Small Business Emergency Savings Accounts Act of 2021
Bill: H.R.1450 | Sponsor: Rep. Cloud, Michael (R-TX)
Policy area: Taxation

Summary:
Small Business Emergency Savings Accounts Act of 2021
This bill allows a new tax deduction from gross income for amounts paid into a small business emergency savings account. Such savings accounts are established exclusively to pay the qualified disaster and public health emergency expenses of the account beneficiary.
The bill defines qualified disaster and public health emergency expenses as disaster loss replacement expenses, disaster recovery operations expenses, and public health emergency expenses.

To amend the Internal Revenue Code of 1986 to provide emergency savings 
                     accounts for small businesses.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Emergency Savings 
Accounts Act of 2021''.

SEC. 2. DEDUCTION FOR CONTRIBUTIONS TO SMALL BUSINESS EMERGENCY SAVINGS 
              ACCOUNTS.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to itemized deductions for 
individuals and corporations) is amended by adding at the end the 
following new section:

``SEC. 200. SMALL BUSINESS EMERGENCY SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of a eligible business, there 
shall be allowed as a deduction for the taxable year an amount equal to 
the aggregate amount paid during such taxable year by such business to 
a small business emergency savings account of such business.
    ``(b) Limitation.--The amount allowed as a deduction under 
subsection (a) to any business for any taxable year shall not exceed 
the lesser of--
            ``(1) 25 percent of the wages (as defined in section 
        3121(a)) paid by the eligible business during such taxable 
        year, or
            ``(2) the greater of--
                    ``(A) zero, or
                    ``(B) the maximum amount which when added to the 
                balance of such account (as determined at the end of 
                such taxable year but without regard to contributions 
                made during such taxable year) would not result in such 
                balance (as so determined) to exceed 150 percent of 
                wages (as defined in section 3121(a)) paid by the 
                eligible business during such taxable year.
    ``(c) Eligible Business.--For purposes of this section, the term 
`eligible business' means any person if--
            ``(1) such person carries on any trade or business in the 
        United States (other than the trade or business of being an 
        employee), and
            ``(2) the average number of full-time employees (as 
        determined for purposes of determining whether an employer is 
        an applicable large employer for purposes of section 
        4980H(c)(2)) employed by such employer during the taxable year 
        does not exceed 500.
    ``(d) Small Business Emergency Savings Account.--For purposes of 
this section--
            ``(1) In general.--The term `small business emergency 
        savings account' means a trust created or organized in the 
        United States as a small business emergency savings account 
        exclusively for the purpose of paying the qualified disaster 
        and public health emergency expenses of the account 
        beneficiary, but only if the written governing instrument 
        creating the trust meets the following requirements:
                    ``(A) Except in the case of a rollover contribution 
                described in subsection (f)(5), no contribution will be 
                accepted unless it is in cash.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) The interest of account beneficiary in the 
                balance in the account is nonforfeitable.
            ``(2) Qualified disaster and public health emergency 
        expenses.--The term `qualified disaster and public health 
        emergency expenses' means--
                    ``(A) disaster loss replacement expenses,
                    ``(B) disaster recovery operations expenses, and
                    ``(C) public health emergency expenses.
            ``(3) Disaster loss replacement expenses.--The term 
        `disaster loss replacement expenses' means any expense paid or 
        incurred in the ordinary course of a trade or business of the 
        eligible business to replace or repair casualty losses totaling 
        $3,000 or more resulting from a federally declared disaster.
            ``(4) Disaster recovery operations expenses.--The term 
        `disaster recovery operations expenses' means the following 
        amounts if paid or incurred in the ordinary course of a trade 
        or business of the eligible business while the declaration with 
        respect to a federally declared disaster is in effect:
                    ``(A) Wages (as defined in section 3121(a)) and 
                taxes imposed under section 3111.
                    ``(B) Unemployment insurance contributions.
                    ``(C) Health care costs.
                    ``(D) Rent, lease, or mortgage costs, including 
                property taxes.
                    ``(E) Utilities.
            ``(5) Public health emergency expenses.--The term `public 
        health emergency expenses' means amounts described in 
        subparagraphs (A) through (E) of paragraph (4) if paid or 
        incurred in the ordinary course of a trade or business of the 
        eligible business while a public health emergency declaration 
        is in effect.
            ``(6) Federally declared disaster.--The term `federally 
        declared disaster' has the meaning given such term by section 
        165(i)(5).
            ``(7) Public health emergency declaration.--The term 
        `public health emergency declaration' means any declaration of 
        a public health emergency by the Secretary of Health and Human 
        Services under section 319 of the Public Health Service Act (42 
        U.S.C. 247d).
            ``(8) Account beneficiary.--The term `account beneficiary' 
        means the eligible business on whose behalf the small business 
        emergency savings account was established.
    ``(e) Treatment of Account.--
            ``(1) In general.--A small business emergency savings 
        account is exempt from taxation under this subtitle unless such 
        account has ceased to be a small business emergency savings 
        account. Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business income of 
        charitable, etc. organizations).
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to small 
        business emergency savings accounts, and any amount treated as 
        distributed under such rules shall be treated as not used to 
        pay qualified disaster and public health emergency expenses.
    ``(f) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified disaster and public health 
        emergency expenses.--Any amount paid or distributed out of a 
        small business emergency savings account which is used 
        exclusively to pay qualified disaster and public health 
        emergency expenses of any account beneficiary shall not be 
        includible in gross income.
            ``(2) Inclusion of amounts not used for qualified disaster 
        and public health emergency expenses.--Any amount paid or 
        distributed out of a small business emergency savings account 
        which is not used exclusively to pay the qualified disaster and 
        public health emergency expenses of the account beneficiary 
        shall be included in the gross income of such beneficiary.
            ``(3) Excess contributions returned before due date of 
        return.--
                    ``(A) In general.--If any excess contribution is 
                contributed for a taxable year to any small business 
                emergency savings account of an eligible business, 
                paragraph (2) shall not apply to distributions from the 
                small business emergency savings accounts of such 
                eligible business (to the extent such distributions do 
                not exceed the aggregate excess contributions to all 
                such accounts of such eligible business for such year) 
                if--
                            ``(i) such distribution is received by the 
                        eligible business on or before the last day 
                        prescribed by law (including extensions of 
                        time) for filing such eligible business's 
                        return for such taxable year, and
                            ``(ii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution.
                Any net income described in clause (ii) shall be 
                included in the gross income of the eligible business 
                for the taxable year in which it is received.
                    ``(B) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess contribution' means 
                any contribution (other than a rollover contribution 
                described in paragraph (5)) which is not deductible 
                under this section.
            ``(4) Additional tax on distributions not used for 
        qualified disaster and public health emergency expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                on the account beneficiary for any taxable year in 
                which there is a payment or distribution from a small 
                business emergency savings account of such beneficiary 
                which is includible in gross income under paragraph (2) 
                shall be increased by 20 percent of the amount which is 
                so includible.
                    ``(B) Exception for disability or death.--If the 
                eligible business is an individual, subparagraph (A) 
                shall not apply if the payment or distribution is made 
                after the account beneficiary becomes disabled within 
                the meaning of section 72(m)(7) or dies.
            ``(5) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any amount paid or distributed from a small business 
                emergency savings account to the account beneficiary to 
                the extent the amount received is paid into a small 
                business emergency savings account for the benefit of 
                such beneficiary not later than the 60th day after the 
                day on which the beneficiary receives the payment or 
                distribution.
                    ``(B) Limitation.--This paragraph shall not apply 
                to any amount described in subparagraph (A) received by 
                an eligible business from a small business emergency 
                savings account if, at any time during the 1-year 
                period ending on the day of such receipt, such eligible 
                business received any other amount described in 
                subparagraph (A) from a small business emergency 
                savings account which was not includible in the small 
                business's gross income because of the application of 
                this paragraph.
    ``(g) Cost-of-Living Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 2021, the $3,000 amount in 
        subsection (d)(3) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                such taxable year begins determined by substituting 
                `calendar year 2020' for `calendar year 2016' in 
                subparagraph (A)(ii) thereof.
            ``(2) Rounding.--If any increase under paragraph (1) is not 
        a multiple of $50, such increase shall be rounded to the 
        nearest multiple of $50.
    ``(h) Special Rules.--
            ``(1) Denial of deduction to dependents.--No deduction 
        shall be allowed under this section to any individual with 
        respect to whom a deduction under section 151 is allowable to 
        another taxpayer for a taxable year beginning in the calendar 
        year in which such individual's taxable year begins.
            ``(2) Taxable year must be full taxable year.--Except in 
        the case of a taxable year closed by reason of the death of an 
        individual who is an eligible business, no deduction shall be 
        allowed under this section in the case of a taxable year 
        covering a period of less than 12 months.
            ``(3) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this section:
                    ``(A) Section 219(d)(2) (relating to no deduction 
                for rollovers).
                    ``(B) Section 219(f)(3) (relating to time when 
                contributions deemed made).
                    ``(C) Section 219(f)(5) (relating to employer 
                payments).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
                    ``(F) Section 223(f)(7) (relating to transfer of 
                account incident to divorce).
                    ``(G) Section 223(f)(8) (relating to treatment 
                after death of account beneficiary).
            ``(4) Denial of double benefit.--No deduction shall be 
        allowed under this chapter for any qualified disaster and 
        public health emergency expenses with respect to which any 
        payment or distribution is excluded from gross income under 
        subsection (f)(1).
    ``(i) Reports.--The Secretary may require the trustee of a small 
business emergency savings account to make such reports regarding such 
account to the Secretary and to the account beneficiary with respect to 
contributions, distributions, the return of excess contributions, and 
such other matters as the Secretary determines appropriate.''.
    (b) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Section 62(a) of such Code is amended by inserting after 
paragraph (21) the following new paragraph:
            ``(22) Small business emergency savings accounts.--In the 
        case of an individual who is an eligible business, the 
        deduction allowed by section 200.''.
    (c) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to certain tax-favored 
accounts and annuities) is amended--
            (1) by striking ``or'' at the end of subsection (a)(5), by 
        inserting ``or'' at the end of subsection (a)(6), and by 
        inserting after subsection (a)(6) the following new paragraph:
            ``(7) a small business emergency savings account (within 
        the meaning of section 220(d)),''; and
            (2) by adding at the end the following new subsection:
    ``(i) Excess Contributions to Small Business Emergency Savings 
Accounts.--For purposes of this section, in the case of small business 
emergency savings accounts (within the meaning of section 220(d)), the 
term `excess contributions' means the sum of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the accounts (other than a rollover contribution described 
        in section 220(f)(5)) which is not allowable as a deduction 
        under section 220 for such year, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the accounts which 
                were included in gross income under section 220(f)(2), 
                and
                    ``(B) the excess (if any) of--
                            ``(i) the maximum amount allowable as a 
                        deduction under section 220(b) for the taxable 
                        year, over
                            ``(ii) the amount contributed to the 
                        accounts for the taxable year.
                For purposes of this subsection, any contribution which 
                is distributed out of the small business emergency 
                savings account in a distribution to which section 
                220(f)(3) applies shall be treated as an amount not 
                contributed.''.
    (d) Failure To Provide Reports on Small Business Emergency Savings 
Accounts.--Section 6693(a)(2) of such Code is amended by redesignating 
subparagraphs (D), (E), and (F) as subparagraphs (E), (F), and (G), 
respectively, and by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) section 220(i) (relating to small business 
                emergency savings accounts),''.
    (e) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following:

``Sec. 200. Small business emergency savings accounts.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2020.
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