‘‘(3) PENALTY-FREE
WITHDRAWALS
TO
EX-
TENT AMOUNTS IN ACCOUNT EXCEED $15,000.—
‘‘(A) IN
GENERAL.—Paragraph (1), and
paragraph (2) to the extent it relates to sub-
section (e)(3), shall not apply to the extent that
the sum of—
‘‘(i) the amount remaining in the
medical savings accounts of such individual
immediately after the distribution, plus
‘‘(ii) the amount remaining at such
time in the medical savings accounts of the
spouse (if any) of such individual,
has a value at such time is at least $15,000.
‘‘(B) LOWER LIMIT FOR INDIVIDUALS AT-
TAINING SOCIAL SECURITY RETIREMENT AGE.—
The $15,000 amount in subparagraph (A) shall
be reduced by $1,000 for each year by which
the age (as of the close of the taxable year) of
the individual for whose benefit the account was
established exceeds retirement age (as defined
in section 216(l) of the Social Security Act).
‘‘(4) DISABILITY
OR
DEATH
CASES.—Para-
graphs (1) and (2) do not apply if the payment or
distribution is made after the individual for whose
benefit the medical savings account was established
becomes disabled within the meaning of section
72(m)(7) or dies.
‘‘(g) SPECIAL RULES.—
‘‘(1) COMMUNITY PROPERTY LAWS.—This sec-
tion shall be applied without regard to any commu-
nity property laws.
‘‘(2) CUSTODIAL ACCOUNTS.—For purposes of
this section, a custodial account shall be treated as
a trust if—
‘‘(A) the assets of such account are held by
a bank (as defined in section 408(n)) or an-
other person who demonstrates to the satisfac-
tion of the Secretary that the manner in which
he will administer the account will be consistent
with the requirements of this section, and
‘‘(B) the custodial account would, except
for the fact that it is not a trust, constitute a
medical savings account described in subsection
(c).
For purposes of this title, in the case of a custodial
account treated as a trust by reason of the preceding
sentence, the custodian of such account shall be
treated as the trustee thereof.
‘‘(3) DENIAL
OF
DEDUCTIONS.—No amount
paid or distributed from a medical savings account
shall be taken into account in determining the de-
duction provided by section 213.
‘‘(h) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1994, each
applicable dollar amount shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment for the
calendar year in which the taxable year begins.
‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of paragraph (1), the cost-of-living adjustment
for any calendar year is the percentage (if any) by
which—
‘‘(A) the deemed average total wages (as
defined in section 209(k) of the Social Security
Act) for the preceding calendar year, exceeds
‘‘(B) the deemed average total wages (as
so defined) for calendar year 1993.
‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of paragraph (1), the term ‘applicable dollar
amount’ means—
‘‘(A) the $4,800 and $600 amounts in sub-
section (b),
‘‘(B) the $1,500 amounts in subsection
(c)(4),
‘‘(C) the $300 amount in subsection (e)(1),
and
‘‘(D) the $15,000 amount in subsection
(f)(3).
‘‘(4) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $10, such
amount shall be rounded to the nearest multiple of
$10 (or, if such amount is a multiple of $5 and not
of $10, such amount shall be rounded to the next
highest multiple of $10).
‘‘(i) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the individual for whose benefit the
account is maintained with respect to contributions, dis-
tributions, and such other matters as the Secretary may
require under regulations. The reports required by this
subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such
manner as may be required by those regulations.’’
(b) DEDUCTION ALLOWED
IN ARRIVING
AT AD-
JUSTED GROSS INCOME.—Paragraph (7) of section 62(a)
of such Code (relating to retirement savings) is amend-
ed—
(1) by inserting ‘‘OR MEDICAL EXPENSE’’ after
‘‘RETIREMENT’’ in the heading of such paragraph,
and
(2) by inserting before the period at the end
thereof the following: ‘‘and the deduction allowed by
section 220 (relating to deduction of certain pay-
ments to medical savings accounts)’’.
(c) EXCLUSION OF EMPLOYER CONTRIBUTIONS TO
MEDICAL
SAVINGS
ACCOUNTS
FROM
EMPLOYMENT
TAXES.—
(1) SOCIAL SECURITY TAXES.—
(A) Subsection (a) of section 3121 of such
Code is amended by striking ‘‘or’’ at the end of
paragraph (20), by striking the period at the
end of paragraph (21) and inserting ‘‘; or’’, and
by inserting after paragraph (21) the following
new paragraph:
‘‘(22) remuneration paid to or on behalf of
an employee if (and to the extent that) at the
time of payment of such remuneration it is rea-
sonable to believe that a corresponding deduc-
tion is allowable under section 220.’’
(B) Subsection (a) of section 209 of the Social
Security Act is amended by striking ‘‘or’’ at the end
of paragraph (17), by striking the period at the end