I 
108TH CONGRESS 
2D SESSION 
H. R. 4886
To amend the Internal Revenue Code of 1986 to provide a refundable credit 
for health insurance costs. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 21, 2004
Mr. HAYWORTH (for himself, Mr. PETERSON of Minnesota, and Mr. LEWIS 
of Kentucky) 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 
a refundable credit for health insurance costs.
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 ‘‘Health Credits Act 
of 2004’’. 
SEC. 2. 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. 
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowed as a 
credit under subsection (a) to the taxpayer for the 
taxable year shall not exceed the lesser of—
‘‘(A) the sum of the monthly limitations 
for coverage months during such taxable year 
for the individuals referred to in subsection (a) 
for whom the taxpayer paid during the taxable 
year any amount for coverage under qualified 
health insurance, or 
‘‘(B) 90 percent of the sum of the amounts 
paid by the taxpayer for qualified health insur-
ance for each such individual for coverage
months of the individual during the taxable 
year. 
‘‘(2) MONTHLY LIMITATION.—
‘‘(A) IN GENERAL.—The monthly limita-
tion for an individual for each coverage month 
of such individual during the taxable year is the 
amount equal to 1⁄12 of—
‘‘(i) $1,000 if such individual is the 
taxpayer, 
‘‘(ii) $1,000 if—
‘‘(I) such individual is the spouse 
of the taxpayer, 
‘‘(II) the taxpayer and such 
spouse are married as of the first day 
of such month, and
‘‘(III) the taxpayer files a joint 
return for the taxable year, and 
‘‘(iii) $500 if such individual is an in-
dividual for whom a deduction under sec-
tion 151(c) is allowable to the taxpayer for 
such taxable year. 
‘‘(B) LIMITATION
TO
DEPENDENTS.—
Not more than 2 individuals may be taken into 
account by the taxpayer under subparagraph 
(A)(iii).
‘‘(C) SPECIAL RULE FOR MARRIED INDI-
VIDUALS.—In the case of a taxpayer—
‘‘(i) who is married (within the mean-
ing of section 7703) as of the close of the 
taxable year but does not file a joint return 
for such year, and 
‘‘(ii) who does not live apart from 
such taxpayer’s spouse at all times during 
the taxable year, 
the dollar limitation imposed under subpara-
graph (A)(iii) shall be divided equally between 
the taxpayer and the taxpayer’s spouse unless 
they agree on a different division. 
‘‘(3) INCOME PHASEOUT OF CREDIT PERCENT-
AGE.—
‘‘(A) PHASEOUT FOR SINGLE COVERAGE.—
‘‘(i) 
UNMARRIED
INDIVIDUALS 
(OTHER
THAN
SURVIVING
SPOUSES
AND 
HEADS OF HOUSEHOLDS).—In the case of 
an individual (other than a surviving 
spouse, the head of a household, or a mar-
ried individual) with self-only coverage, if 
such individual has modified adjusted 
gross income in excess of $15,000 for a 
taxable year, the 90 percent under para-
graph (1)(B) shall be reduced (but not 
below zero) by—
‘‘(I) 2 percentage points for each 
$250 of such income in excess of 
$15,000 but not in excess of $20,000, 
and 
‘‘(II) 1.25 percentage points for 
each $250 of such income in excess of 
$20,000. 
‘‘(ii) OTHER INDIVIDUALS.—If a tax-
payer (other than an individual described 
in clause (i)) with self-only coverage has 
modified adjusted gross income in excess 
of $25,000 for a taxable year, the 90 per-
cent under paragraph (1)(B) shall be re-
duced (but not below zero) by 1.5 percent-
age points for each $250 of such excess. 
‘‘(B) AMOUNT OF REDUCTION FOR FAMILY 
COVERAGE.—If a taxpayer with family coverage 
has modified adjusted gross income in excess of 
$25,000 for a taxable year, the 90 percent
under paragraph (1)(B) shall be reduced (but 
not below zero) by 0.643 percentage points for 
each $250 of such excess. Any percentage re-
sulting from a reduction under this subpara-
graph shall be rounded to the nearest one-tenth 
of a percent. 
‘‘(C) MODIFIED
ADJUSTED
GROSS
IN-
COME.—The term ‘modified adjusted gross in-
come’ means adjusted gross income deter-
mined—
‘‘(i) without regard to this section and 
sections 911, 931, and 933, and 
‘‘(ii) after application of sections 86, 
135, 137, 219, 221, and 469. 
‘‘(c) COVERAGE MONTH.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The term ‘coverage month’ 
means, with respect to an individual, any month if—
‘‘(A) as of the first day of such month 
such individual is covered by qualified health in-
surance, and 
‘‘(B) the premium for coverage under such 
insurance for such month is paid by the tax-
payer. 
‘‘(2) EMPLOYER-SUBSIDIZED COVERAGE.—
‘‘(A) IN
GENERAL.—The term ‘coverage 
month’ shall not include any month for which 
such individual is eligible to participate in any 
subsidized health plan (within the meaning of
section 162(l)(2)) maintained by any employer 
of the taxpayer or of the spouse of the tax-
payer. A subsidized health plan shall not in-
clude a plan substantially all of the coverage of 
which is of excepted benefits described in sec-
tion 9832(c). 
‘‘(B) 
PREMIUMS
TO
NONSUBSIDIZED 
PLANS.—If an employer of the taxpayer or the 
spouse of the taxpayer maintains a health plan 
which is not a subsidized health plan (as so de-
fined) and which constitutes qualified health in-
surance, employee contributions to the plan 
shall be treated as amounts paid for qualified 
health insurance. 
‘‘(3) CAFETERIA PLAN AND FLEXIBLE SPEND-
ING ACCOUNT BENEFICIARIES.—The term ‘coverage 
month’ shall not include any month during a taxable 
year if any amount is not includible in the gross in-
come of the taxpayer for such year under section 
106 with respect to—
‘‘(A) a benefit chosen under a cafeteria 
plan (as defined in section 125(d)), or
‘‘(B) a benefit provided under a flexible 
spending or similar arrangement.
‘‘(4) MEDICARE, MEDICAID, AND SCHIP.—The 
term ‘coverage month’ shall not include any month 
with respect to an individual if, as of the first day 
of such month, such individual—
‘‘(A) is entitled to any benefits under part 
A of title XVIII of the Social Security Act or 
is enrolled under part B of such title, or 
‘‘(B) is enrolled in the program under title 
XIX or XXI of such Act (other than under sec-
tion 1928 of such Act). 
‘‘(5) CERTAIN
OTHER
COVERAGE.—The term 
‘coverage month’ shall not include any month during 
a taxable year with respect to an individual if, at 
any time during such year, any benefit is provided 
to such individual under—
‘‘(A) chapter 89 of title 5, United States 
Code, 
‘‘(B) chapter 55 of title 10, United States 
Code, 
‘‘(C) chapter 17 of title 38, United States 
Code, or 
‘‘(D) any medical care program under the 
Indian Health Care Improvement Act. 
‘‘(6) PRISONERS.—The term ‘coverage month’ 
shall not include any month with respect to an indi-
vidual if, as of the first day of such month, such in-
dividual is imprisoned under Federal, State, or local 
authority. 
‘‘(7) INSUFFICIENT
PRESENCE
IN
UNITED 
STATES.—The term ‘coverage month’ shall not in-
clude any month during a taxable year with respect 
to an individual if such individual is present in the 
United States on fewer than 183 days during such 
year 
(determined 
in 
accordance 
with 
section 
7701(b)(7)).
‘‘(d) QUALIFIED HEALTH INSURANCE.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified health 
insurance’ means health insurance coverage (as de-
fined in section 9832(b)(1)) which—
‘‘(A) is coverage described in paragraph 
(2), and 
‘‘(B) meets the requirements of paragraph 
(3). 
‘‘(2) ELIGIBLE COVERAGE.—Coverage described 
in this paragraph is the following: 
‘‘(A) Coverage under individual health in-
surance.
‘‘(B) Coverage under a group health plan 
(as defined in section 5000 without regard to 
subsection (d)). 
‘‘(C) Coverage through a private sector 
health care coverage purchasing pool. 
‘‘(D) Coverage under a State high risk 
pool described in subparagraph (C) of section 
35(e)(1). 
‘‘(E) Continuation coverage described in 
subparagraph (A) or (B) of section 35(a)(1). 
‘‘(F) Coverage under an eligible State 
buyin program. 
‘‘(3) REQUIREMENTS.—The requirements of 
this paragraph are as follows: 
‘‘(A) COST LIMITS.—Under the coverage, 
the sum of the annual deductible and the other 
annual out-of-pocket expenses required to be 
paid (other than premiums) for covered benefits 
does not exceed—
‘‘(i) $5,000 for self-only coverage, and 
‘‘(ii) twice the dollar amount in clause 
(i) for family coverage, or
‘‘(B) MAXIMUM
BENEFITS.—Under the 
coverage, the annual and lifetime maximum 
benefits are not less than $700,000.
‘‘(4) ELIGIBLE STATE BUYIN PROGRAM.—For 
purposes of paragraph (2)(F)—
‘‘(A) IN
GENERAL.—The term ‘eligible 
State buyin program’ means a State program 
under which an individual not otherwise eligible 
for assistance under the State medicaid pro-
gram under title XIX of the Social Security Act 
or the State children’s health insurance pro-
gram under title XXI of such Act is able to buy 
health insurance coverage through a purchasing 
arrangement entered into between the State 
and a private sector health care purchasing 
group or health plan for purposes of providing 
health insurance coverage to recipients of as-
sistance under such program or for purposes of 
providing such coverage to State employees. 
‘‘(B) REQUIREMENTS.—Subparagraph (A) 
shall only apply to a State program if—
‘‘(i) the program uses private sector 
health care purchasing groups or health 
plans, and 
‘‘(ii) the State maintains separate risk 
pools for participants under the State pro-
gram.
‘‘(e) ARCHER MSA CONTRIBUTIONS; HSA CON-
TRIBUTIONS.—If a deduction would be allowed under sec-
tion 220 to the taxpayer for a payment for the taxable 
year to the Archer MSA of an individual or under section 
223 to the taxpayer for a payment for the taxable year 
to the Health Savings Account of such individual, sub-
section (a) shall not apply to the taxpayer for any month 
during such taxable year for which the taxpayer, spouse, 
or dependent is an eligible individual for purposes of either 
such section. 
‘‘(f) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning after 2004, each dollar amount re-
ferred to in subsections (b)(2)(A) and (d)(3) shall be 
increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 213(d)(10)(B)(ii) for the 
calendar year in which the taxable year begins, 
except that ‘2003’ shall be substituted for 
‘1996’ in subclause (II) thereof. 
‘‘(2) ROUNDING.—If any amount as adjusted 
under paragraph (1) is not a multiple of $10, such 
amount shall be rounded to the next lowest multiple 
of $10.
‘‘(g) SPECIAL RULES.—
‘‘(1) COORDINATION WITH MEDICAL EXPENSE 
DEDUCTION.—The amount which would (but for this 
paragraph) be taken into account by the taxpayer 
under section 213 for the taxable year shall be re-
duced by the credit (if any) allowed by this section 
to the taxpayer for such year.
‘‘(2) COORDINATION
WITH
DEDUCTION
FOR 
HEALTH INSURANCE COSTS OF SELF-EMPLOYED IN-
DIVIDUALS.—In the case of a taxpayer who is eligi-
ble to deduct any amount under section 162(l) for 
the taxable year, this section shall apply only if the 
taxpayer elects not to claim any amount as a deduc-
tion under such section for such year. 
‘‘(3) DENIAL OF CREDIT TO DEPENDENTS.—No 
credit shall be allowed under this section to any indi-
vidual with respect to whom a deduction under sec-
tion 151 is allowable to another taxpayer for a tax-
able year beginning in the calendar year in which 
such individual’s taxable year begins. 
‘‘(4) COORDINATION
WITH
ADVANCE
PAY-
MENT.—Rules similar to the rules of section 
35(g)(1) shall apply to any credit to which this sec-
tion applies.
‘‘(5) COORDINATION WITH SECTION 35.—If a 
taxpayer is eligible for the credit allowed under this 
section and section 35 for any taxable year, the tax-
payer shall elect which credit is to be allowed. 
‘‘(h) EXPENSES MUST BE SUBSTANTIATED.—A pay-
ment for insurance to which subsection (a) applies may 
be taken into account under this section only if the tax-
payer substantiates such payment in such form as the Sec-
retary may prescribe. 
‘‘(i) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary to carry out the pur-
poses of this section.’’. 
(b) INFORMATION REPORTING.—
(1) IN GENERAL.—Subpart B of part III of 
subchapter A of chapter 61 of the Internal Revenue 
Code of 1986 (relating to information concerning 
transactions with other persons) is amended by in-
serting after section 6050T the following:
‘‘SEC. 6050U. RETURNS RELATING TO PAYMENTS FOR 
QUALIFIED HEALTH INSURANCE. 
‘‘(a) IN GENERAL.—Any person who, in connection 
with a trade or business conducted by such person, re-
ceives payments during any calendar year from any indi-
vidual for coverage of such individual or any other indi-
vidual under creditable health insurance, shall make the
return described in subsection (b) (at such time as the 
Secretary may by regulations prescribe) with respect to 
each individual from whom such payments were received. 
‘‘(b) FORM AND MANNER OF RETURNS.—A return 
is described in this subsection if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe, and 
‘‘(2) contains—
‘‘(A) the name, address, and TIN of the 
individual from whom payments described in 
subsection (a) were received, 
‘‘(B) the name, address, and TIN of each 
individual who was provided by such person 
with coverage under creditable health insurance 
by reason of such payments and the period of 
such coverage, 
‘‘(C) the aggregate amount of payments 
described in subsection (a), and
‘‘(D) such other information as the Sec-
retary may reasonably prescribe. 
‘‘(c) CREDITABLE HEALTH INSURANCE.—For pur-
poses of this section, the term ‘creditable health insurance’ 
means qualified health insurance (as defined in section 
36(d)).
‘‘(d) STATEMENTS TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return under 
subsection (a) shall furnish to each individual whose name 
is required under subsection (b)(2)(A) to be set forth in 
such return a written statement showing—
‘‘(1) the name and address of the person re-
quired to make such return and the phone number 
of the information contact for such person, 
‘‘(2) the aggregate amount of payments de-
scribed in subsection (a) received by the person re-
quired to make such return from the individual to 
whom the statement is required to be furnished, and 
‘‘(3) the information required under subsection 
(b)(2)(B) with respect to such payments. 
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the 
year following the calendar year for which the return 
under subsection (a) is required to be made. 
‘‘(e) RETURNS WHICH WOULD BE REQUIRED TO BE 
MADE BY 2 OR MORE PERSONS.—Except to the extent 
provided in regulations prescribed by the Secretary, in the 
case of any amount received by any person on behalf of 
another person, only the person first receiving such
amount shall be required to make the return under sub-
section (a).’’. 
(2) ASSESSABLE PENALTIES.—
(A) 
Subparagraph 
(B) 
of 
section 
6724(d)(1) of such Code (relating to defini-
tions) is amended by redesignating clauses (xii) 
through (xviii) as clauses (xiii) through (xix), 
respectively, and by inserting after clause (xi) 
the following: 
‘‘(xii) section 6050U (relating to re-
turns relating to payments for qualified 
health insurance),’’.
(B) Paragraph (2) of section 6724(d) of 
such Code is amended by striking ‘‘or’’ at the 
end of subparagraph (AA), by striking the pe-
riod at the end of the subparagraph (BB) and 
inserting ‘‘, or’’, and by adding at the end the 
following: 
‘‘(CC) section 6050U(d) (relating to re-
turns relating to payments for qualified health 
insurance).’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of 
chapter 61 of such Code is amended by inserting
after the item relating to section 6050T the fol-
lowing:
‘‘Sec. 6050U. Returns relating to payments for qualified health 
insurance.’’.
(c) CRIMINAL PENALTY FOR FRAUD.—Subchapter B 
of chapter 75 of the Internal Revenue Code of 1986 (relat-
ing to other offenses) is amended by adding at the end 
the following: 
‘‘SEC. 7276. PENALTIES FOR OFFENSES RELATING TO 
HEALTH INSURANCE TAX CREDIT. 
‘‘Any person who knowingly misuses Department of 
the Treasury names, symbols, titles, or initials to convey 
the false impression of association with, or approval or en-
dorsement by, the Department of the Treasury of any in-
surance products or group health coverage in connection 
with the credit for health insurance costs under section 
36 shall on conviction thereof be fined not more than 
$10,000, or imprisoned not more than 1 year, or both.’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 162(l) of the Internal Revenue Code 
of 1986 is amended by adding at the end the fol-
lowing: 
‘‘(6) 
ELECTION
TO
HAVE
SUBSECTION 
APPLY.—No deduction shall be allowed under para-
graph (1) for a taxable year unless the taxpayer 
elects to have this subsection apply for such year.’’.
(2) Paragraph (2) of section 1324(b) of title 
31, United States Code, is amended by inserting be-
fore the period ‘‘, or from section 36 of such Code’’. 
(3) The table of sections for subpart C of part 
IV of subchapter A of chapter 1 of the Internal Rev-
enue Code of 1986 is amended by striking the last 
item and inserting the following:
‘‘Sec. 36. Health insurance costs for uninsured individuals. 
‘‘Sec. 37. Overpayments of tax.’’.
(4) The table of sections for subchapter B of 
chapter 75 of such Code is amended by adding at 
the end the following:
‘‘Sec. 7276. Penalties for offenses relating to health insurance tax 
credit.’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years beginning after Decem-
ber 31, 2003, without regard to whether final regu-
lations to carry out such amendments have been pro-
mulgated by such date. 
(2) PENALTIES.—The amendments made by 
subsections (c) and (d)(4) shall take effect on the 
date of the enactment of this Act.
SEC. 3. ADVANCE PAYMENT OF CREDIT TO ISSUERS OF 
QUALIFIED HEALTH INSURANCE. 
(a) IN GENERAL.—Chapter 77 of the Internal Rev-
enue Code of 1986 (relating to miscellaneous provisions) 
is amended by adding at the end the following: 
‘‘SEC. 7529. ADVANCE PAYMENT OF CREDIT FOR HEALTH 
INSURANCE COSTS OF ELIGIBLE INDIVID-
UALS. 
‘‘(a) GENERAL RULE.—Not later than January 1, 
2005, the Secretary shall establish a program for making 
payments on behalf of certified individuals to providers of 
qualified health insurance (as defined in section 36(d)) for 
such individuals. 
‘‘(b) PROGRAM OPTIONS.—The program under sub-
section (a) may—
‘‘(1) provide that payments may be made on 
the basis of modified adjusted gross income of cer-
tified individuals for the preceding taxable year, and 
‘‘(2) provide that, in lieu of payments to pro-
viders, the following amounts may be offset:
‘‘(A) Amounts required to be deposited by 
the provider as estimated income tax under sec-
tion 6654 or 6655. 
‘‘(B) Amounts required to be deducted and 
withheld under section 3401 (relating to wage 
withholding).
‘‘(C) Taxes imposed under section 3111(a) 
or 50 percent of taxes imposed under section 
1401(a) (relating to FICA employer taxes). 
‘‘(D) Amounts required to be deducted 
under section 3102 with respect to taxes im-
posed under section 3101(a) or 50 percent of 
taxes imposed under section 1401(a) (relating 
to FICA employee taxes). 
‘‘(c) CERTIFIED INDIVIDUAL.—For purposes of this 
section, the term ‘certified individual’ means any indi-
vidual for whom a qualified health insurance credit eligi-
bility certificate is in effect. 
‘‘(d) QUALIFIED HEALTH INSURANCE CREDIT ELI-
GIBILITY CERTIFICATE.—For purposes of this section, a 
qualified health insurance credit eligibility certificate is a 
statement furnished by an individual to a provider of 
qualified health insurance which—
‘‘(1) certifies that the individual will be eligible 
to receive the credit provided by section 36 for the 
taxable year, 
‘‘(2) estimates the amount of such credit for 
such taxable year, and
‘‘(3) provides such other information as the 
Secretary may require for purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections 
for chapter 77 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following:
‘‘Sec. 7529. Advance payment of health insurance credit for pur-
chasers of qualified health insurance.’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on July 1, 2005, without re-
gard to whether final regulations to carry out such amend-
ments have been promulgated by such date.
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