A bill to amend the Internal Revenue Code of 1986 to provide a refundable tax credit for small business health insurance costs, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Healthy Employees, Healthy Small 
Businesses Act of 2004''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) In 2002, 44,000,000 Americans were without health 
        insurance for the entire year, and the vast majority of these 
        uninsured people are in working families.
            (2) The number of employees in a business greatly affects 
        the likelihood of whether or not its employees are offered 
        health insurance. In 2003, 98 percent of firms with over 200 
        employees offered health benefits, while only 55 percent of 
        firms with under 10 workers did.
            (3) Among uninsured workers in 2001, over half held jobs 
        with companies having fewer than 100 employees.
            (4) The cost of health insurance for employers is very 
        high. On average, in 2003, the total cost of an individual 
        health plan was $3,383, of which the employee paid an average 
        of $508 and the employer paid an average of $2875. For a family 
        policy, the average cost was $9,068, with the employer bearing 
        $6,656 and the employee shouldering $2,412.

SEC. 3. REFUNDABLE CREDIT FOR SMALL BUSINESS EMPLOYEE HEALTH INSURANCE 
              EXPENSES.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by redesignating section 36 as section 37 and inserting 
after section 35 the following new section:

``SEC. 36. SMALL BUSINESS EMPLOYEE HEALTH INSURANCE EXPENSES.

    ``(a) Determination of Amount.--In the case of a qualified small 
employer, there shall be allowed as a credit against the tax imposed by 
this subtitle for the taxable year an amount equal to the expense 
amount described in subsection (b) paid by the taxpayer during the 
taxable year.
    ``(b) Subsection (b) Expense Amount.--For purposes of this 
section--
            ``(1) In general.--The expense amount described in this 
        subsection is the applicable percentage of the amount of 
        qualified employee health insurance expenses of each qualified 
        employee.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage is equal to--
                    ``(A) for any qualified small employer described in 
                subparagraph (A) of paragraph (4), 50 percent,
                    ``(B) for any qualified small employer described in 
                subparagraph (B) of paragraph (4), 35 percent, and
                    ``(C) for any qualified small employer described in 
                subparagraph (C) of paragraph (4), 25 percent.
            ``(3) Per employee dollar limitation.--
                    ``(A) In general.--The amount of qualified employee 
                health insurance expenses taken into account under 
                paragraph (1) with respect to any qualified employee 
                for any taxable year shall not exceed--
                            ``(i) for any qualified small employer 
                        described in subparagraph (A) of paragraph 
                        (4)--
                                    ``(I) $1,500 in the case of self-
                                only coverage, and
                                    ``(II) $3,400 in the case of family 
                                coverage,
                            ``(ii) for any qualified small employer 
                        described in subparagraph (B) of paragraph 
                        (4)--
                                    ``(I) $1,100 in the case of self-
                                only coverage, and
                                    ``(II) $2,400 in the case of family 
                                coverage, and
                            ``(iii) for any qualified small employer 
                        described in subparagraph (C) of paragraph 
                        (4)--
                                    ``(I) $750 in the case of self-only 
                                coverage, and
                                    ``(II) $1,700 in the case of family 
                                coverage.
                    ``(B) Inflation adjustment.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning after 2006, each dollar 
                        amount referred to in subparagraph (A) shall be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                (1)(f)(3) for the calendar year in 
                                which the taxable year begins, by 
                                substituting `2005' for `1992'.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $100, 
                        such amount shall be rounded to the next lowest 
                        multiple of $100.
            ``(4) Qualified small employers described.--A qualified 
        small employer is described in--
                    ``(A) this subparagraph if such employer employed 
                an average of 9 or fewer employees (as determined under 
                subsection (c)(1)(A)(ii)),
                    ``(B) this subparagraph if such employer employed 
                an average of more than 9 but less than 25 employees 
                (as so determined), and
                    ``(C) this subparagraph if such employer employed 
                an average of more than 24 but not more than 50 
                employees (as so determined).
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified small employer.--
                    ``(A) In general.--The term `qualified small 
                employer' means, with respect to any calendar year, any 
                employer if--
                            ``(i) such employer pays or incurs at least 
                        75 percent of the qualified employee health 
                        insurance expenses of each qualified employee 
                        (determined without regard to subsection 
                        (b)(3)), and
                            ``(ii) such employer employed an average of 
                        50 or fewer employees on business days during 
                        either of the 2 preceding calendar years.
                For purposes of clause (ii), a preceding calendar year 
                may be taken into account only if the employer was in 
                existence throughout such year.
                    ``(B) Employers not in existence in preceding 
                year.--In the case of an employer which was not in 
                existence throughout the 1st preceding calendar year, 
                the determination under subparagraph (A)(ii) shall be 
                based on the average number of employees that it is 
                reasonably expected such employer will employ on 
                business days in the current calendar year.
            ``(2) Qualified employee health insurance expenses.--
                    ``(A) In general.--The term `qualified employee 
                health insurance expenses' means any amount paid by an 
                employer for health insurance coverage (as defined in 
                section 9832(b)(1)) to the extent such amount is 
                attributable to coverage provided to any employee while 
                such employee is a qualified employee.
                    ``(B) Exception for amounts paid under salary 
                reduction arrangements.--No amount paid or incurred for 
                health insurance coverage pursuant to a salary 
                reduction arrangement shall be taken into account under 
                subparagraph (A).
            ``(3) Qualified employee.--
                    ``(A) In general.--The term `qualified employee' 
                means, with respect to any period, an employee of an 
                employer if--
                            ``(i) the annual amount of hours in the 
                        employ of such employer by such employee is at 
                        least 400 hours,
                            ``(ii) the total amount of wages paid or 
                        incurred by such employer to such employee at 
                        an annual rate during the taxable year is at 
                        least $5,000, and
                            ``(iii) such employee is not eligible for--
                                    ``(I) any benefits under title 
                                XVIII, XIX, or XXI of the Social 
                                Security Act, or
                                    ``(II) any other publicly-sponsored 
                                health insurance program.
                    ``(B) Treatment of certain employees.--For purposes 
                of subparagraph (A), the term `employee'--
                            ``(i) shall not include an employee within 
                        the meaning of section 401(c)(1), and
                            ``(ii) shall include a leased employee 
                        within the meaning of section 414(n).
                    ``(C) Wages.--The term `wages' has the meaning 
                given such term by section 3121(a) (determined without 
                regard to any dollar limitation contained in such 
                section).
    ``(d) Certain Rules Made Applicable.--For purposes of this section, 
rules similar to the rules of section 52 shall apply.
    ``(e) Coordination With Deduction for Health Insurance Costs of 
Self-Employed Individuals.--In the case of a taxpayer who is eligible 
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 deduction under such section for such year.''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 36 of such Code''.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        is amended by striking the last item and inserting the 
        following new items:

                              ``Sec. 36. Small business employee health 
                                        insurance expenses.
                              ``Sec. 37. Overpayments of tax.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2004.

Summary: Healthy Employees, Healthy Small Business Act of 2004 - Amends the Internal Revenue Code to allow certain small business employers a refundable tax credit for a portion of their employee health insurance costs.