Title: Small Business Health Account Act of 2018
Policy area: Taxation

Summary:
Small Business Health Account Act of 2018
This bill amends the Internal Revenue Code to allow tax-exempt savings accounts (small business health accounts) for the health expenses of small business employees.
Individuals who are employed by a small business and have not made or received contributions for a health savings account (excluding certain contributions rolled over to a small business health account) during the month are eligible to contribute to an account. Individuals who are eligible for Medicare may not make contributions.
The bill allows a deduction for cash contributions to an account and specifies contribution limits, which must be adjusted for inflation after 2019. Tax-exempt distributions from an account may be used for qualified medical expenses, including: (1) medical care for the individual or a spouse or dependent of the individual, and (2) coverage under a health plan.
The bill sets forth rules and penalties for excess contributions to an account and distributions that are not used for qualified medical expenses.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 2496 Introduced in Senate (IS)]

<DOC>






115th CONGRESS
  2d Session
                                S. 2496

To amend the Internal Revenue Code of 1986 to establish Small Business 
                            Health Accounts.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 5, 2018

   Mr. Enzi introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to establish Small Business 
                            Health Accounts.

    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 Health Account Act of 
2018''.

SEC. 2. SMALL BUSINESS HEALTH ACCOUNTS.

    (a) In General.--Part VIII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by redesignating section 224 
as section 225 and inserting after section 223 the following new 
section:

``SEC. 224. SMALL BUSINESS HEALTH ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual who is an 
eligible individual for any month during the taxable year, there shall 
be allowed as a deduction for the taxable year an amount equal to the 
aggregate amount paid in cash during such taxable year by or on behalf 
of such individual to a small business health account of such 
individual.
    ``(b) Limitations.--
            ``(1) In general.--The amount allowable as a deduction 
        under subsection (a) to an individual for the taxable year 
        shall not exceed the sum of the monthly limitations for months 
        during such taxable year that the individual is an eligible 
        individual.
            ``(2) Monthly limitation.--The monthly limitation for any 
        month is \1/12\ of--
                    ``(A) in the case of an eligible individual who is 
                not described in subparagraph (B), $3,400, or
                    ``(B) in the case of an eligible individual who is 
                a head of a household or married (within the meaning of 
                section 7703) and filing a joint return under section 
                6013 for the taxable year, $6,750.
            ``(3) Additional contributions for individuals 55 or 
        older.--In the case of an individual who has attained age 55 
        before the close of the taxable year, the applicable limitation 
        under subparagraphs (A) and (B) of paragraph (2) shall be 
        increased by $1,000.
            ``(4) Coordination with other contributions.--
                    ``(A) In general.--The limitation which would (but 
                for this paragraph) apply under this subsection to an 
                individual for any taxable year shall be reduced (but 
                not below zero) by the sum of--
                            ``(i) the aggregate amount paid for such 
                        taxable year to Archer MSAs of such individual,
                            ``(ii) the aggregate amount contributed to 
                        small business health accounts of such 
                        individual which is excludable from the 
                        taxpayer's gross income for such taxable year 
                        under section 106(d) (and such amount shall not 
                        be allowed as a deduction under subsection 
                        (a)), and
                            ``(iii) the aggregate amount contributed to 
                        small business health accounts of such 
                        individual for such taxable year under section 
                        408(d)(10) (and such amount shall not be 
                        allowed as a deduction under subsection (a)).
                    ``(B) Exception.--Subparagraph (A)(i) shall not 
                apply with respect to any individual to whom paragraph 
                (5) applies.
            ``(5) Special rule for married individuals.--In the case of 
        individuals who are married to each other, the limitation under 
        paragraph (1) (without regard to any additional contribution 
        amount under paragraph (3))--
                    ``(A) shall be reduced by the aggregate amount paid 
                to Archer MSAs of such spouses for the taxable year, 
                and
                    ``(B) after such reduction, shall be divided 
                equally between them unless they agree on a different 
                division.
            ``(6) Denial of deductions 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.
            ``(7) Medicare eligible individuals.--The limitation under 
        this subsection for any month with respect to an individual 
        shall be zero for the first month such individual is entitled 
        to benefits under title XVIII of the Social Security Act and 
        for each month thereafter.
            ``(8) Increase in limit for individuals becoming eligible 
        individuals after the beginning of the year.--
                    ``(A) In general.--For purposes of computing the 
                limitation under paragraph (1) for any taxable year, an 
                individual who is an eligible individual during the 
                last month of such taxable year shall be treated as 
                having been an eligible individual during each of the 
                months in such taxable year.
                    ``(B) Failure to maintain eligibility.--
                            ``(i) In general.--If, at any time during 
                        the testing period, the individual is not an 
                        eligible individual, then--
                                    ``(I) gross income of the 
                                individual for the taxable year in 
                                which occurs the first month in the 
                                testing period for which such 
                                individual is not an eligible 
                                individual is increased by the 
                                aggregate amount of all contributions 
                                to the small business health account of 
                                the individual which could not have 
                                been made but for subparagraph (A), and
                                    ``(II) the tax imposed by this 
                                chapter for any taxable year on the 
                                individual shall be increased by 10 
                                percent of the amount of such increase.
                            ``(ii) Exception for disability or death.--
                        Subclauses (I) and (II) of clause (i) shall not 
                        apply if the individual ceased to be an 
                        eligible individual by reason of the death of 
                        the individual or the individual becoming 
                        disabled (within the meaning of section 
                        72(m)(7)).
                            ``(iii) Testing period.--The term `testing 
                        period' means the period beginning with the 
                        last month of the taxable year referred to in 
                        subparagraph (A) and ending on the last day of 
                        the twelfth month following such month.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Archer msa.--The term `Archer MSA' has the meaning 
        given such term in section 220(d).
            ``(2) Eligible individual.--The term `eligible individual' 
        means, with respect to any month, any individual if--
                    ``(A) such individual is employed by a small 
                business, and
                    ``(B) except as provided under subsection 
                (f)(5)(B), no cash has been paid during such month by 
                or on behalf of such individual to a health savings 
                account under section 223.
            ``(3) Small business.--The term `small business' means a 
        small business concern (as defined under section 3 of the Small 
        Business Act (15 U.S.C. 632)).
    ``(d) Small Business Health Account.--For purposes of this 
section--
            ``(1) In general.--The term `small business health account' 
        means a trust created or organized in the United States as a 
        small business health account exclusively for the purpose of 
        paying the qualified medical 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) or section 220(f)(5), no 
                contribution will be accepted--
                            ``(i) unless it is in cash, or
                            ``(ii) to the extent such contribution, 
                        when added to previous contributions to the 
                        trust for the calendar year, exceeds the sum 
                        of--
                                    ``(I) the dollar amount in effect 
                                under subsection (b)(2), and
                                    ``(II) the dollar amount in effect 
                                under subsection (b)(3).
                    ``(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 an individual in the balance 
                in their account is nonforfeitable.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account 
                beneficiary, amounts paid by such beneficiary for--
                            ``(i) medical care (as defined in section 
                        213(d)) for such individual, the spouse of such 
                        individual, and any dependent (as defined in 
                        section 152, determined without regard to 
                        subsections (b)(1), (b)(2), and (d)(1)(B) 
                        thereof) of such individual, but only to the 
                        extent such amounts are not compensated for by 
                        insurance or otherwise, and
                            ``(ii) coverage under a health plan.
                    ``(B) Prescribed drug.--The term `qualified medical 
                expenses' shall include an amount paid for medicine or 
                a drug only if such medicine or drug is a prescribed 
                drug (determined without regard to whether such drug is 
                available without a prescription) or is insulin.
                    ``(C) Prohibition.--
                            ``(i) In general.--The term `qualified 
                        medical expenses' shall not include any amount 
                        paid for--
                                    ``(I) an abortion,
                                    ``(II) any health plan coverage 
                                described in clause (ii) of 
                                subparagraph (A) which includes 
                                coverage for abortion, or
                                    ``(III) any prescribed drug, as 
                                described in subparagraph (B), for an 
                                abortion.
                            ``(ii) Exception.--This subparagraph shall 
                        not apply in the case of--
                                    ``(I) a pregnancy which is the 
                                result of an act of rape or incest, or
                                    ``(II) a woman who suffers from a 
                                physical disorder, physical injury, or 
                                physical illness that would, as 
                                certified by a physician, place the 
                                woman in danger of death unless an 
                                abortion is performed, including a 
                                life-endangering physical condition 
                                caused by or arising from the pregnancy 
                                itself.
            ``(3) Account beneficiary.--The term `account beneficiary' 
        means the individual on whose behalf the small business health 
        account was established.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        described in section 223(d)(4) shall apply for purposes of this 
        section.
    ``(e) Tax Treatment of Accounts.--Rules similar to the rules 
described in section 223(e) shall apply for purposes of this section.
    ``(f) Tax Treatments of Distributions.--
            ``(1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of a small business health 
        account which is used exclusively to pay qualified medical 
        expenses of any account beneficiary shall not be includible in 
        gross income.
            ``(2) Inclusion of amounts not used for qualified medical 
        expenses.--Any amount paid or distributed out of a small 
        business health account which is not used exclusively to pay 
        the qualified medical 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 
                health account of an individual, paragraph (2) shall 
                not apply to distributions from the small business 
                health accounts of such individual (to the extent such 
                distributions do not exceed the aggregate excess 
                contributions to all such accounts of such individual 
                for such year) if--
                            ``(i) such distribution is received by the 
                        individual on or before the last day prescribed 
                        by law (including extensions of time) for 
                        filing such individual'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 individual 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) or section 220(f)(5)) which 
                is neither excludable from gross income under section 
                106(d) nor deductible under this section.
            ``(4) Additional tax on distributions not used for 
        qualified medical 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 health 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.--
                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.
                    ``(C) Exceptions for distributions after medicare 
                eligibility.--Subparagraph (A) shall not apply to any 
                payment or distribution after the date on which the 
                account beneficiary attains the age specified in 
                section 1811 of the Social Security Act.
            ``(5) Rollover contribution.--
                    ``(A) In general.--An amount is described in this 
                paragraph as a rollover contribution if it meets the 
                requirements of subparagraph (B).
                    ``(B) Rollover contribution rules.--
                            ``(i) In general.--Paragraph (2) shall not 
                        apply to any amount paid or distributed from--
                                    ``(I) a health savings account (as 
                                described in section 223(d)) to the 
                                account beneficiary to the extent the 
                                amount received is paid into a small 
                                business health account, or
                                    ``(II) a small business health 
                                account to the account beneficiary to 
                                the extent the amount received is paid 
                                into a small business health account or 
                                a health savings account,
                        for the benefit of such beneficiary not later 
                        than the sixtieth day after the day on which 
                        the beneficiary receives the payment or 
                        distribution.
                            ``(ii) Limitation.--This paragraph shall 
                        not apply to any amount described in 
                        subparagraph (A) received by an individual from 
                        a health savings account or a small business 
                        health account if, at any time during the 1-
                        year period ending on the day of such receipt, 
                        such individual received any other amount 
                        described in subparagraph (A) from a health 
                        savings account or a small business account 
                        which was not includible in the individual's 
                        gross income because of the application of this 
                        paragraph.
            ``(6) Additional rules.--Rules similar to the rules 
        described in paragraphs (6) through (8) of section 223(e) shall 
        apply for purposes of this section.
    ``(g) Cost-of-Living Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning after 2019, each dollar amount in subsection (b)(2) 
        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 2018' 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) Reports.--
            ``(1) In general.--The Secretary may require the trustee of 
        a small business health 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.
            ``(2) Time and manner.--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 the Secretary.''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 26(b) of the Internal Revenue 
        Code of 1986 is amended--
                    (A) in subparagraph (S), by inserting 
                ``224(b)(8)(i)(II),'' after ``223(b)(8)(i)(II),''; and
                    (B) by striking subparagraph (U) and inserting the 
                following:
                    ``(U) sections 223(f)(4) and 224(f)(4) (relating to 
                additional tax on health savings account distributions 
                and small business heath account distributions not used 
                for qualified medical expenses),''.
            (2) Paragraph (3) of section 35(g) of such Code is amended 
        by striking ``or from a health savings account (as defined in 
        section 223(d))'' and inserting ``, a health savings account 
        (as defined in section 223(d)), or a small business health 
        account (as defined in section 224(d))''.
            (3) Paragraph (19) of section 62(a) of such Code is amended 
        to read as follows:
            ``(19) Health savings accounts and small business health 
        accounts.--The deductions allowed by sections 223 and 224.''.
            (4) Subsection (d) of section 106 of such Code of 1986 is 
        amended--
                    (A) in the heading, by inserting ``and Small 
                Business Health Accounts'';
                    (B) in paragraph (1), by striking ``In general'' in 
                the heading and inserting ``Health savings accounts'';
                    (C) by redesignating paragraphs (2) and (3) as 
                paragraphs (3) and (4), respectively; and
                    (D) by inserting after paragraph (1) the following 
                new paragraph:
            ``(2) Small business health accounts.--In the case of an 
        employee who is an eligible individual (as defined in section 
        224(c)(2)), amounts contributed by such employee's employer to 
        any small business health account (as defined in section 
        224(d)) of such employee shall be treated as employer-provided 
        coverage for medical expenses under an accident or health plan 
        to the extent such amounts do not exceed the limitation under 
        section 224(b) (determined without regard to this subsection) 
        which is applicable to such employee for such taxable year.''.
            (5) Subparagraph (A) of section 220(f)(5) of such Code is 
        amended by striking ``or a health savings account (as defined 
        in section 223(d))'' and inserting ``, a health savings account 
        (as defined in section 223(d)), or a small business health 
        account (as defined in section 224(d))''.
            (6) Subsection (d) of section 408 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(10) Distribution for small business health account 
        funding.--
                    ``(A) In general.--In the case of an individual who 
                is an eligible individual (as defined in section 
                224(c)(2)) and who elects the application of this 
                paragraph for a taxable year, gross income of the 
                individual for the taxable year does not include a 
                qualified SBHA funding distribution to the extent such 
                distribution is otherwise includible in gross income.
                    ``(B) Qualified sbha funding distribution.--For 
                purposes of this paragraph, the term `qualified SBHA 
                funding distribution' means a distribution from an 
                individual retirement plan (other than a plan described 
                in subsection (k) or (p)) of the employee to the extent 
                that such distribution is contributed to the small 
                business health account of the individual in a direct 
                trustee-to-trustee transfer.
                    ``(C) Limitations.--
                            ``(i) Maximum dollar limitation.--The 
                        amount excluded from gross income by 
                        subparagraph (A) shall not exceed the 
                        applicable annual limitation under section 
                        224(b) at the time of the qualified SBHA 
                        funding distribution.
                            ``(ii) One-time transfer.--An individual 
                        may make an election under subparagraph (A) 
                        only for one qualified SBHA funding 
                        distribution during the lifetime of the 
                        individual. Such an election, once made, shall 
                        be irrevocable.
                    ``(D) Failure to maintain eligibility.--
                            ``(i) In general.--If, at any time during 
                        the testing period, the individual is not an 
                        eligible individual, then the aggregate amount 
                        of all contributions to the small business 
                        health account of the individual made under 
                        subparagraph (A)--
                                    ``(I) shall be includible in the 
                                gross income of the individual for the 
                                taxable year in which occurs the first 
                                month in the testing period for which 
                                such individual is not an eligible 
                                individual, and
                                    ``(II) the tax imposed by this 
                                chapter for any taxable year on the 
                                individual shall be increased by 10 
                                percent of the amount which is so 
                                includible.
                            ``(ii) Exception for disability or death.--
                        Subclauses (I) and (II) of clause (i) shall not 
                        apply if the individual ceased to be an 
                        eligible individual by reason of the death of 
                        the individual or the individual becoming 
                        disabled (within the meaning of section 
                        72(m)(7)).
                            ``(iii) Testing period.--The term `testing 
                        period' means the period beginning with the 
                        month in which the qualified SBHA funding 
                        distribution is contributed to a small business 
                        health account and ending on the last day of 
                        the twelfth month following such month.
                    ``(E) Application of section 72.--Notwithstanding 
                section 72, in determining the extent to which an 
                amount is treated as otherwise includible in gross 
                income for purposes of subparagraph (A), the aggregate 
                amount distributed from an individual retirement plan 
                shall be treated as includible in gross income to the 
                extent that such amount does not exceed the aggregate 
                amount which would have been so includible if all 
                amounts from all individual retirement plans were 
                distributed. Proper adjustments shall be made in 
                applying section 72 to other distributions in such 
                taxable year and subsequent taxable years.''.
            (7) Subparagraph (B) of section 848(e)(1) of such Code is 
        amended--
                    (A) in clause (iv), by striking ``and'' at the end;
                    (B) in clause (v), by striking the period at the 
                end and inserting ``, and''; and
                    (C) by adding at the end the following new clause:
                            ``(vi) any contract which is a small 
                        business health account (as defined in section 
                        224(d)).''.
            (8) Paragraph (2) of section 877A(e) of such Code is 
        amended by inserting ``a small business health account (as 
        defined in section 224),'' after ``a health savings account (as 
        defined in section 223)''.
            (9) Subsection (a) of section 4973 of such Code is 
        amended--
                    (A) in paragraph (5), by striking ``or'' at the 
                end;
                    (B) by redesignating paragraph (6) as paragraph 
                (7); and
                    (C) by inserting after paragraph (5) the following 
                new paragraph:
            ``(6) a small business health account (within the meaning 
        of section 224(d)), or''.
            (10) Section 4975 of such Code is amended--
                    (A) in subsection (c), by adding at the end the 
                following new paragraph:
            ``(7) Special rule for small business health accounts.--An 
        individual for whose benefit a small business health account 
        (within the meaning of section 224(d)) is established shall be 
        exempt from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a small business health 
        account by reason of the application of section 224(e) to such 
        account.''; and
                    (B) in paragraph (1) of subsection (e)--
                            (i) by redesignating subparagraphs (F) and 
                        (G) as subparagraphs (G) and (H), respectively; 
                        and
                            (ii) by inserting after subparagraph (E) 
                        the following new subparagraph:
                    ``(F) a small business health account described in 
                section 224(d),''.
            (11) Subsection (a) of section 6051 of such Code is 
        amended--
                    (A) by redesignating paragraphs (13) through (17) 
                as paragraphs (14) through (18), respectively; and
                    (B) by inserting after paragraph (12) the following 
                new paragraph:
            ``(13) the amount contributed to any small business health 
        account (as defined in section 224(d)) of such employee or such 
        employee's spouse,''.
            (12) Paragraph (2) of section 6693(a) of such Code is 
        amended--
                    (A) by redesignating subparagraphs (D) through (F) 
                as subparagraphs (E) through (G), respectively; and
                    (B) by inserting after subparagraph (C) the 
                following new subparagraph:
                    ``(D) section 224(h) (relative to small business 
                health accounts),''.
            (13) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by redesignating the item 
        relating to section 224 as relating to section 225 and by 
        inserting after the item relating to section 223 the following 
        new item:

``Sec. 224. Small Business Health Accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2018.
                                 <all>