To amend the Internal Revenue Code of 1986 to extend the exclusion from gross income for employer-provided health coverage for employees' spouses and dependent children to coverage provided to other eligible designated beneficiaries of employees.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Tax Equity for Health Plan 
Beneficiaries Act of 2007''.

SEC. 2. APPLICATION OF ACCIDENT AND HEALTH PLANS TO ELIGIBLE 
              BENEFICIARIES.

    (a) Exclusion of Contributions.--Section 106 of the Internal 
Revenue Code of 1986 (relating to contributions by employer to accident 
and health plans) is amended by adding at the end the following new 
subsection:
    ``(f) Coverage Provided for Eligible Beneficiaries of Employees.--
            ``(1) In general.--Subsection (a) shall apply with respect 
        to an eligible beneficiary and any qualifying child who is a 
        dependent of the eligible beneficiary.
            ``(2) Qualifying child; dependent.--For purposes of this 
        subsection--
                    ``(A) Qualifying child.--The term `qualifying 
                child' has the meaning given such term by section 
                152(c).
                    ``(B) Dependent.--The term `dependent' has the 
                meaning given such term by section 105(b).''.
    (b) Exclusion of Amounts Expended for Medical Care.--The first 
sentence of section 105(b) of such Code (relating to amounts expended 
for medical care) is amended by inserting before the period the 
following: ``and eligible beneficiary and the qualifying children of 
the eligible beneficiary (within the meaning of section 106(f)) with 
respect to the taxpayer''.
    (c) Payroll Taxes.--
            (1) Section 3121(a)(2) of such Code is amended--
                    (A) by inserting ``, or his eligible beneficiary or 
                any qualifying children of the eligible beneficiary,'' 
                after ``his dependents'' both places it appears,
                    (B) by inserting ``, and eligible beneficiaries and 
                qualifying children of eligible beneficiaries (within 
                the meaning of section 106(f)),'' after ``their 
                dependents'' the first place it appears, and
                    (C) by inserting ``, eligible beneficiaries, and 
                qualifying children of eligible beneficiaries'' after 
                ``their dependents'' the second place it appears.
            (2) Section 3231(e)(1) of such Code is amended--
                    (A) by inserting ``, or his eligible beneficiary or 
                any qualifying children of his eligible beneficiary,'' 
                after ``his dependents'',
                    (B) by inserting ``, and eligible beneficiaries and 
                qualifying children of eligible beneficiaries (within 
                the meaning of section 106(f)),'' after ``their 
                dependents'' the first place it appears, and
                    (C) by inserting ``, eligible beneficiaries, and 
                qualifying children of eligible beneficiaries'' after 
                ``their dependents'' the second place it appears.
            (3) Section 3306(b)(2) of such Code is amended--
                    (A) by inserting ``, or his eligible beneficiary or 
                any qualifying children of his eligible beneficiary,'' 
                after ``his dependents'' both places it appears,
                    (B) by inserting ``, and eligible beneficiaries and 
                qualifying children of eligible beneficiaries (within 
                the meaning of section 106(f)),'' after ``their 
                dependents'' the first place it appears, and
                    (C) by inserting ``, eligible beneficiaries, and 
                qualifying children of eligible beneficiaries'' after 
                ``their dependents'' the second place it appears.
            (4) Section 3401(a) of such Code is amended by striking 
        ``or'' at the end of paragraph (21), by striking the period at 
        the end of paragraph (22) and inserting ``; or'', and by 
        inserting after paragraph (22) the following new paragraph:
            ``(23) for any payment made to or for the benefit of an 
        employee or his eligible beneficiary or any qualifying children 
        of his eligible beneficiary (within the meaning of section 
        106(f)) if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(f) or under section 105 by 
        reference in section 105(b) to section 106(f);''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 3. EXPANSION OF DEPENDENCY FOR PURPOSES OF DEDUCTION FOR HEALTH 
              INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.

    (a) In General.--Subsection (l) of section 162 of the Internal 
Revenue Code of 1986 (relating to special rules for health insurance 
costs of self-employed individuals) is amended by adding at the end the 
following new paragraph:
            ``(6) Dependents.--For purposes of this subsection, the 
        term `dependents' shall include the following with respect to 
        the taxpayer--
                    ``(A) any individual who satisfies the requirements 
                of sections 152(c)(3)(A) and 152(d)(2)(H) (determined 
                without regard to subsections (d)(1)(B) and (d)(1)(D) 
                thereof), and
                    ``(B) one individual who does not satisfy the 
                requirements of section 152(c)(3)(A), but who satisfies 
                the requirements of section 152(d)(2)(H) (determined 
                without regard to subsections (d)(1)(B) and (d)(1)(C) 
                thereof).''.
    (b) Conforming Amendment.--Subparagraph (B) of section 162(l)(2) of 
such Code is amended by inserting ``or dependent (as defined in 
paragraph (1))'' after ``spouse''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 4. EXTENSION TO ELIGIBLE BENEFICIARIES OF SICK AND ACCIDENT 
              BENEFITS PROVIDED TO MEMBERS OF A VOLUNTARY EMPLOYEES' 
              BENEFICIARY ASSOCIATION AND THEIR DEPENDENTS.

    (a) In General.--Section 501(c)(9) of the Internal Revenue Code of 
1986 (relating to list of exempt organizations) is amended by adding at 
the end the following new sentence: ``For purposes of providing for the 
payment of sick and accident benefits to members of such an association 
and their dependents, the term `dependents' shall include any 
individual who is an eligible beneficiary, or qualified child of an 
eligible beneficiary, as determined under the terms of a medical 
benefit, health insurance, or other program under which members and 
their dependents are entitled to sick and accident benefits.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 5. FLEXIBLE SPENDING ARRANGEMENTS AND HEALTH REIMBURSEMENT 
              ARRANGEMENTS.

    The Secretary of Treasury shall issue guidance of general 
applicability providing that medical expenses that otherwise qualify--
            (1) for reimbursement from a flexible spending arrangement 
        under regulations in effect on the date of the enactment of 
        this Act may be reimbursed from an employee's flexible spending 
        arrangement, notwithstanding the fact that such expenses are 
        attributable to an individual who is the employee's eligible 
        beneficiary under any accident or health plan of the employer, 
        and
            (2) for reimbursement from a health reimbursement 
        arrangement under regulations in effect on the date of the 
        enactment of this Act may be reimbursed from an employee's 
        health reimbursement arrangement, notwithstanding the fact that 
        such expenses are attributable to an individual who is not a 
        spouse or dependent within the meaning of section 152 but who 
        is designated by the employee as eligible to have his or her 
        expenses reimbursed under the health reimbursement arrangement.

Summary: Tax Equity for Health Plan Beneficiaries Act of 2007 - Amends the Internal Revenue Code to: (1) extend the exclusion from gross income for employer-provided health care coverage to certain eligible beneficiaries and their dependent children; (2) revise the definition of "dependent" for purposes of the tax deduction for the health insurance costs of self-employed individuals; and (3) extend voluntary employees' beneficiary association sick and accident benefits to eligible beneficiaries and their dependents.