the 
date of the enactment of this Act, or 
(B) the date on which such election would 
expire under section 4980B(f)(5) without re-
gard to subparagraph (A). 
Æ 
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