I
107TH CONGRESS
1ST SESSION
H. R. 1590
To amend the Internal Revenue Code of 1986 to allow up to $500 of
health benefits and dependent care assistance in flexible spending ac-
counts and similar arrangements to be carried forward to the succeeding
taxable year or to be included in gross income upon termination of
such accounts and arrangements.
IN THE HOUSE OF REPRESENTATIVES
APRIL 25, 2001
Mr. RAMSTAD 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 allow up
to $500 of health benefits and dependent care assistance
in flexible spending accounts and similar arrangements
to be carried forward to the succeeding taxable year
or to be included in gross income upon termination of
such accounts and arrangements.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. $500 OF HEALTH BENEFITS AND DEPENDENT
CARE ASSISTANCE IN FLEXIBLE SPENDING
ACCOUNTS 
CARRIED 
FORWARD 
TO 
SUC-
CEEDING TAXABLE YEAR AND INCLUDED IN
GROSS INCOME UPON TERMINATION OF AC-
COUNTS.
(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) and by inserting after subsection (g) the following:
‘‘(h) 
CARRYFORWARDS
OF
CERTAIN
UNUSED
HEALTH BENEFITS AND DEPENDENT CARE ASSISTANCE
TO SUCCEEDING TAXABLE YEAR; INCOME INCLUSION
UPON TERMINATION.—
‘‘(1) IN GENERAL.—For purposes of this title—
‘‘(A) a plan or other arrangement shall not
fail to be treated as a cafeteria plan or flexible
spending or similar arrangement, and
‘‘(B) no amount shall be required to be in-
cluded in gross income by reason of this section
or any other provision of this chapter,
solely because under such plan or other arrangement
an employee may make the election described in
paragraph (3).
‘‘(2) LIMITATION.—Paragraph (1) shall not
apply to more than $500 of benefits which are un-
used as of the close of the taxable year or as of the
date of termination of the plan or arrangement.
‘‘(3) ELECTION.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the election described in this para-
graph is an election—
‘‘(i)(I) to carry forward to the suc-
ceeding taxable year health benefits and
dependent care assistance (as defined in
section 129(e)(1)) which are unused as of
the close of a taxable year, or
‘‘(II) to include the amount of such
unused benefits in gross income for the
taxable year,
‘‘(ii) upon the termination of the plan
or arrangement, to include the amount of
such unused benefits in gross income for
the taxable year ending within or with the
end of the year in which such termination
occurs, and
‘‘(iii) upon failure to re-enroll in such
plan or arrangement, to include the
amount of such unused benefits in gross
income for the last taxable year of enroll-
ment in such plan or arrangement.
‘‘(B) WHEN
MADE.—The election de-
scribed in subparagraph (A) shall be made be-
fore the close of the fiscal year of the plan or
arrangement.’’.
(b) CARRYFORWARD SUBJECT TO EXCLUSION LIMI-
TATION.—Subparagraph (A) of section 129(a)(2) of such
Code (relating to general limitation of exclusion under de-
pendent care assistance programs) is amended by insert-
ing before the period at the end the following: ‘‘, reduced
by the amount carried forward to such taxable year under
section 125(h)’’.
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
the date of the enactment of this Act.
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