H.R. 1004 (112th): Health Flexible Spending Arrangements Improvements Act of 2012

HR 1004 RH

To amend the Internal Revenue Code of 1986 to increase participation in medical flexible spending arrangements.

March 10, 2011

Mr. BOUSTANY (for himself, Mr. LARSON of Connecticut, Mr. PAULSEN, Mr. JOHNSON of Illinois, Mr. BISHOP of Georgia, and Mr. BURTON of Indiana) introduced the following bill; which was referred to the Committee on Ways and Means

June 5, 2012

Additional sponsors: Mr. SCHOCK, Ms. SPEIER, Mr. PAUL, Mr. REICHERT, Mr. HIMES, Mr. TIBERI, Mr. MURPHY of Connecticut, Mr. GERLACH, Mr. DAVIS of Kentucky, Mr. ROSKAM, Mr. AUSTRIA, Mr. GRIFFIN of Arkansas, Mr. CICILLINE, Mr. HARRIS, Ms. HERRERA BEUTLER, Mr. COURTNEY, Mr. HULTGREN, Mr. NUNES, Mrs. BLACK, Mr. BERG, Mr. SAM JOHNSON of Texas, Mr. BARTLETT, Mr. SCHILLING, Mr. TERRY, Mr. AMODEI, Mr. BUCHANAN, and Mr. WALSH of Illinois

June 5, 2012

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

To amend the Internal Revenue Code of 1986 to increase participation in medical flexible spending arrangements.

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

[Struck out->] SECTION 1. SHORT TITLE. [<-Struck out]

[Struck out->] This Act may be cited as the ‘Medical FSA Improvement Act of 2011’. [<-Struck out]

[Struck out->] SEC. 2. ADDITION OF TAXABLE DISTRIBUTIONS. [<-Struck out]

[Struck out->] (a) Treatment of Amounts Expended for Medical Care- Section 105 of the Internal Revenue Code of 1986 (relating to amounts received under accident and health plans) is amended by inserting at the end the following new subsection: [<-Struck out]

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‘(k) Amounts Paid Under Medical Flexible Spending Arrangements- [<-Struck out]

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‘(1) APPLICATION OF SUBSECTION (b) AND SECTION 106- For purposes of subsection (b) and section 106, a plan shall not fail to be treated as flexible spending arrangement solely because such plan, in addition to reimbursing expenses incurred for medical care (as defined in subsection (b)) during the plan year, distributes for the plan year all or a portion of the employee’s balance. [<-Struck out]

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‘(2) LIMITATION- Paragraph (1) shall apply only in the case that the balance under such arrangement for a plan year is distributed after the close of the plan year to which the balance relates and not later than the end of the 7th month following the close of such plan year. [<-Struck out]

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‘(3) TAX TREATMENT OF DISTRIBUTION- Any distribution to which paragraph (1) applies shall be treated as remuneration of the employee for employment for the taxable year in which it is distributed. [<-Struck out]

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‘(4) FLEXIBLE SPENDING ARRANGEMENT- The term ‘flexible spending arrangement’ means a benefit program within the meaning of section 106(c)(2) (relating to long-term care benefits).’. [<-Struck out]

[Struck out->] (b) Additional Deferred Compensation Exception- Paragraph (2) of section 125(d) of such Code (relating to deferred compensation under a cafeteria plan) is amended by inserting at the end the following new subparagraph: [<-Struck out]

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‘(E) EXCEPTION FOR CERTAIN FLEXIBLE SPENDING ARRANGEMENTS- Subparagraph (A) shall not apply to a flexible spending arrangement (within the meaning of section 106(c)(2)) as a result of amounts being distributed to the covered employee in accordance with section 105(k).’. [<-Struck out]

[Struck out->] (c) Conforming Amendment- Section 409A(d)(1) of such Code is amended by striking ‘and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, and’, and by adding at the end the following: [<-Struck out]

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‘(C) a flexible spending arrangement which is subject to section 105(k).’. [<-Struck out]

[Struck out->] (d) Effective Date- The amendments made by this section shall apply to plan years beginning after December 31, 2012. [<-Struck out]

[Struck out->] (e) Transition Rules- In the case of plan years that begin before the date of the enactment of this Act, in implementing the amendments made by this section a flexible spending arrangement may allow an individual to make a new election or to revise an existing election under such arrangement so long as such new or revised election is made within 90 days after the date of the enactment of this Act. [<-Struck out]

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Health Flexible Spending Arrangements Improvements Act of 2012’.

SEC. 2. TAXABLE DISTRIBUTIONS OF UNUSED BALANCES UNDER HEALTH FLEXIBLE SPENDING ARRANGEMENTS.

(a) In General- Section 125 of the Internal Revenue Code of 1986 is amended by redesignating subsections (k) and (l) as subsections (l) and (m), respectively, and by inserting after subsection (j) the following new subsection:

‘(k) Taxable Distributions of Unused Balances Under Health Flexible Spending Arrangements-

‘(1) IN GENERAL- For purposes of this section and sections 105(b) and 106, a plan or other arrangement which (but for any qualified distribution) would be a health flexible spending arrangement shall not fail to be treated as a cafeteria plan or health flexible spending arrangement (and shall not fail to be treated as an accident or health plan) merely because such arrangement provides for qualified distributions.

‘(2) QUALIFIED DISTRIBUTIONS- For purposes of this subsection, the term ‘qualified distribution’ means any distribution to an individual under the arrangement referred to in paragraph (1) with respect to any plan year if--

‘(A) such distribution is made after the last date on which requests for reimbursement under such arrangement for such plan year may be made and not later than the end of the 7th month following the close of such plan year, and

‘(B) such distribution does not exceed the lesser of--

‘(i) $500, or

‘(ii) the excess of--

‘(I) the salary reduction contributions made under such arrangement for such plan year, over

‘(II) the reimbursements for expenses incurred for medical care made under such arrangement for such plan year.

‘(3) TAX TREATMENT OF QUALIFIED DISTRIBUTIONS- Qualified distributions shall be includible in the gross income of the employee in the taxable year in which distributed and shall be taken into account as wages or compensation under the applicable provisions of subtitle C when so distributed.

‘(4) COORDINATION WITH QUALIFIED RESERVIST DISTRIBUTIONS- A qualified reservist distribution (as defined in subsection (h)(2)) shall not be treated as a qualified distribution and shall not be taken into account in applying the limitation of paragraph (2)(B)(i).’.

(b) Conforming Amendment- Paragraph (1) of section 409A(d) of such Code is amended by striking ‘and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, and’, and by adding at the end the following new subparagraph:

‘(C) a health flexible spending arrangement to which subsection (h) or (k) of section 125 applies.’.

(c) Effective Date- The amendments made by this section shall apply to plan years beginning after December 31, 2012.

Union Calendar No. 363

To amend the Internal Revenue Code of 1986 to increase participation in medical flexible spending arrangements.

June 5, 2012

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