section 3(b) which is in excess of 50 percent of 
the applicable national median adjusted gross 
income amount, the $500 amount in subpara-
graph (A) shall be reduced (but not below zero) 
by an amount which bears the same ratio to 
$500 as such excess bears to 50 percent of the 
applicable national median adjusted gross in-
come amount. 
(C) ADJUSTMENT FOR INFLATION.—
(i) IN GENERAL.—For each fifth cal-
endar year beginning after 2005, each of 
the $500 amounts under subparagraphs 
(A) and (B) shall be increased by such dol-
lar amount multiplied by the cost-of-living 
adjustment 
determined 
under 
section 
1(f)(3) of the Internal Revenue Code of 
1986 determined by substituting ‘‘calendar 
year 2004’’ for ‘‘calendar year 1992’’ in 
subparagraph (B) thereof. 
(ii) ROUNDING.—If any amount ad-
justed under clause (i) is not a multiple of 
$50, such amount shall be rounded to the 
next lowest multiple of $50. 
(b) GOVERNMENT MATCHING CONTRIBUTION.—
(1) IN GENERAL.—Upon such showing as the 
Executive Director may require to establish the basis 
for certification, the Executive Director shall, with 
respect to each private contribution to the account 
of an account holder which is made before such ac-
count holder attains age 18, certify to the Secretary 
of the Treasury the matching amount with respect 
to such contribution. 
(2) MATCHING AMOUNT.—
(A) IN GENERAL.—For purposes of this 
subsection, 
the 
term 
‘‘matching 
amount’’ 
means, with respect to the first $500 of private 
contributions to an account during any calendar 
year, an amount equal to 100 percent of such 
contribution. 
(B) INCOME PHASE-OUT.—With respect to 
any account holder who has a modified adjusted 
gross income for the last taxable year ending 
before such contribution which is in excess of 
100 percent of the applicable national median 
adjusted gross income amount, the $500 
amount in subparagraph (A) shall be reduced 
(but not below zero) by an amount which bears 
the same ratio to $500 as such excess bears to
5 percent of the applicable national median ad-
justed gross income amount. 
(C) ADJUSTMENT FOR INFLATION.—
(i) IN GENERAL.—For each fifth cal-
endar year beginning after 2005, each of 
the $500 amounts under subparagraphs 
(A) and (B) shall be increased by such dol-
lar amount multiplied by the cost-of-living 
adjustment 
determined 
under 
section 
1(f)(3) of the Internal Revenue Code of 
1986 determined by substituting ‘‘calendar 
year 2004’’ for ‘‘calendar year 1992’’ in 
subparagraph (B) thereof. 
(ii) ROUNDING.—If any amount ad-
justed under clause (i) is not a multiple of 
$50, such amount shall be rounded to the 
next lowest multiple of $50. 
(3) PRIVATE CONTRIBUTION.—For purposes of 
this subsection, the term ‘‘private contribution’’ 
means a contribution accepted under section 3(f). 
(c) DEFINITIONS AND RULES RELATING TO MODI-
FIED ADJUSTED GROSS INCOME.—For purposes of this 
section—
(1) SPECIAL
RULE
FOR
ACCOUNT
HOLDERS 
WHO CAN BE CLAIMED AS DEPENDENTS.—In the
case of an account holder of a KIDS Account for 
whom a deduction is allowable under section 151 of 
the Internal Revenue Code of 1986 to another tax-
payer, any reference in this section to the modified 
adjusted gross income of the account holder for any 
taxable year shall be treated as a reference to the 
modified adjusted gross income of such other tax-
payer. 
(2) MODIFIED ADJUSTED GROSS INCOME.—The 
term ‘‘modified adjusted gross income’’ has the 
meaning given such term in section 221(b) of the In-
ternal Revenue Code of 1986. 
(3) APPLICABLE NATIONAL MEDIAN ADJUSTED 
GROSS INCOME.—
(A) IN GENERAL.—The term ‘‘applicable 
national median adjusted gross income’’ means, 
with respect to any calendar year, the median 
amount of adjusted gross income (as defined in 
section 62 of the Internal Revenue Code of 
1986) for individual taxpayers for taxable years 
ending in the prior calendar year as determined 
by the Secretary of the Treasury. 
(B) JOINT RETURNS.—The applicable na-
tional median adjusted gross income shall be