I 
108TH CONGRESS 
1ST SESSION H. R. 1177
To amend the Internal Revenue Code of 1986 to provide additional choice 
regarding unused health benefits in cafeteria plans and flexible spending 
arrangements. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 11, 2003
Mr. DEMINT (for himself, Mr. AKIN, Mr. BALLENGER, Mr. BEAUPREZ, Mr. 
BURR, Mr. CANNON, Mrs. CHRISTENSEN, Mr. COBLE, Mr. COLE, Mr. 
COX, Mr. CRANE, Mr. DREIER, Mr. ENGLISH, Mr. FLETCHER, Mr. 
FRANKS of Arizona, Mr. GRAVES, Mr. HASTINGS of Washington, Mr. 
HAYES, Mr. HAYWORTH, Mr. HOEKSTRA, Mr. HOSTETTLER, Mr. 
ISAKSON, Mr. ISTOOK, Mr. JANKLOW, Mr. JONES of North Carolina, Mr. 
KOLBE, Mr. LAHOOD, Mr. GARY G. MILLER of California, Mrs. 
MUSGRAVE, Ms. NORTON, Mr. NORWOOD, Mr. OTTER, Mr. PAUL, Mr. 
PITTS, Mr. ROGERS of Michigan, Mr. RYUN of Kansas, Mr. SMITH of 
New Jersey, Mr. TERRY, Mr. TIAHRT, Mr. TOOMEY, Mr. UPTON, Mr. 
WELDON of Florida, Mr. WYNN, and Mr. TANCREDO) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
additional choice regarding unused health benefits in caf-
eteria plans and 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. DISPOSITION OF UNUSED HEALTH BENEFITS 
IN CAFETERIA PLANS AND FLEXIBLE SPEND-
ING ARRANGEMENTS. 
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 (relating to cafeteria plans) is amended 
by redesignating subsections (h) and (i) as subsections (i) 
and (j), respectively, and by inserting after subsection (g) 
the following: 
‘‘(h) CARRYFORWARDS OR PAYMENTS OF CERTAIN 
UNUSED HEALTH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this title, 
a plan or other arrangement shall not fail to be 
treated as a cafeteria plan solely because qualified 
benefits under such plan include a health flexible 
spending arrangement under which, with respect to 
any plan year, not more than $500 of health benefits 
which are unused at the end of such year may be—
‘‘(A) carried forward to the succeeding 
plan year of such health flexible spending ar-
rangement, or 
‘‘(B) paid to or on behalf of an employee 
as remuneration from employment. 
‘‘(2) TAX
TREATMENT
OF
UNUSED
HEALTH 
BENEFITS.—
‘‘(A) CARRYFORWARDS.—Amounts carried 
forward under paragraph (1)(A) from a taxable
year shall not be includible in gross income for 
such taxable year. 
‘‘(B) REMUNERATION.—Amounts paid as 
remuneration from employment under para-
graph (1)(B) shall be includible in gross in-
come. 
‘‘(3) DISTRIBUTION OF UNUSED HEALTH BENE-
FITS ON BEHALF OF EMPLOYEE.—Paragraph (2)(B) 
shall not be construed to prevent—
‘‘(A) an exclusion from gross income to the 
extent provided under this title with respect to 
any portion of such remuneration that is con-
tributed to a plan or arrangement which is sub-
ject to section 402(g) or to an eligible deferred 
compensation plan (as defined in section 
457(b)) of an eligible employer described in sec-
tion 457(e)(1)(A), 
‘‘(B) a deduction (to the extent provided in 
section 220) with respect to any portion of such 
remuneration contributed to an Archer MSA, or 
‘‘(C) any other deduction or exclusion al-
lowable under this title with respect to any por-
tion of such remuneration. 
‘‘(4) HEALTH FLEXIBLE SPENDING ARRANGE-
MENT.—For purposes of this subsection, the term
‘health flexible spending arrangement’ means a flexi-
ble spending arrangement (as defined in section 
106(c)) that is a qualified benefit and only permits 
reimbursement for expenses for medical care (as de-
fined in section 213(d)(1) (without regard to sub-
paragraphs (C) and (D) thereof). 
‘‘(5) UNUSED
HEALTH
BENEFITS.—For pur-
poses of this subsection, the term ‘unused health 
benefits’ means the excess of—
‘‘(A) the maximum amount of reimburse-
ment allowable for a plan year under a health 
flexible spending arrangement, over 
‘‘(B) the actual amount of reimbursement 
for such year under such arrangement.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003.
Æ