§ 226. Cross reference

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1954

   Aug. 16, 1954, ch. 736, 68A Stat. 72, § 217 · 68A Stat. 72

   Enacted · 26 U.S.C. § 226

   Aug. 16, 1954, ch. 736, 68A Stat. 72, § 217

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 72, § 217

2. 1964

   Revenue Act of 1964

   Pub. L. 88–272 title II § 213(a)(1) · 78 Stat. 19

   Changed · 26 U.S.C. § 226

   Pub. L. 88–272 renumbered section 217 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 88–272 renumbered section 217 of this title as this section.

   Enacted provision · exact public law section
   (1) Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 217 as section 218 and by inserting after section 216 the following new section: “SEC. 217. MOVING EXPENSES. “(a) Deduction Allowed.— There shall be allowed as a deduction moving expenses paid or incurred during the taxable year in connection with the commencement of work by the taxpayer as an employee at a new principal place of work. “(b) Definition of Moving Expenses.— “(1) In general.— For purposes of this section, the term ‘moving expenses’ means only the reasonable expenses— “(A) of moving household goods and personal effects from the former residence to the new residence, and “(B) of traveling (including meals and lodging) from the former residence to the new place of residence. “(2) Individuals other than taxpayer.— In the case of any individual other than the taxpayer, expenses referred to in paragraph (1) shall be taken into account only if such individual has both the former residence and the new residence as his principal place of abode and is a member of the taxpayer’s household. “(c) Conditions for Allowance.— No deduction shall be allowed under this section unless— “(1) the taxpayer’s new principal place of work— “(A) is at least 20 miles farther from his former residence than was his former principal place of work, or “(B) if he had no former principal place of work, is at least 20 miles from his former residence, and “(2) during the 12-month period immediately following his arrival in the general location of his new principal place of work, the taxpayer is a full-time employee, in such general location, during at least 39 weeks. “(d) Rules for Application of Subsection (c)(2).— “(1) Subsection (c) (2) shall not apply to any item to the extent that the taxpayer receives reimbursement or other expense allowance from his employer for such item. “(2) If a taxpayer has not satisfied the condition of subsection (c)(2) before the time prescribed by law (including extensions thereof) for filing the return for the taxable year during which he paid or incurred moving expenses which would otherwise be deductible under this section, but may still satisfy such condition, then such expenses may (at the election of the taxpayer) be deducted for such taxable year notwithstanding subsection (c) (2). “(3) If— “(A) for any taxable year moving expenses have been deducted in accordance with the rule provided in paragraph (2), and “(B) the condition of subsection (c) (2) is not satisfied by the close of the subsequent taxable year, then an amount equal to the expenses which were so deducted shall be included in gross income for such subsequent taxable year. “(e) Disallowance of Deduction With Respect to Reimbursements Not Included in Gross Income.— No deduction shall be allowed under this section for any item to the extent that the taxpayer receives reimbursement or other expense allowance for such item which is not included in his gross income. “(f) Regulations.— The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section.”

3. 1971

   Revenue Act of 1971

   Pub. L. 92–178 title VII § 702(a) · 85 Stat. 494

   Changed · 26 U.S.C. § 226

   Pub. L. 92–178 renumbered section 218 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 92–178 renumbered section 218 of this title as this section.

   Enacted provision · exact public law section
   (a) Part VII of subchapter B of chapter 1 (relating to additional 68A Stat. 69; 78 Stat. 50. itemized deductions for individuals) is amended by redesignating section 218 as 219, and by inserting after section 217 the following new section: “SEC. 218. CONTRIBUTIONS TO CANDIDATES FOR PUBLIC OFFICE. “(a) Allowance of Deduction— In the case of an individual, there shall lie allowed as a deduction any political contribution (as defined Ante, p. 560. in section 41(c)(1)) payment of which is made by such individual within the taxable year. “(b) Limitations— “(1) Amount— The deduction under subsection (a) shall not exceed $50 ($100 in the case of a joint return under section 6013). “(2) Verification— The deduction under subsection (a) shall be allowed, with respect to any political contribution, only if such political contribution is verified in such manner as the Secretary or his delegate shall prescribe by regulations. “(c) Election To Take Credit in Lieu of Deduction— This section shall not apply in the case of any taxpayer who, for the taxable year, elects to take the credit against tax provided by section 41 (relating to credit against tax for contributions to candidates for public office). Such election shall be made in such manner and at such time as the Secretary or his delegate shall prescribe by regulations. “(d) Cross Reference— “For disallowance of deduction to estates and trusts, see section 642(i).”

4. 1974

   Employee Retirement Income Security Act of 1974

   Pub. L. 93–406 title II § 2002(a)(1) · 88 Stat. 829

   Changed · 26 U.S.C. § 226

   Pub. L. 93–406 renumbered section 219 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 93–406 renumbered section 219 of this title as this section.

   Enacted provision · exact public law section
   (1) In General.— Part VII of subchapter B of chapter 1 (relating 26 USC 211. to additional itemized deductions for individuals) is amended by redesignating section 219 as 220 and by inserting after section 218 the following new section: 26 USC 220. “SEC. 219. RETIREMENT SAVINGS. “(a) Deduction Allowed.— In the case of an individual, there is allowed as a deduction amounts paid in cash during the taxable year by or on behalf of such individual for his benefit— “(1) to an individual retirement account described in section 26 USC 408. 408(a), “(2) for an individual retirement annuity described in section 408(b), or “(3) for a retirement bond described in section 409 (but only 26 USC 409. if the bond is not redeemed within 12 months of the date of its issuance). For purposes of this title, any amount paid by an employer to such a retirement account or for such a retirement annuity or retirement bond constitutes payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401(c)(1) includible in his gross income, whether 26 USC 401. or not a deduction for such payment is allowable under this section to the employee after the application of subsection (b). “(b) Limitations and Restrictions.— “(1) Maximum deduction.— The amount allowable as a deduction under subsection (a) to an individual for any taxable year may not exceed an amount equal to 15 percent of the compensation includible in his gross income for such taxable year, or $1,500, whichever is less. “(2) Covered by certain other plans.— No deduction is allowed under subsection (a) for an individual for the taxable year if for any part of such year— “(A) he was an active participant in— “(i) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), 26 USC 501. “(ii) an annuity plan described in section 403(a), 26 USC 403. “(iii) a qualified bond purchase plan described in section 405(a), or 26 USC 405. “(iv) a plan established for its employees by the United States, by a State or political division thereof, or by an agency or instrumentality of any of the foregoing, or “(B) amounts were contributed by his employer for an annuity contract described in section 403(b) (whether or not 26 USC 403. his rights in such contract are nonforfeitable).” “(3) Contributions after age 70½— No deduction is allowed under subsection (a) with respect to any payment described in subsection (a) which is made during the taxable year of an individual who has attained age 70½ before the close of such taxable year. “(4) Recontributed amounts.— No deduction is allowed under this section with respect to a rollover contribution described in section 402(a)(5), 403(a)(4), 408(d)(3), or 409(b)(3)(C). Post, pp. 991, 969, 964. “(5) Amounts contributed under endowment contract.— In the case of an endowment contract described in section 408(b), Infra. no deduction is allowed under subsection (a) for that portion of the amounts paid under the contract for the taxable year properly allocable, under regulations prescribed by the Secretary or his delegate, to the cost of life insurance. “(c) Definitions and Special Rules.— “(1) Compensation.— For purposes of this section, the term ‘compensation’ includes earned income as defined in section 401(c)(2). 26 USC 401. “(2) Married individuals.— The maximum deduction under subsection (b)(1) shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.”.

5. 1976

   Pub. L. 94–455 title XV § 1501(a) · 90 Stat. 1520

   Changed · 26 U.S.C. § 226

   Pub. L. 94–455 renumbered section 220 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 94–455 renumbered section 220 of this title as this section.

   Enacted provision · exact public law section
   (a) Allowance of Deduction.— Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 220 as 221 and by inserting after section 219 the following new section: “SEC. 220. RETIREMENT SAVINGS FOR CERTAIN MARRIED INDIVIDUALS. “(a) Deduction Allowed.— In the case of an individual, there is allowed as a deduction amounts paid in cash for a taxable year by or on behalf of such individual for the benefit of himself and his spouse— “(1) to an individual retirement account described in section 408(a), “(2) for an individual retirement annuity described in section 408(b),or “(3) for a retirement, bond described in section 409 (but only if the bond is not redeemed within 12 months of the date of its issuance). For purposes of this title, any amount paid by an employer to such a retirement account or for such a retirement, annuity or retirement bond constitutes payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401(c)(1)) includible in his gross income, whether or not a deduction for such payment is allowable under this section to the employee after the application of subsection (b). “(b) Limitations and Restrictions.— “(1) Maximum deduction.— The amount, allowable as a deduction under subsection (a) to an individual for any taxable year may not exceed— “(A) twice the amount paid to the account or annuity, or for the bond, established for the individual or for his spouse to or for which the lesser amount was paid for the taxable year, “(B) an amount equal to 15 percent of the compensation includible in the individual’s gross income for the taxable year, or “(C) $1,750, whichever is the smallest amount. “(2) Alternative deduction.— No deduction is allowed under subsection (a) for the taxable year if the individual claims the deduction allowed by section 219 for the taxable year. “(3) Coverage under certain other plans.— No deduction is allowed under subsection (a) for an individual for the taxable year if for any part of such year— “(A) he or his spouse was an active participant in— “(i) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a), “(ii) an annuity plan described in section 403(a), “(iii) a qualified bond purchase plan described in section 405(a), or “(iv) a plan established for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing, or “(B) amounts were contributed by his employer, or his spouse’s employer, for an annuity contract described in section 403 (b)(whether or not his, or his spouse’s, rights in such 26 USC 403. contract are nonforfeitable). “(4) Contributions after age 70½.— No deduction is allowed under subsection (a) with respect to any payment which is made for a taxable year of an individual if either the individual or his spouse has attained age 10% before the close of such taxable year. “(5) Recontributed amounts.— No deduction is allowed under this section with respect to a rollover contribution described in section 402(a)(5), 403(a)(4), 408(d)(3), or 409(b)(3)(C). “(6) Amounts contributed under endowment contract.— In the case of an endowment contract described in section 408(b), no deduction is allowed under subsection (a) for that portion of the amounts paid under the contract for the taxable year properly allocable, under regulations prescribed by the Secretary, to the cost of life insurance. “(7) Employed spouses.— No deduction is allowed under subsection (a) with respect to a payment described in subsection (a) made for any taxable year of the individual if the spouse of the individual has any compensation (determined without regard to section 911) for the taxable year of such spouse ending with or within such taxable year. “(c) Definitions and Special Rules.— “(1) Compensation.— For purposes of this section, the term ‘compensation’ includes earned income as defined in section 401 W(2). ’ “(2) Married individuals.— This section shall be applied without regard to any community property laws. “(3) Determination of marital status.— The determination of whether an individual is married for purposes of this section shall be made in accordance with the provisions of section 143(a). “(4) Time when contributions deemed made.— For purposes of this section, a taxpayer shall be deemed to have made a contribution on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than 45 days after the end of such taxable year. “(5) Participation in govern mental plans by certain individuals.— A member of a reserve component of the armed forces or a volunteer firefighter is not considered to be an active participant in a plan described in subsection (b)(3)(A)(iv) if, under section 219(c)(4), he is not considered to be an active participant in such a plan.”

6. 1981

   Economic Recovery Tax Act of 1981

   Pub. L. 97–34 title I · 95 Stat. 175

   Changed · 26 U.S.C. § 226

   Pub. L. 97–34 successively renumbered sections 221 and 222 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 97–34 successively renumbered sections 221 and 222 of this title as this section.

   Enacted provision · exact public law
   TITLE I— INDIVIDUAL INCOME TAX PROVISIONS Subtitle A— Tax Reductions SEC. 101. RATE CUTS; RATE REDUCTION CREDIT. (a) Rate Reduction.— Section 1 (relating to tax imposed) is amended to read as follows: “SECTION 1. TAX IMPOSED. “(a) Married Individuals Filing Joint Returns and Surviving Spouses.— There is hereby imposed on the taxable income of every married individual (as defined in section 143) who makes a single return jointly with his spouse under section 6013, and every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following tables: “(1) For taxable years beginning in 1982.— “If taxable income is: The tax is: Not over $3,400 No tax. Over $3,400 but not over $5,500 12% of the excess over $3,400. Over $5,500 but not over $7,600 $252, plus 14% of the excess over $5,500. Over $7,600 but not over $11,900 $546, plus 16% of the excess over $7,600. Over $11,900 but not over $16,000 $1,234, plus 19% of the excess over $11,900. Over $16,000 but not over $20,200 $2,013, plus 22% of the excess over $16,000. Over $20,200 but not over $24,600 $2,937, plus 25% of the excess over $20,200. Over $24,600 but not over $29,900 $4,037, plus 29% of the excess over $24,600. Over $29,900 but not over $35,200 $5,574, plus 33% of the excess over $29,900. Over $35,200 but not over $45,800 $7,323, plus 39% of the excess over $35,200. Over $45,800 but not over $60,000 $11,457, plus 44% of the excess over $45,800. Over $60,000 but not over $85,600 $17,705, plus 49% of the excess over $60,000. Over $85,600 $30,249, plus 50% of the excess over $85,600. “(2) For taxable years beginning in 1983.— “If taxable income is: The tax is: Not over $3,400 No tax. Over $3,400 but not over $5,500 11% of the excess over $3,400. Over $5,500 but not over $7,600 $231, plus 13% of the excess over $5,500. Over $7,600 but not over $11,900 $504, plus 15% of the excess over $7,600. Over $11,900 but not over $16,000 $1,149, plus 17% of the excess over $11,900. Over $16,000 but not over $20,200 $1,846, plus 19% of the excess over $16,000. Over $20,200 but not over $24,600 $2,644, plus 23% of the excess over $20,200. Over $24,600 but not over $29,900 $3,656, plus 26% of the excess over $24,600. “If taxable income is: The tax is: Over $29,900 but not over $35,200 $5,034, plus 30% of the excess over $29,900. Over $35,200 but not over $45,800 $6,624, plus 35% of the excess over $35,200. Over $45,800 but not over $60,000 $10,334, plus 40% of the excess over $45,800. Over $60,000 but not over $85,600 $16,014, plus 44% of the excess over $60,000. Over $85,600 but not over $109,400 $27,278, plus 48% of the excess over $85,600. Over $109,400 $38,702, plus 50% of the excess over $109,400. “(3) For taxable years beginning after 1983.— “If taxable income is: The tax is: Not over $3,400 No tax. Over $3,400 but not over $5,500 11% of the excess over $3,400. Over $5,500 but not over $7,600 $231, plus 12% of the excess over $5,500. Over $7,600 but not over $11,900 $483, plus 14% of the excess over $7,600. Over $11,900 but not over $16,000 $1,085, plus 16% of the excess over $11,900. Over $16,000 but not over $20,200 $1,741, plus 18% of the excess over $16,000. Over $20,200 but not over $24,600 $2,497, plus 22% of the excess over $20,200. Over $24,600 but not over $29,900 $3,465, plus 25% of the excess over $24,600. Over $29,900 but not over $35,200 $4,790, plus 28% of the excess over $29,900. Over $35,200 but not over $45,800 $6,274, plus 33% of the excess over $35,200. Over $45,800 but not over $60,000 $9,772, plus 38% of the excess over $45,800. Over $60,000 but not over $85,600 $15,168, plus 42% of the excess over $60,000. Over $85,600 but not over $109,400 $25,920, plus 45% of the excess over $85,600. Over $109,400 but not over $162,400 $36,630, plus 49% of the excess over $109,400. Over $162,400 $62,600, plus 50% of the excess over $162,400. “(b) Heads of Households.— There is hereby imposed on the taxable income of every individual who is the head of a household (as defined in section 2(b)) a tax determined in accordance with the 26 USC 2. following tables: “(1) For taxable years beginning in 1982.— “If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $4,400 12% of the excess over $2,300. Over $4,400 but not over $6,500 $252, plus 14% of the excess over $4,400. Over $6,500 but not over $8,700 $546, plus 16% of the excess over $6,500. Over $8,700 but not over $11,800 $898, plus 20% of the excess over $8,700. Over $11,800 but not over $15,000 $1,518, plus 22% of the excess over $11,800. Over $15,000 but not over $18,200 $2,222, plus 23% of the excess over $15,000. Over $18,200 but not over $23,500 $2,958, plus 28% of the excess over $18,200. Over $23,500 but not over $28,800 $4,442, plus 32% of the excess over $23,500. Over $28,800 but not over $34,100 $6,138, plus 38% of the excess over $28,800. Over $34,100 but not over $44,700 $8,152, plus 41% of the excess over $34,100. “If taxable income is: The tax is: Over $44,700 but not over $60,600 $12,498, plus 49% of the excess over $44,700. Over $60,600 $20,289, plus 50% of the excess over $60,600. “(2) For taxable years beginning in 1983.— “If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $4,400 11% of the excess over $2,300. Over $4,400 but not over $6,500 $231, plus 13% of the excess over $4,400. Over $6,500 but not over $8,700 $504, plus 15% of the excess over $6,500. Over $8,700 but not over $11,800 $834, plus 18% of the excess over $8,700. Over $11,800 but not over $15,000 $1,392, plus 19% of the excess over $11,800. Over $15,000 but not over $18,200 $2,000, plus 21% of the excess over $15,000. Over $18,200 but not over $23,500 $2,672, plus 25% of the excess over $18,200. Over $23,500 but not over $28,800 $3,997, plus 29% of the excess over $23,500. Over $28,800 but not over $34,100 $5,534, plus 34% of the excess over $28,800. Over $34,100 but not over $44,700 $7,336, plus 37% of the excess over $34,100. Over $44,700 but not over $60,600 $11,258, plus 44% of the excess over $44,700. Over $60,600 but not over $81,800 $18,254, plus 48% of the excess over $60,600. Over $81,800 $28,430, plus 50% of the excess over $81,800. “(3) For taxable years beginning after 1983.— “If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $4,400 11% of the excess over $2,300. Over $4,400 but not over $6,500 $231, plus 12% of the excess over $4,400. Over $6,500 but not over $8,700 $483, plus 14% of the excess over $6,500. Over $8,700 but not over $11,800 $791, plus 17% of the excess over $8,700. Over $11,800 but not over $15,000 $1,318, plus 18% of the excess over $11,800. Over $15,000 but not over $18,200 $1,894, plus 20% of the excess over $15,000. Over $18,200 but not over $23,500 $2,534, plus 24% of the excess over $18,200. Over $23,500 but not over $28,800 $3,806, plus 28% of the excess over $23,500. Over $28,800 but not over $34,100 $5,290, plus 32% of the excess over $28,800. Over $34,100 but not over $44,700 $6,986, plus 35% of the excess over $34,100. Over $44,700 but not over $60,600 $10,696, plus 42% of the excess over $44,700. Over $60,600 but not over $81,800 $17,374, plus 45% of the excess over $60,600. Over $81,800 but not over $108,300 $26,914, plus 48% of the excess over $81,800. Over $108,300 $39,634, plus 50% of the excess over $108,300. “(c) Unmarried Individuals (Other Than Surviving Spouses and Heads or Households).— There is hereby imposed on the taxable income of every individual (other than a surviving spouse as 26 USC 2. defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 143) a tax determined in accordance with the following tables: “(1) For taxable years beginning in 1982.— “If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $3,400 12% of the excess over $2,300. Over $3,400 but not over $4,400 $132, plus 14% of the excess over $3,400. Over $4,400 but not over $6,500 $272, plus 16% of the excess over $4,400. Over $6,500 but not over $8,500 $608, plus 17% of the excess over $6,500. Over $8,500 but not over $10,800 $948, plus 19% of the excess over $8,500. Over $10,800 but not over $12,900 $1,385, plus 22% of the excess over $10,800. Over $12,900 but not over $15,000 $1,847, plus 23% of the excess over $12,900. Over $15,000 but not over $18,200 $2,330, plus 27% of the excess over $15,000. Over $18,200 but not over $23,500 $3,194, plus 31% of the excess over $18,200. Over $23,500 but not over $28,800 $4,837, plus 35% of the excess over $23,500. Over $28,800 but not over $34,100 $6,692, plus 40% of the excess over $28,800. Over $34,100 but not over $41,500 $8,812, plus 44% of the excess over $34,100. Over $41,500 $12,068, plus 50% of the excess over $41,500. “(2) For taxable years beginning in 1983.— “If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $3,400 11% of the excess over $2,300. Over $3,400 but not over $4,400 $121, plus 13% of the excess over $3,400. Over $4,400 but not over $8,500 $251, plus 15% of the excess over $4,400. Over $8,500 but not over $10,800 $866, plus 17% of the excess over $8,500. Over $10,800 but not over $12,900 $1,257, plus 19% of the excess over $10,800. Over $12,900 but not over $15,000 $1,656, plus 21% of the excess over $12,900. Over $15,000 but not over $18,200 $2,097, plus 24% of the excess over $15,000. Over $18,200 but not over $23,500 $2,865, plus 28% of the excess over $18,200. Over $23,500 but not over $28,800 $4,349, plus 32% of the excess over $23,500. Over $28,800 but not over $34,100 $6,045, plus 36% of the excess over $28,800. Over $34,100 but not over $41,500 $7,953, plus 40% of the excess over $34,100. Over $41,500 but not over $55,300 $10,913, plus 45% of the excess over $41,500. Over $55,300 $17,123, plus 50% of the excess over $55,300. “(3) For taxable years beginning after 1983.— “If taxable income is: The tax is: Not over $2,300 No tax. Over $2,300 but not over $3,400 11% of the excess over $2,300. Over $3,400 but not over $4,400 $121, plus 12% of the excess over $3,400. Over $4,400 but not over $6,500 $241, plus 14% of the excess over $4,400. Over $6,500 but not over $8,500 $535, plus 15% of the excess over $6,500. Over $8,500 but not over $10,800 $835, plus 16% of the excess over $8,500. Over $10,800 but not over $12,900 $1,203, plus 18% of the excess over $10,800. “If taxable income is: The tax is: Over $12,900 but not over $15,000 $1,581, plus 20% of the excess over $12,900. Over $15,000 but not over $18,200 $2,001, plus 23% of the excess over $15,000. Over $18,200 but not over $23,500 $2,737, plus 26% of the excess over $18,200. Over $23,500 but not over $28,800 $4,115, plus 30% of the excess over $23,500. Over $28,800 but not over $34,100 $5,705, plus 34% of the excess over $28,800. Over $34,100 but not over $41,500 $7,507, plus 38% of the excess over $34,100. Over $41,500 but not over $55,300 $10,319, plus 42% of the excess over $41,500. Over $55,300 but not over $81,800 $16,115, plus 48% of the excess over $55,300. Over $81,800 $28,835, plus 50% of the excess over $81,800. “(d) Married Individuals Filing Separate Returns.— There is hereby imposed on the taxable income of every married individual (as 26 USC 143. defined in section 143) who does not make a single return jointly with his spouse under section 6013 a tax determined in accordance with the following tables: “(1) For taxable years beginning in 1982.— “If taxable income is: The tax is: Not over $1,700 No tax. Over $1,700 but not over $2,750 12% of the excess over $1,700. Over $2,750 but not over $3,800 $126, plus 14% of the excess over $2,750. Over $3,800 but not over $5,950 $273, plus 16% of the excess over $3,800. Over $5,950 but not over $8,000 $617, plus 19% of the excess over $5,950. Over $8,000 but not over $10,100 $1,006, plus 22% of the excess over $8,000. Over $10,100 but not over $12,300 $1,468, plus 25% of the excess over $10,100. Over $12,300 but not over $14,950 $2,018, plus 29% of the excess over $12,300. Over $14,950 but not over $17,600 $2,787, plus 33% of the excess over $14,950. Over $17,600 but not over $22,900 $3,661, plus 39% of the excess over $17,600. Over $22,900 but not over $30,000 $5,728, plus 44% of the excess over $22,900. Over $30,000 but not over $42,800 $8,852, plus 49% of the excess over $30,000. Over $42,800 $15,124, plus 50% of the excess over $42,800. “(2) For taxable years beginning in 1983.— “If taxable income is: The tax is: Not over $1,700 No tax. Over $1,700 but not over $2,750 11% of the excess over $1,700. Over $2,750 but not over $3,800 $115, plus 13% of the excess over $2,750. Over $3,800 but not over $5,950 $252, plus 15% of the excess over $3,800. Over $5,950 but not over $8,000 $574, plus 17% of the excess over $5,950. Over $8,000 but not over $10,100 $923, plus 19% of the excess over $8,000. Over $10,100 but not over $12,300 $1,322, plus 23% of the excess over $10,100. Over $12,300 but not over $14,950 $1,828, plus 26% of the excess over $12,300. Over $14,950 but not over $17,600 $2,517, plus 30% of the excess over $14,950. “If taxable income is: The tax is: Over $17,600 but not over $22,900 $3,312, plus 85% of the excess over $17,600. Over $22,900 but not over $30,000 $5,167, plus 40% of the excess over $22,900. Over $30,000 but not over $42,800 $8,007, plus 44% of the excess over $30,000. Over $42,800 but not over $54,700 $13,639, plus 48% of the excess over $42,800. Over $54,700 $19,351, plus 50% of the excess over $54,700. “(3) For taxable years beginning after 1983.— “If taxable income is: The tax is: Not over $1,700 No tax. Over $1,700 but not over $2,750 11% of the excess over $1,700. Over $2,750 but not over $3,800 $115, plus 12% of the excess over $2,750. Over $3,800 but not over $5,950 $241, plus 14% of the excess over $3,800. Over $5,950 but not over $8,000 $542, plus 16% of the excess over $5,950. Over $8,000 but not over $10,100 $870, plus 18% of the excess over $8,000. Over $10,100 but not over $12,300 $1,248, plus 22% of the excess over $10,100. Over $12,300 but not over $14,950 $1,732, plus 25% of the excess over $12,300. Over $14,950 but not over $17,600 $2,395, plus 28% of the excess over $14,950. Over $17,600 but not over $22,900 $3,137, plus 33% of the excess over $17,600. Over $22,900 but not over $30,000 $4,886, plus 38% of the excess over $22,900. Over $30,000 but not over $42,800 $7,584, plus 42% of the excess over $30,000. Over $42,800 but not over $54,700 $12,960, plus 45% of the excess over $42,800. Over $54,700 but not over $81,200 $18,315, plus 49% of the excess over $54,700. Over $81,200 $31,300, plus 50% of the excess over $81,200. “(e) Estates and Trusts.— There is hereby imposed on the taxable income of every estate and trust taxable under this subsection a tax determined in accordance with the following tables: “(1) For taxable years beginning in 1982.— “If taxable income is: The tax is: Not over $1,050 12% of taxable income. Over $1,050 but not over $2,100 $126, plus 14% of the excess over $1,050. Over $2,100 but not over $4,250 $273, plus 16% of the excess over $2,100. Over $4,250 but not over $6,300 $617, plus 19% of the excess over $4,250. Over $6,300 but not over $8,400 $1,006, plus 22% of the excess over $6,300. Over $8,400 but not over $10,600 $1,468, plus 25% of the excess over $8,400. Over $10,600 but not over $13,250 $2,018, plus 29% of the excess over $10,600. Over $13,250 but not over $15,900 $2,787, plus 33% of the excess over $13,250. Over $15,900 but not over $21,200 $3,661, plus 39% of the excess over $15,900. Over $21,200 but not over $28,300 $5,728, plus 44% of the excess over $21,200. Over $28,300 but not over $41,100 $8,852, plus 49% of the excess over $28,300. Over $41,100 $15,124, plus 50% of the excess over $41,100. “(2) For taxable years beginning in 1983.— “If taxable income is: The tax is: Not over $1,050 11% of taxable income. Over $1,050 but not over $2,100 $115, plus 13% of the excess over $1,050. Over $2,100 but not over $4,250 $252, plus 15% of the excess over $2,100. Over $4,250 but not over $6,300 $574, plus 17% of the excess over $4,250. Over $6,300 but not over $8,400 $923, plus 19% of the excess over $6,300. Over $8,400 but not over $10,600 $1,322, plus 23% of the excess over $8,400. Over $10,600 but not over $13,250 $1,828, plus 26% of the excess over $10,600. Over $13,250 but not over $15,900 $2,517, plus 30% of the excess over $13,250. Over $15,900 but not over $21,200 $3,312, plus 35% of the excess over $15,900. Over $21,200 but not over $28,300 $5,167, plus 40% of the excess over $21,200. Over $28,300 but not over $41,100 $8,007, plus 44% of the excess over $28,300. Over $41,100 but not over $53,000 $13,639, plus 48% of the excess over $41,100. Over $53,000 $19,351, plus 50% of the excess over $53,000. “(3) For taxable years beginning after 1983.— “If taxable income is: The tax is: Not over $1,050 11% of taxable income. Over $1,050 but not over $2,100 $115, plus 12% of the excess over $1,050. Over $2,100 but not over $4,250 $241, plus 14% of the excess over $2,100. Over $4,250 but not over $6,300 $542, plus 16% of the excess over $4,250. Over $6,300 but not over $8,400 $870, plus 18% of the excess over $6,300. Over $8,400 but not over $10,600 $1,248, plus 22% of the excess over $8,400. Over $10,600 but not over $13,250 $1,732, plus 25% of the excess over $10,600. Over $13,250 but not over $15,900 $2,395, plus 28% of the excess over $13,250. Over $15,900 but not over $21,200 $3,137, plus 33% of the excess over $15,900. Over $21,200 but not over $28,300 $4,886, plus 38% of the excess over $21,200. Over $28,300 but not over $41,100 $7,584, plus 42% of the excess over $28,300. Over $41,100 but not over $53,000 $12,960, plus 45% of the excess over $41,100. Over $53,000 but not over $79,500 $18,315, plus 49% of the excess over $53,000. Over $79,500 $31,300, plus 50% of the excess over $79,500.” (b) Credit To Reflect Equivalent 1981 Rate Reduction.— (1) In general.— Section 6428 (relating to refund of 1974 individual income taxes) is amended to read as follows: “SEC. 6428. 1981 RATE REDUCTION TAX CREDIT. “(a) Allowance of Credit.— There shall be allowed as a credit against the tax imposed by section 1, or against a tax imposed in lieu of the tax imposed by section 1, for any taxable year beginning in 1981, an amount equal to the product of— “(1) 1.25 percent, multiplied by “(2) the amount of tax imposed by section 1 (or in lieu thereof) for such taxable year. “(b) Special Rules for Application of This Section.— “(1) Application with other credits.— In determining any credit allowed under subpart A of part IV of subchapter A of chapter 1 (other than under sections 31, 39, and 43), the tax imposed by chapter 1 shall (before any other reductions) be reduced by the credit allowed under subsection (a). “(2) Credit treated as subpart a credit.— For purposes of this title, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart A of part IV of subchapter A of chapter 1. “(c) Tables To Reflect Credit.— “(1) Section 3 tables.— The tables prescribed by the Secretary under section 3 shall reflect the credit allowed under subsection (a). “(2) Other tables.— In order to reflect the amount of the credit under subsection (a) for different levels of tax or taxable income, the Secretary may— “(A) modify the tables under section 1, or “(B) prescribe such other tables as he determines necessary.” (2) Conforming amendments.— (A) The table of sections for subchapter B of chapter 65 is amended by striking out the item relating to section 6428 and inserting in lieu thereof the following new item: “Sec. 6428. 1981 rate reduction tax credit.” (B) Paragraph (1) of section 3(a) (relating to imposition of 26 USC 3. tax table tax) is amended by inserting “and which shall be in such form as he determines appropriate” after “Secretary”. (C) Subsection (a) of section 3 (relating to tax tables for individuals) is amended by adding at the end thereof the following new paragraph: “(5) Section may be applied on the basis of taxable income.— The Secretary may provide that this section shall be applied for any taxable year on the basis of taxable income in lieu of tax table income.” (c) Repeal of Maximum Tax on Personal Service Income.— (1) In general.— Part VI of subchapter Q of chapter 1 (relating Repeal. 26 USC 1348. to maximum rate on personal service income) is repealed. (2) Conforming amendments.— (A) Paragraph (1) of section 3(b) (relating to tax tables for individuals) is amended to read as follows: “(1) an individual to whom section 1301 (relating to income averaging) applies for the taxable year,”. (B) Subsection (b) of section 1304 (relating to special rules 26 USC 1304. for income averaging) is amended— (i) by inserting “and” at the end of paragraph (1), (ii) by striking out “, and” at the end of paragraph (2) and inserting in lieu thereof a period, and (iii) by striking out paragraph (3). (C) The table of parts for subchapter Q of chapter 1 is amended by striking out the item relating to part VI. (d) Conforming Amendments.— (1) Alternative minimum tax.— Paragraph (1) of section 55(a) 26 USC 55. (relating to alternative minimum tax) is amended— (A) by striking out all that follows “$60,000” in subparagraph (B) and inserting in lieu thereof “, exceeds”, and (B) by striking out subparagraph (C). (2) Personal holding company tax.— Section 541 (relating to personal holding company tax) is amended by striking out “70 percent” and inserting in lieu thereof “50 percent”. (3) Amendment to section 21.— Section 21 (relating to effect of changes in rates during taxable year) is amended by striking out subsections (d), (e), and (f) and inserting in lieu thereof the following: “(d) Section Not To Apply to Section 1 Rate Changes Made by Economic Recovery Tax Act of 1981.— This section shall not apply to any change in rates under section 1 attributable to the amendments made by section 101 of the Economic Recovery Tax Act of Ante, p. 176. 1981 or subsection (f) of section 1 (relating to adjustments in tax tables so that inflation will not result in tax increases).” (e) Withholding Tables.— (1) Determination of withholding.— Section 3402(a) (relating to requirement of withholding income tax at source) is amended to read as follows: “(a) Requirement of Withholding.— “(1) In general.— Except as otherwise provided in this section, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary. Any tables or procedures prescribed under this paragraph shall— “(A) apply with respect to the amount of wages paid during such periods as the Secretary may prescribe, and “(B) be in such form, and provide for such amounts to be deducted and withheld, as the Secretary determines to be most appropriate to carry out the purposes of this chapter and to reflect the provisions of chapter 1 applicable to such periods. “(2) Amount of wages.— For purposes of applying tables or procedures prescribed under paragraph (1), the term ‘the amount of wages’ means the amount by which the wages exceed the number of withholding exemptions claimed multiplied by the amount of one such exemption. The amount of each withholding exemption shall be equal to the amount of one personal exemption provided in section 151(b), prorated to the payroll period. The maximum number of withholding exemptions permitted shall be calculated in accordance with regulations prescribed by the Secretary under this section, taking into account any reduction in withholding to which an employee is entitled under this section. “(3) Changes made by section 101 of the economic recovery tax act of 1981.— Notwithstanding the provisions of this subsection, the Secretary shall modify the tables and procedures under paragraph (1) to reflect— “(A) the amendments made by section 101(b) of the Economic Recovery Tax Act of 1981, and such modification shall take effect on October 1, 1981, as if such amendments made a 5-percent reduction effective on such date, and “(B) the amendments made by section 101(a) of such Act, and such modifications shall take effect— “(i) on July 1, 1982, as if the reductions in the rate of tax under section 1 (as amended by such section) were attributable to a 10-percent reduction effective on such date, and “(ii) on July 1, 1983, as if such reductions were attributable to a 10-percent reduction effective on such date.” (2) Wages paid for period less than 1 week.— Section 3402(b) 26 USC 3402. (relating to the percentage method of withholding) is amended— (A) by striking out paragraph (1), and redesignating paragraphs (2) through (5) as paragraphs (1) through (4), respectively; and (B) by striking out paragraph (3), as redesignated by subparagraph (A), and inserting in lieu thereof the following: “(3) In any case in which the period, or the time described in paragraph (2), in respect of any wages is less than one week, the Secretary, under regulations prescribed by him, may authorize an employer to compute the tax to be deducted and withheld as if the aggregate of the wages paid to the employee during the calendar week were paid for a weekly payroll period.” (3) Zero bracket amount.— Paragraph (1)(G) of section 3402(f) (relating to withholding exemptions) is amended by inserting “(or more than one exemption if so prescribed by the Secretary)” after “one exemption”. (4) Changes in withholding.— Section 3402(i) (relating to additional withholding) is amended to read as follows: “(i) Changes in withholding.— “(1) In general.— The Secretary may by regulations provide for increases or decreases in the amount of withholding otherwise required under this section in cases where the employee requests such changes. “(2) Treatment as tax.— Any increased withholding under paragraph (1) shall for all purposes be considered tax required to be deducted and withheld under this chapter.” (5) Withholding allowances.— Subsection (m) of section 3402 (relating to withholding allowances based on itemized deductions) is amended to read as follows: “(m) Withholding Allowances.— Under regulations prescribed by the Secretary, an employee shall be entitled to additional withholding allowances or additional reductions in withholding under this subsection. In determining the number of additional withholding allowances or the amount of additional reductions in withholding under this subsection, the employee may take into account (to the extent and in the manner provided by such regulations)— “(1) estimated itemized deductions allowable under chapter 1 (other than the deductions referred to in section 151 and other than the deductions required to be taken into account in determining adjusted gross income under section 62) (other than paragraph (13) thereof), “(2) estimated tax credits allowable under chapter 1, and “(3) such additional deductions and other items as may be specified by the Secretary in regulations.” (f) Effective Dates.— (1) In General.— The amendments made by subsections (a), (c), 26 USC 1 note. and (d) shall apply to taxable years beginning after December 31, 1981. (2) Withholding Amendments.— The amendments made by 26 USC 3402 note. subsection (e) shall apply to remuneration paid after September 30, 1981; except that the amendment made by subsection (e)(5) shall apply to remuneration paid after December 31, 1981. SEC. 102. 20-PERCENT MAXIMUM RATE ON NET CAPITAL GAIN FOR PORTION OF 1981. (a) In General.— If for any taxable year ending after June 9, 1981, and beginning before January 1, 1982, a taxpayer other than a corporation has qualified net capital gain, then the tax imposed 26 USC 1. under section 1 of the Internal Revenue Code of 1954 for such taxable year shall be equal to the lesser of— (1) the tax imposed under such section determined without regard to this subsection, or (2) the sum of— (A) the tax imposed under such section on the excess of— (i) the taxable income of the taxpayer, over (ii) 40 percent of the qualified net capital gain of the taxpayer, and (B) 20 percent of the qualified net capital gain. (b) Application With Alternative Minimum Tax.— (1) In general.— If subsection (a) applies to any taxpayer for any taxable year, then the amount determined under section 55(a)(1) of the Internal Revenue Code of 1954 for such taxable year shall be equal to the lesser of— (A) the amount determined under such section 55(a)(1) determined without regard to this subsection, or (B) the sum of— (i) the amount which would be determined under such section 55(a)(1) if the alternative minimum taxable income was the excess of— (I) the alternative minimum taxable income (within the meaning of section 55(b)(1) of such Code) of the taxpayer, over (II) the qualified net capital gain of the taxpayer, and (ii) 20 percent of the qualified net capital gain. (2) No credits allowable.— For purposes of section 55(c) of such Code, no credit allowable under subpart A of part IV of subchapter A of chapter 1 of such Code (other than section 33(a) of such Code) shall be allowable against the amount described in paragraph (1)(B)(ii). (c) Qualified Net Capital Gain.— (1) In general.— For purposes of this section, the term “qualified net capital gain” means the lesser of— (A) the net capital gain for the taxable year, or (B) the net capital gain for the taxable year taking into account only gain or loss from sales or exchanges occurring after June 9, 1981. (2) Net capital gain.— For purposes of this subsection, the term “net capital gain” has the meaning given such term by section 1222(11) of the Internal Revenue Code of 1954. (d) Special Rule for Pass-Thru Entities.— (1) In general.— In applying subsections (a), (b), and (c) with respect to any pass-thru entity, the determination of when a sale or exchange has occurred shall be made at the entity level. (2) Pass-thru entity defined.— For purposes of paragraph (1), the term “pass-thru entity” means— (A) a regulated investment company, (B) a real estate investment trust, (C) an electing small business corporation, (D) a partnership, (E) an estate or trust, and (F) a common trust fund. SEC. 103. DEDUCTION FOR TWO-EARNER MARRIED COUPLES. (a) In General.— Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 221 as section 222 and by inserting after section 220 the Post, p. 201. following new section: “SEC. 221. DEDUCTION FOR TWO-EARNER MARRIED COUPLES. “(a) Deduction Allowed.— “(1) In general.— In the case of a joint return under section 6013 for the taxable year, there shall be allowed as a deduction an amount equal to 10 percent of the lesser of— “(A) $30,000, or “(B) the qualified earned income of the spouse with the lower qualified earned income for such taxable year. “(2) Special rule for 1982.— In the case of a taxable year beginning during 1982, paragraph (1) shall be applied by substituting ‘5 percent’ for ‘10 percent’. “(b) Qualified Earned Income Defined.— (1) In general.— For purposes of this section, the term ‘qualified earned income’ means an amount equal to the excess of— “(A) the earned income of the spouse for the taxable year, over “(B) an amount equal to the sum of the deductions described in paragraphs (1), (2), (7), (9), (10), and (15) of section 62 to the extent such deductions are properly allocable to or chargeable against earned income described in subparagraph (A). The amount of qualified earned income shall be determined without regard to any community property laws. “(2) Earned income.— For purposes of paragraph (1), the term ‘earned income’ means income which is earned income within the meaning of section 911(d)(2) or 401(c)(2)(C), except that— Post, p. 190. “(A) such term shall not include any amount— “(i) not includible in gross income, “(ii) received as a pension or annuity, “(iii) paid or distributed out of an individual retirement plan (within the meaning of section 7701(a)(37)), “(iv) received as deferred compensation, or “(v) received for services performed by an individual in the employ of his spouse (within the meaning of section 3121(b)(3)(A)), and “(B) section 911(d)(2)(B) shall be applied without regard to the phrase ‘not in excess of 30 percent of his share of net profits of such trade or business’. “(c) Deduction Disallowed for Individual Claiming Benefits of Section 911 or 931.— No deduction shall be allowed under this section for any taxable year if either spouse claims the benefits of section 911 or 931 for such taxable year.”. (b) Deduction Allowed in Computing Adjusted Gross Income.— Section 62 (defining adjusted gross income), as amended by section 26 USC 62. Post, p. 194. 112(b)(2) of this Act, is amended by inserting after paragraph (15) the following new paragraph: “(16) Deduction for two-earner married couples.— The deduction allowed by section 221.” (c) Other Conforming Amendments.— (1) Subsection (a) of section 85 (relating to unemployment compensation) is amended by striking out “and without regard to section 105(d)” and inserting in lieu thereof “, section 105(d), and section 221”. (2) Subsection (d)(3) of section 105 (relating to amounts received under accident and health plans) is amended by inserting “and section 221” after “subsection” the first place it appears. (3) The table of sections for such part VII is amended by striking out the item relating to section 221 and inserting in lieu thereof the following new items: “Sec. 221. Deduction for two-earner married couples. “Sec. 222. Cross references.” (d) Effective Dates.— The amendments made by this section shall apply to taxable years beginning after December 31, 1981. SEC. 104. ADJUSTMENT TO PREVENT INFLATION-CAUSED TAX INCREASE. (a) Adjustments to Individual Income Tax Brackets.— Section 1 (relating to tax imposed) is amended by adding at the end thereof the following new subsection: “(f) Adjustments in Tax Tables so That Inflation Will Not Result In Tax Increases.— “(1) In general.— Not later than December 15 of 1984 and each subsequent calendar year, the Secretary shall prescribe tables which shall apply in lieu of the tables contained in paragraph (3) of subsections (a), (b), (c), (d), and (e) with respect to taxable years beginning in the succeeding calendar year. “(2) Method of prescribing tables.— The table which under paragraph (1) is to apply in lieu of the table contained in paragraph (3) of subsection (a), (b), (c), (d), or (e), as the case may be, with respect to taxable years beginning in any calendar year shall be prescribed— “(A) by increasing— “(i) the maximum dollar amount on which no tax is imposed under such table, and (ii) the minimum and maximum dollar amounts for each rate bracket for which a tax is imposed under such table, by the cost-of-living adjustment for such calendar year, “(B) by not changing the rate applicable to any rate bracket as adjusted under subparagraph (A)(ii), and “(C) by adjusting the amounts setting forth the tax to the extent necessary to reflect the adjustments in the rate brackets. If any increase determined under subparagraph (A) is not a multiple of $10, such increase shall be rounded to the nearest multiple of $10 (or if such increase is a multiple of $5, such increase shall be increased to the next highest multiple of $10). “(3) Cost-of-living adjustment.— For purposes of paragraph (2), the cost-of-living adjustment for any calendar year is the percentage (if any) by which— “(A) the CPI for the preceding calendar year, exceeds “(B) the CPI for the calendar year 1983. “(4) CPI for any calendar year.— For purposes of paragraph (3), the CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of such calendar year. (5) Consumer price index.— For purposes of paragraph (4), the term ‘Consumer Price Index’ means the last Consumer Price Index for all-urban consumers published by the Department of Labor.” (b) Definition of Zero Bracket Amount.— Subsection (d) of section 63 (defining zero bracket amount) is amended to read as follows: 26 USC 63. “(d) Zero Bracket Amount.— For purposes of this subtitle, the term ‘zero bracket amount’ means— “(1) in the case of an individual to whom subsection (a), (b), (c), or (d) of section 1 applies, the maximum amount of taxable income on which no tax is imposed by the applicable subsection of section 1, or “(2) zero in any other case.” (c) Personal Exemptions.— (1) General rule.— Section 151 (relating to allowance of 26 USC 151. deductions for personal exemptions) is amended by striking out “$1,000” each place it appears and inserting in lieu thereof “the exemption amount”. (2) Exemption amount.— Section 151 is amended by adding at the end thereof the following new subsection: “(f) Exemption Amount.— For purposes of this section, the term ‘exemption amount’ means, with respect to any taxable year, $1,000 increased by an amount equal to $1,000 multiplied by the cost-of-living adjustment (as defined in section 1(f)(3)) for the calendar year in which the taxable year begins. If the amount determined under the preceding sentence is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10 (or if such amount is a multiple of $5, such amount shall be increased to the next highest multiple of $10).” (d) Return Requirements.— (1) Amendments to section 6012.— (A) Clause (i) of section 6012(a)(1)(A) is amended by striking out “$3,300” and inserting in lieu thereof “the sum of the exemption amount plus the zero bracket amount applicable to such an individual”. (B) Clause (ii) of section 6012(a)(1)(A) is amended by striking out “$4,400” and inserting in lieu thereof “the sum of the exemption amount plus the zero bracket amount applicable to such an individual”. (C) Clause (iii) of section 6012(a)(1)(A) is amended by striking out “$5,400” and inserting in lieu thereof “the sum of twice the exemption amount plus the zero bracket amount applicable to a joint return”. (D) Paragraph (1) of section 6012(a) is amended by striking out “$1,000” each place it appears and inserting in lieu thereof “the exemption amount”. (E) Paragraph (1) of section 6012(a) is amended by adding at the end thereof the following new subparagraph: “(D) For purposes of this paragraph— “(i) The term ‘zero bracket amount’ has the meaning “Zero bracket amount.” given to such term by section 63(d). “(ii) The term ‘exemption amount’ has the meaning “Exemption amount.” given to such term by section 151(f).” (2) Amendments to section 6013.— Subparagraph (A) of section 26 USC 6013. 6013(b)(3) is amended— (A) by striking out “$1,000” each place it appears and inserting in lieu thereof “the exemption amount”, (B) by striking out “$2,000” each place it appears and inserting in lieu thereof “twice the exemption amount”, and (C) by adding at the end thereof the following new sentence: “Exemption amount.” “For purposes of this subparagraph, the term ‘exemption amount’ has the meaning given to such term by section 151(f).” (e) Effective Date.— The amendments made by this section shall apply to taxable years beginning after December 31, 1984. Subtitle B— Income Earned Abroad SEC. 111. PARTIAL EXCLUSION FOR EARNED INCOME FROM SOURCES WITHOUT THE UNITED STATES AND FOREIGN HOUSING COSTS. (a) In General.— Section 911 (relating to income earned by individuals in certain camps) is amended to read as follows: “SEC. 911. CITIZENS OR RESIDENTS OF THE UNITED STATES LIVING ABROAD. “(a) Exclusion From Gross Income.— At the election of a qualified individual (made separately with respect to paragraphs (1) and (2)), there shall be excluded from the gross income of such individual, and exempt from taxation under this subtitle, for any taxable year— “(1) the foreign earned income of such individual, and “(2) the housing cost amount of such individual. “(b) Foreign Earned Income.— “(1) Definition.— For purposes of this section— “(A) In general.— The term ‘foreign earned income’ with respect to any individual means the amount received by such individual from sources within a foreign country or countries which constitute earned income attributable to services performed by such individual during the period described in subparagraph (A) or (B) of subsection (d)(1), whichever is applicable. (B) Certain amounts not included in foreign earned income.— The foreign earned income for an individual shall not include amounts— “(i) received as a pension or annuity, “(ii) paid by the United States or an agency thereof to an employee of the United States or an agency thereof, “(iii) included in gross income by reason of section 402(b) (relating to taxability of beneficiary of nonexempt trust) or section 403(c) (relating to taxability of beneficiary under a nonqualified annuity), or “(iv) received after the close of the taxable year following the taxable year in which the services to which the amounts are attributable are performed. “(2) Limitation on foreign earned income.— “(A) In general.— The foreign earned income of an individual which may be excluded under subsection (a)(1) for any taxable year shall not exceed the amount of foreign earned income computed on a daily basis at the annual rate set forth in the following table for each day of the taxable year within the applicable period described in subparagraph (A) or (B) of subsection (d)(1): “In the case of taxable years beginning in: The annual rate is:  1982 $75,000  1983 80,000 “In the case of taxable years beginning in: The annual rate is:  1984 $85,000  1985 90,000  1986 and thereafter 95,000.00 “(B) Attribution to year in which services are performed.— For purposes of applying subparagraph (A), amounts received shall be considered received in the taxable year in which the services to which the amounts are attributable are performed. “(C) Treatment of community income.— In applying subparagraph (A) with respect to amounts received from services performed by a husband or wife which are community income under community property laws applicable to such income, the aggregate amount which may be excludable from the gross income of such husband and wife under subsection (a)(1) for any taxable year shall equal the amount which would be so excludable if such amounts did not constitute community income. “(c) Housing Cost Amount.— For purposes of this section— “(1) In general.— The term ‘housing cost amount’ means an amount equal to the excess of— “(A) the housing expenses of an individual for the taxable year, over “(B) an amount equal to the product of— “(i) 16 percent of the salary (computed on a daily basis) of an employee of the United States who is compensated at a rate equal to the annual rate paid for step 1 of grade GS–14, multiplied by “(ii) the number of days of such taxable year within the applicable period described in subparagraph (A) or (B) of subsection (d)(1). “(2) Housing expenses.— “(A) In general.— The term ‘housing expenses’ means the reasonable expenses paid or incurred during the taxable year by or on behalf of an individual for housing for the individual (and, if they reside with him, for his spouse and dependents) in a foreign country. The term— “(i) includes expenses attributable to the housing (such as utilities and insurance), but “(ii) does not include interest and taxes of the kind deductible under section 168 or 164 or any amount 26 USC 163, 164. allowable as a deduction under section 216(a). Housing expenses shall not be treated as reasonable to the extent such expenses are lavish or extravagant under the circumstances. “(B) Second foreign household.— “(i) In general.— Except as provided in clause (ii), only housing expenses incurred with respect to that abode which bears the closest relationship to the tax home of the individual shall be taken into account under paragraph (1). “(ii) Separate household for spouse and dependents.— If an individual maintains a separate abode outside the United States for his spouse and dependents and they do not reside with him because of living conditions which are dangerous, unhealthful, or otherwise adverse, then— “(I) the words ‘if they reside with him’ in subparagraph (A) shall be disregarded, and “(II) the housing expenses incurred with respect to such abode shall be taken into account under paragraph (1). “(3) Special rules where housing expenses not provided by employer.— “(A) In general.— To the extent the housing cost amount of any individual for any taxable year is not attributable to employer provided amounts, such amount shall be treated as a deduction allowable in computing adjusted gross income to the extent of the limitation of subparagraph (B). “(B) Limitation.— For purposes of subparagraph (A), the limitation of this subparagraph is the excess of— “(i) the foreign earned income of the individual for the taxable year, over “(ii) the amount of such income excluded from gross income under subsection (a)(1) for the taxable year. “(C) 1-year carryover of housing amounts not allowed by reason of subparagraph (b).— “(i) In general.— The amount not allowable as a deduction for any taxable year under subparagraph (A) by reason of the limitation of subparagraph (B) shall be treated as a deduction allowable in computing adjusted gross income for the succeeding taxable year (and only for the succeeding taxable year) to the extent of the limitation of clause (ii) for such succeeding taxable year. “(ii) Limitation.— For purposes of clause (i), the limitation of this clause for any taxable year is the excess of— “(I) the limitation of subparagraph (B) for such taxable year, over “(II) amounts treated as a deduction under subparagraph (A) for such taxable year. “(D) Employer provided amounts.— For purposes of this paragraph, the term ‘employer provided amounts’ means any amount paid or incurred on behalf of the individual by the individual’s employer which is foreign earned income included in the individual’s gross income for the taxable year (without regard to this section). “(E) Foreign earned income.— For purposes of this paragraph, an individual’s foreign earned income for any taxable year shall be determined without regard to the limitation of subparagraph (A) of subsection (b)(2). “(d) Definitions and Special Rules.— For purposes of this section— “(1) Qualified individual.— The term ‘qualified individual’ means an individual whose tax home is in a foreign country and who is— “(A) a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or “(B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period. “(2) Earned income.— “(A) In general.— The term ‘earned income’ means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. “(B) Taxpayer engaged in trade or business.— In the case of a taxpayer engaged in a trade or business in which both personal services and capital are material income-producing factors, under regulations prescribed by the Secretary, a reasonable allowance as compensation for the personal services rendered by the taxpayer, not in excess of 30 percent of his share of the net profits of such trade or business, shall be considered as earned income. “(3) Tax home.— The term ‘tax home’ means, with respect to any individual, such individual’s home for purposes of section 162(a)(2) (relating to traveling expenses while away from home). 26 USC 162. An individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States. “(4) Waiver of period of stay in foreign country.— Notwithstanding paragraph (1), an individual who— “(A) is a bona fide resident of, or is present in, a foreign country for any period, “(B) leaves such foreign country after August 31, 1978— “(i) during any period during which the Secretary determines, after consultation with the Secretary of State or his delegate, that individuals were required to leave such foreign country because of war, civil unrest, or similar adverse conditions in such foreign country which precluded the normal conduct of business by such individuals, and “(ii) before meeting the requirements of such paragraph (1), and “(C) establishes to the satisfaction of the Secretary that such individual could reasonably have been expected to have met such requirements but for the conditions referred to in clause (i) of subparagraph (B), shall be treated as a qualified individual with respect to the period described in subparagraph (A) during which he was a bona fide resident of, or was present in, the foreign country, and in applying subsections (b)(2)(A) and (c)(1)(B)(ii) with respect to such individual, only the days within such period shall be taken into account. “(5) Test of bona fide residence.— If— “(A) an individual who has earned income from sources within a foreign country submits a statement to the authorities of that country that he is not a resident of that country, and “(B) such individual is held not subject as a resident of that country to the income tax of that country by its authorities with respect to such earnings, then such individual shall not be considered a bona fide resident of that country for purposes of paragraph (1)(A). “(6) Denial of double benefits.— No deduction or exclusion from gross income under this subtitle or credit against the tax imposed by this chapter (including any credit or deduction for the amount of taxes paid or accrued to a foreign country or possession of the United States) shall be allowed to the extent such deduction, exclusion, or credit is properly allocable to or chargeable against amounts excluded from gross income under subsection (a). “(7) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations providing rules— “(A) for cases where a husband and wife each have earned income from sources outside the United States, and “(B) for married individuals filing separate returns. “(e) Election.— “(1) In general.— An election under subsection (a) shall apply to the taxable year for which made and to all subsequent taxable years unless revoked under paragraph (2). “(2) Revocation.— A taxpayer may revoke an election made under paragraph (1) for any taxable year after the taxable year for which such election was made. Except with the consent of the Secretary, any taxpayer who makes such a revocation for any taxable year may not make another election under this section for any subsequent taxable year before the 6th taxable year after the taxable year for which such revocation was made. “(f) Cross References.— “For administrative and penal provisions relating to the exclusions provided for in this section, see sections 6001, 6011, 6012(c), and the other provisions of subtitle F.” (b) Conforming Amendments.— (1) The table of sections for subpart B of part III of subchapter N of chapter 1 is amended by striking out the item relating to section 911 and inserting in lieu thereof the following: “Sec. 911. Citizens or residents of the United States living abroad.” (2) Section 43(c)(1)(C)(i) is amended by striking out “relating to income earned by individuals in certain camps outside the United States” and inserting in lieu thereof “relating to citizens or residents of the United States living abroad”. (3) Sections 1302(b)(2)(A)(i), 1304(b)(1), 1402(a)(8), 6012(c), and 6091(b)(1)(B)(iii) are each amended by striking out “relating to income earned by employees in certain camps” and inserting in lieu thereof “relating to citizens or residents of the United States living abroad”. (4) Sections 37(e)(9)(B), 63(e)(2), 105(h)(3)(B)(v), 410(b)(3)(C), 879(a)(1), 1303(c)(2), and 1304(c)(3) are each amended by striking out “section 911(b)” each place it appears and inserting in lieu Ante, p. 190. thereof “section 911(d)(2)”. (5) Paragraph (11) of section 1402(a) is amended to read as follows: “(11) in the case of an individual described in section 911(d)(1)(B), the exclusion from gross income provided by section 911(a)(1) shall not apply; and”. SEC. 112. REPEAL OF DEDUCTION FOR CERTAIN EXPENSES OF LIVING ABROAD. (a) In General.— Section 913 (relating to deduction for certain expenses of living abroad) is hereby repealed. (b) Conforming Amendments.— (1) The table of sections for subpart B of part III of subchapter N of chapter 1 is amended by striking out the item relating to section 913. (2) Section 62 (relating to definition of adjusted gross income) is 26 USC 62. amended by striking out paragraph (14) and redesignating paragraphs (15) and (16) as paragraphs (14) and (15), respectively. (3) Subparagraph (C) of section 43(c)(1) (relating to earned 26 USC 43. income) is amended— (A) by striking out “913,” in the caption thereof, (B) by striking out clause (ii), and (C) by redesignating clause (iii) as clause (ii). (4) Subsection (k) of section 1034 (relating to rollover of gain on 26 USC 1034. sale of principal residence) is amended by striking out “section 913(j)(1)(B)” and inserting in lieu thereof “section 911(d)(3)”. (5) Section 3401 (relating to the definition of wages) is amended 26 USC 3401. by striking out paragraph (18) and redesignating paragraphs (19) and (20) as paragraphs (18) and (19), respectively. (6) Subparagraph (B) of section 6091(b)(1) (relating to place for 26 USC 6091. filing returns and other documents) is amended by striking out “section 913 (relating to deduction for certain expenses of living abroad)”. SEC. 113. EMPLOYEES LIVING IN CAMPS. Section 119 (relating to meals or lodging furnished for the convenience 26 USC 119. of the employer) is amended by adding at the end thereof the following new subsection: “(c) Employees Living in Certain Camps.— “(1) In general.— In the case of an individual who is furnished lodging in a camp located in a foreign country by or on behalf of his employer, such camp shall be considered to be part of the business premises of the employer. “(2) Camp.— For purposes of this section, a camp constitutes lodging which is— “(A) provided by or on behalf of the employer for the convenience of the employer because the place at which such individual renders services is in a remote area where satisfactory housing is not available on the open market, “(B) located, as near as practicable, in the vicinity of the place at which such individual renders services, and “(C) furnished in a common area (or enclave) which is not available to the public and which normally accommodates 10 or more employees.” SEC. 114. REPORTS BY SECRETARY. Section 208 of the Foreign Earned Income Act of 1978 is amended to 26 USC 911 note. read as follows: “SEC. 208. REPORTS BY SECRETARY. “(a) General Rule.— As soon as practicable after the date of the enactment of the Economic Recovery Tax Act of 1981, and as soon as Ante, p. 172. practicable after the close of each fourth calendar year thereafter, the Secretary of the Treasury shall transmit a report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate on the operation and effects of sections 911 and 912 of the Internal Revenue Code of 1954. “(b) Information From Federal Agencies.— Each agency of the Federal Government which pays allowances excludable from gross income under section 912 of such Code shall furnish to the Secretary of the Treasury such information as he determines to be necessary to carry out his responsibility under subsection (a).” SEC. 115. EFFECTIVE DATE. The amendments made by this subtitle (other than section 114) shall apply with respect to taxable years beginning after December 31, 1981. Subtitle C— Miscellaneous Provisions SEC. 121. DEDUCTION FOR CHARITABLE CONTRIBUTIONS TO BE ALLOWED FOR INDIVIDUALS WHO DO NOT ITEMIZE DEDUCTIONS. (a) In General.— Section 170 (relating to charitable, etc., contributions and gifts) is amended by redesignating subsections (i) and (j) as subsections (j) and (k), respectively, and by inserting after subsection (h) the following new subsection: “(i) Rule for Nonitemization of Deductions.— “(1) In general.— In the case of an individual who does not itemize his deductions for the taxable year, the applicable percentage of the amount allowable under subsection (a) for the taxable year shall be taken into account as a direct charitable deduction under section 63. “(2) Applicable percentage.— For purposes of paragraph (1), the applicable percentage shall be determined under the following table: “For taxable years beginning in— The applicable percentage is—  1982, 1983 or 1984 25  1985 50  1986 or thereafter 100 “(3) Limitation for taxable years beginning before 1985.— In the case of a taxable year beginning before 1985, the portion of the amount allowable under subsection (a) to which the applicable percentage shall be applied— “(A) shall not exceed $100 for taxable years beginning in 1982 or 1983, and “(B) shall not exceed $300 for taxable years beginning in 1984. In the case of a married individual filing a separate return, the limit under subparagraph (A) shall be $50, and the limit under subparagraph (B) shall be $150. “(4) Termination.— The provisions of this subsection shall not apply to contributions made after December 31, 1986.” (b) Definition of Taxable Income.— (1) In general.— Paragraph (1) of section 63(b) (relating to individuals) is amended— (A) by striking out “and” at the end of subparagraph (A), and (B) by inserting after subparagraph (B) the following new subparagraph: “(C) the direct charitable deduction, and”. (2) Direct charitable deduction defined.— Section 63 (defining taxable income) is amended by adding at the end thereof the following new subsection: “(i) Direct Charitable Deduction.— For purposes of this section, the term ‘direct charitable deduction’ means that portion of the amount allowable under section 170(a) which is taken as a direct charitable deduction for the taxable year under section 170(i).” (c) Conforming Amendments.— (1) Paragraph (1) of section 57(b) (relating to adjusted itemized 26 USC 57. deductions) is amended by inserting “without regard to paragraph (3) thereof” after “section 63(f)”. (2) Subsection (f) of section 63 (relating to itemized deductions) 26 USC 63. is amended— (A) by striking out “and” at the end of paragraph (1), (B) by striking out the period at the end of paragraph (2) and inserting in lieu thereof “, and”, and (C) by adding at the end thereof the following new paragraph: “(3) the direct charitable deduction.” (3) Subparagraph (A) of section 3(a)(4) (relating to imposition of 26 USC 3. tax table tax) is amended to read as follows: “(A) reduced by the sum of— “(i) the excess itemized deductions, and “(ii) the direct charitable deduction, and”. (d) Effective Date.— The amendments made by this section shall 26 USC 170 note. apply to contributions made after December 31, 1981, in taxable years beginning after such date. SEC. 122. 18-MONTH PERIODS FOR ROLLOVER OF PRINCIPAL RESIDENCE INCREASED TO 2 YEARS. (a) In General.— Section 1034 (relating to rollover of gain on sale of 26 USC 1034. principal residence) is amended by striking out “18 months” each place it appears and inserting in lieu thereof “2 years”. (b) Conforming Amendments.— (1) Paragraph (4) of section 1034(c) is amended by striking out “18-month” and inserting in lieu thereof “2-year”. (2) Paragraph (5) of section 1034(c) is hereby repealed. (c) Effective Date.— The amendments made by this section shall 26 USC 1034 note. apply to old residences (within the meaning of section 1034 of the Internal Revenue Code of 1954) sold or exchanged— (1) after July 20, 1981, or (2) on or before such date, if the rollover period under such section (determined without regard to the amendments made by this section) expires on or after such date. SEC. 123. ONE-TIME EXCLUSION OF GAIN INCREASED TO $125,000. (a) In General.— Paragraph (1) of section 121(b) (relating to one-time 26 USC 121. exclusion of gain from sale of principal residence by individual who has attained age 55) is amended by striking out “$100,000 ($50,000” and inserting in lieu thereof “$125,000 ($62,500”. (b) Effective Date.— The amendment made by this section shall 26 USC 121 note. apply to residences sold or exchanged after July 20, 1981. SEC. 124. INCREASES IN CREDIT ALLOWABLE FOR EXPENSES FOR HOUSEHOLD AND DEPENDENT CARE SERVICES NECESSARY FOR GAINFUL EMPLOYMENT. (a) Increase in Percentage of Expenses Allowed as Credit.— Subsection (a) of section 44A (relating to expenses for household and 26 USC 44A. dependent care services necessary for gainful employment) is amended to read as follows: “(a) Allowance of Credit.— “(1) In general.— In the case of an individual who maintains a household which includes as a member one or more qualifying individuals (as defined in subsection (c)(1)), there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the employment-related expenses (as defined in subsection (c)(2)) paid by such individual during the taxable year. “(2) Applicable percentage defined.— For purposes of paragraph (1), the term ‘applicable percentage’ means 30 percent reduced (but not below 20 percent) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $10,000.” (b) Increases in Dollar Limits on Amount Creditable.— (1) In general.— Subsection (d) of section 44A (relating to dollar limit on amount creditable) is amended— (A) by striking out “$2,000” and inserting in lieu thereof “$2,400”, and (B) by striking out “$4,000” and inserting in lieu thereof “$4,800”. (2) Conforming Amendments.— Paragraph (2) of section 44A(e) (relating to earned income limitation) is amended— (A) by striking out “$166” and inserting in lieu thereof “$200”, and (B) by striking out “$333” and inserting in lieu thereof “$400”. (c) Credit Allowed for Certain Services Outside the Taxpayer’s Household.— Subparagraph (B) of section 44A(c)(2) is amended to read as follows: “(B) Exception.— Employment-related expenses described in subparagraph (A) which are incurred for services outside the taxpayer’s household shall be taken into account only if incurred for the care of— “(i) a qualifying individual described in paragraph (1)(A), or “(ii) a qualifying individual (not described in paragraph (1)(A)) who regularly spends at least 8 hours each day in the taxpayer’s household.” (d) Day Care Centers Must Meet State Law Requirements.— Paragraph (2) of section 44A(c) (defining emplo3niient-related expenses) is amended by adding at the end thereof the following new subparagraphs: “(C) Dependent care centers.— Employment-related expenses described in subparagraph (A) which are incurred for services provided outside the taxpayer’s household by a dependent care center (as defined in subparagraph (D)) shall be taken into account only if— “(i) such center complies with all applicable laws and regulations of a State or unit of local government, and (ii) the requirements of subparagraph (B) are met. “(D) Dependent Care Center Defined.— For purposes of this paragraph, the term ‘dependent care center’ means any facility which— “(i) provides care for more than six individuals (other than individuals who reside at the facility), and “(ii) receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).” (e) Exclusion of Dependent Care Assistance From the Income of Employees.— (1) In general.— Part III of subchapter B of chapter 1 (as Post, p. 267. amended by section 301) is amended by redesignating section 129 as section 130 and inserting after section 128 the following new section: “SEC. 129. DEPENDENT CARE ASSISTANCE PROGRAMS. “(a) In General.— Gross income of an employee does not include amounts paid or incurred by the employer for dependent care assistance provided to such employee if the assistance is furnished pursuant to a program which is described in subsection (d). “(b) Earned Income Limitation.— “(1) In general.— The amount excluded from the income of an employee under subsection (a) for any taxable year shall not exceed— “(A) in the case of an employee who is not married at the close of such taxable year, the earned income of such employee for such taxable year, or “(B) in the case of an employee who is married at the close of such taxable year, the lesser of— “(i) the earned income of such employee for such taxable year, or “(ii) the earned income of the spouse of such employee for such taxable year. “(2) Special rule for certain spouses.— For purposes of paragraph (1), the provisions of section 44A(e)(2) shall apply in determining the earned income of a spouse who is a student or incapable of caring for himself. “(c) Payments to Related Individuals.— No amount paid or incurred during the taxable year of an employee by an employer in providing dependent care assistance to such employee shall be excluded under subsection (a) if such amount was paid or incurred to an individual— “(1) with respect to whom, for such taxable year, a deduction is allowable under section 151(e) (relating to personal exemptions for dependents) to such employee or the spouse of such employee, or “(2) who is a child of such employee (within the meaning of section 151(e)(3)) under the age of 19 at the close of such taxable year. “(d) Dependent Care Assistance Program.— “(1) In general.— For purposes of this section a dependent care assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with dependent care assistance which meets the requirements of paragraphs (2) through (6) of this subsection. “(2) Eligibility.— The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are officers, owners, or highly compensated, or their dependents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that dependent care benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. “(3) Principal shareholders or owners.— Not more than 25 percent of the amounts paid or incurred by the employer for dependent care assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer. “(4) No funding required.— A program referred to in paragraph (1) is not required to be funded. “(5) Notification of eligible employees.— Reasonable notification of the availability and terms of the program shall be provided to eligible employees. “(6) Statement of expenses.— The plan shall furnish to an employee, on or before January 31, a written statement showing the amounts paid or expenses incurred by the employer in providing dependent care assistance to such employee during the previous calendar year. “(e) Definitions and Special Rules.— For purposes of this section— “(1) Dependent care assistance.— The term ‘dependent care assistance’ means the payment of, or provision of, those services which if paid for by the employee would be considered employment-related expenses under section 44A(c)(2) (relating to expenses for household and dependent care services necessary for gainful employment). “(2) Earned income.— The term ‘earned income’ shall have the meaning given such term in section 43(c)(2), but such term shall not include any amounts paid or incurred by an employer for dependent care assistance to an employee. “(3) Employee.— The term ‘employee’ includes, for any year, an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals). “(4) Employer.— An individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer. A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (3). “(5) Attribution rules.— “(A) Ownership of stock.— Ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) of section 1563 (without regard to section 1563(e)(3)(C)). “(B) Interest in unincorporated trade or business.— The interest of an employee in a trade or business which is not incorporated shall be determined in accordance with regulations prescribed by the Secretary, which shall be based on principles similar to the principles which apply in the case of subparagraph (A). “(6) Utilization test not applicable.— A dependent care assistance program shall not be held or considered to fail to meet any requirements of subsection (d) merely because of utilization rates for the different types of assistance made available under the program. “(7) Disallowance of excluded amounts as credit or deduction.— No deduction or credit shall be allowed under any other section of this chapter for any amount excluded from income by reason of this section.” (2) Exclusion from wages.— (A) Employment taxes and collection of income tax.— Subtitle C is amended by striking out “section 127” in 26 USC 3121, 3306. section 3121(a)(18) (relating to the Federal Insurance Contributions Act), section 3306(b)(13) (relating to the Federal Unemployment Tax Act), and section 3401(a)(19) (relating to 26 USC 3401. collection of income tax at source on wages) and inserting in lieu thereof “section 127 or 129”. (B) Social security act.— Subsection (q) of section 209 of the Social Security Act (defining wages) is amended by 42 USC 409. striking out “section 127” and inserting in lieu thereof “section 127 or 129”. (f) Effective Date.— (1) Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1981. (2) The amendments made by subsection (e)(2) shall apply to remuneration paid after December 31, 1981. SEC. 125. DEDUCTION FOR ADOPTION EXPENSES PAID BY AN INDIVIDUAL. (a) In General.— Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals), as amended by section 103, is amended by redesignating section 222 as section 223 and Ante, p. 187. by inserting after section 221 the following new section: “SEC. 222. ADOPTION EXPENSES. “(a) Allowance of Deduction.— In the case of an individual, there shall be allowed as a deduction for the taxable year the amount of the qualified adoption expenses paid or incurred by the taxpayer during such taxable year. “(b) Limitations.— “(1) Maximum dollar amount.— The aggregate amount of adoption expenses which may be taken into account under subsection (a) with respect to the adoption of a child shall not exceed $1,500. “(2) Denial of double benefit.— “(A) In general.— No deduction shall be allowable under subsection (a) for any expense for which a deduction or credit is allowable under any other provision of this chapter. “(B) Grants.— No deduction shall be allowable under subsection (a) for any expenses paid from any funds received under any Federal, State, or local program. “(c) Definitions.— For purposes of this section— “(1) Qualified adoption expenses.— The term ‘qualified adoption expenses’ means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses which are directly related to the legal adoption of a child with special needs by the taxpayer and which are not incurred in violation of State or Federal law. “(2) Child with special needs.— The term ‘child with special needs’ means a child with respect to whom adoption assistance payments are made under section 473 of the Social Security Act.” (b) Conforming Amendment.— The table of sections for such part VII is amended by striking out the item relating to section 222 and inserting in lieu thereof the following: “Sec. 222. Adoption expenses. “Sec. 223. Cross references.” (c) Effective Date.— The amendments made by this section shall 26 USC 222 note. apply to taxable years beginning after December 31, 1980. SEC. 126. MAXIMUM RATE OF IMPUTED INTEREST FOR SALE OF LAND BETWEEN RELATED PERSONS. (a) General Rule.— Section 483 (relating to interest on certain deferred payments) is amended by adding at the end thereof the following new subsection: “(g) Maximum Rate of Interest on Certain Transfers of Land Between Related Parties.— “(1) In general.— In the case of any qualified sale, the maximum interest rate used in determining the total unstated interest rate under the regulations under subsection (b) shall not exceed 7 percent, compounded semiannually. “(2) Qualified sale.— For purposes of this subsection, the term ‘qualified sale’ means any sale or exchange of land by an individual to a member of such individual’s family (within the meaning of section 267(c)(4)). “(3) $500,000 limitation.— Paragraph (1) shall not apply to any qualified sale between individuals made during any calendar year to the extent that the sales price for such sale (when added to the aggregate sales price for prior qualified sales between such individuals during the calendar year) exceeds $500,000. “(4) Nonresident alien individuals.— This section shall not apply to any sale or exchange if any party to such sale or exchange is a nonresident alien individual.” (b) Effective Date.— The amendment made by subsection (a) shall apply to payments made after June 30, 1981, pursuant to sales or exchanges after such date. SEC. 127. STATE LEGISLATORS TRAVEL EXPENSES AWAY FROM HOME. (a) In General.— Section 162 (relating to trade or business expenses) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: “(h) State Legislators’ Travel Expenses Away From Home.— “(1) In general.— For purposes of subsection (a), in the case of any individual who is a State legislator at any time during the taxable year and who makes an election under this subsection for the taxable year— “(A) the place of residence of such individual within the legislative district which he represented shall be considered his home, “(B) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the greater of— “(i) the amount generally allowable with respect to such day to employees of the State of which he is a legislator for per diem while away from home, to the extent such amount does not exceed 110 percent of the amount described in clause (ii) with respect to such day, or “(ii) the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States, and “(C) he shall be deemed to be away from home in the pursuit of a trade or business on each legislative day. “(2) Legislative days.— For purposes of paragraph (1), a legislative day during any taxable year for any individual shall be any day during such year on which— “(A) the legislature was in session (including any day in which the legislature was not in session for a period of 4 consecutive days or less), or “(B) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature. “(3) Election.— An election under this subsection for any taxable year shall be made at such time and in such manner as the Secretary shall by regulations prescribe. “(4) Section not to apply to legislators who reside near capitol.— For taxable years beginning after December 31, 1980, this subsection shall not apply to any legislator whose place of residence within the legislative district which he represents is 50 or fewer miles from the capitol building of the State.” (b) The amendment made by subsection (a) shall apply to taxable Effective date. 26 USC 162 note. years beginning on or after January 1, 1976. SEC. 128. RATES OF TAX FOR PRINCIPAL CAMPAIGN COMMITTEES. (a) In General.— Section 527 (relating to political organizations) is 26 USC 527. amended by adding at the end thereof the following new subsection: “(h) Special Rule for Principal Campaign Committees.— “(1) In general.— In the case of a political organization which is a principal campaign committee, paragraph (1) of subsection (b) shall be applied by substituting ‘the appropriate rates’ for ‘the highest rate’. “(2) Principal campaign committee defined.— “(A) In general.— For purposes of this subsection, the term ‘principal campaign committee’ means the political committee designated by a candidate for Congress as his principal campaign committee for purposes of— “(i) section 302(e) of the Federal Election Campaign Act of 1971 (2 U.S.C. 432(e)), and “(ii) this subsection. “(B) Designation.— A candidate may have only 1 designation in effect under subparagraph (A)(ii) at any time and such designation— “(i) shall be made at such time and in such manner as the Secretary may prescribe by regulations, and “(ii) once made, may be revoked only with the consent of the Secretary.” (b) Effective Date.— The amendments made by this section shall 26 USC 527 note. apply to taxable years beginning after December 31, 1981.

7. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 135(b)(1) · 100 Stat. 2085

   Changed · 26 U.S.C. § 226

   Pub. L. 99–514, § 135(b)(1), renumbered section 223 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 99–514, § 135(b)(1), renumbered section 223 of this title as this section.

   Enacted provision · exact public law section
   (1) Section 223 is redesignated as section 220.

8. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 301(b)(5)(A) · 100 Stat. 2085

   1. Amended · 26 U.S.C. § 226

      Pub. L. 99–514, § 301(b)(5)(A), amended section generally

   2. Substituted · 26 U.S.C. § 226

      Pub. L. 99–514, § 301(b)(5)(A), substituting “reference” for “references” in section catchline

   3. Struck · 26 U.S.C. § 226

      Pub. L. 99–514, § 301(b)(5)(A), striking out par. (1) which referred to section 1202 for deduction for long-term capital gains in the case of a taxpayer other than a corporation

   4. Struck · 26 U.S.C. § 226

      Pub. L. 99–514, § 301(b)(5)(A), striking out par. (2) designation

   Target inherited from the preceding amendment note.

   Source evidence

   Code amendment note
   Pub. L. 99–514, § 301(b)(5)(A), amended section generally, substituting “reference” for “references” in section catchline, striking out par. (1) which referred to section 1202 for deduction for long-term capital gains in the case of a taxpayer other than a corporation, and striking out par. (2) designation.

   Enacted provision · exact public law section
   (A) Section 223 (relating to cross references) is amended to read as follows: “SEC. 223. CROSS REFERENCE. “For deductions in respect of a decedent, see section 691.”

9. 1990

   Revenue Reconciliation Act of 1990

   Pub. L. 101–508 title XI § 11802(e)(2) · 104 Stat. 1388

   Changed · 26 U.S.C. § 226

   Pub. L. 101–508 renumbered section 221 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 101–508 renumbered section 221 of this title as this section.

   Enacted provision · exact public law section
   (2) Part VII of subchapter B of chapter 1 is amended by striking out section 220 and redesignating section 221 as section 220.

10. 1996

    Pub. L. 104–191 title III § 301(a) · 110 Stat. 1936

    Changed · 26 U.S.C. § 226

    Pub. L. 104–191 renumbered section 220 of this title as this section

    Source evidence

    Code amendment note
    Pub. L. 104–191 renumbered section 220 of this title as this section.

    Enacted provision · exact public law section
    (a) In General.— Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 220 as section 221 and by inserting after section 219 the following new section: “SEC. 220. MEDICAL SAVINGS 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 such individual to a medical savings 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 the amount equal to 1/12 of— “(A) in the case of an individual who has self-only coverage under the high deductible health plan as of the first day of such month, 65 percent of the annual deductible under such coverage, and “(B) in the case of an individual who has family coverage under the high deductible health plan as of the first day of such month, 75 percent of the annual deductible under such coverage. “(3) Special rule for married individuals.— In the case of individuals who are married to each other, if either spouse has family coverage— “(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and “(B) the limitation under paragraph (1) (after the application of subparagraph (A) of this paragraph) shall be divided equally between them unless they agree on a different division. “(4) Deduction not to exceed compensation.— “(A) Employees.— The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (I) of subsection (c)(1)(A)(iii) shall not exceed such individual’s wages, salaries, tips, and other employee compensation which are attributable to such individual’s employment by the employer referred to in such subclause. “(B) Self-employed individuals.— The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (II) of subsection (c)(1)(A)(iii) shall not exceed such individual’s earned income (as defined in section 401(c)(1)) derived by the taxpayer from the trade or business with respect to which the high deductible health plan is established. “(C) Community property laws not to apply.— The limitations under this paragraph shall be determined without regard to community property laws. “(5) Coordination with exclusion for employer contributions.— No deduction shall be allowed under this section for any amount paid for any taxable year to a medical savings account of an individual if— “(A) any amount is contributed to any medical savings account of such individual for such year which is excludable from gross income under section 106(b), or “(B) if such individual’s spouse is covered under the high deductible health plan covering such individual, any amount is contributed for such year to any medical savings account of such spouse which is so excludable. “(6) 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. “(c) Definitions.— For purposes of this section— “(1) Eligible individual.— “(A) In general.— The term ‘eligible individual’ means, with respect to any month, any individual if— “(i) such individual is covered under a high deductible health plan as of the 1st day of such month, “(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan— “(I) which is not a high deductible health plan, and “(II) which provides coverage for any benefit which is covered under the high deductible health plan, and “(iii) (I) the high deductible health plan covering such individual is established and maintained by the employer of such individual or of the spouse of such individual and such employer is a small employer, or “(II) such individual is an employee (within the meaning of section 401(c)(1)) or the spouse of such an employee and the high deductible health plan covering such individual is not established or maintained by any employer of such individual or spouse. “(B) Certain coverage disregarded.— Subparagraph (A)(ii) shall be applied without regard to— “(i) coverage for any benefit provided by permitted insurance, and “(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. “(C) continued eligibility of employee and spouse establishing Medical savings accounts.— If, while an employer is a small employer— “(i) any amount is contributed to a medical savings account of an individual who is an employee of such employer or the spouse of such an employee, and “(ii) such amount is excludable from gross income under section 106(b) or allowable as a deduction under this section, such individual shall not cease to meet the requirement of subparagraph (A)(iii)(I) by reason of such employer ceasing to be a small employer so long as such employee continues to be an employee of such employer. “(D) Limitations on eligibility.— “For limitations on number of taxpayers who are eligible to have medical savings accounts, see subsection (i). “(2) High deductible health plan.— “(A) In general.— The term ‘high deductible health plan’ means a health plan— “(i) in the case of self-only coverage, which has an annual deductible which is not less than $1,500 and not more than $2, 250, “(ii) in the case of family coverage, which has an annual deductible which is not less than $3,000 and not more than $4, 500, and “(iii) the annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed— “(I) $3,000 for self-only coverage, and “(II) $5,500 for family coverage. “(B) Special rules.— “(i) Exclusion of certain plans.— Such term does not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B). “(ii) safe harbor for absence of preventive care Deductible.—A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care if the absence of a deductible for such care is required by State law. “(3) Permitted insurance.— The term ‘permitted insurance’ means— “(A) Medicare supplemental insurance, “(B) insurance if substantially all of the coverage provided under such insurance relates to— “(i) liabilities incurred under workers’ compensation laws, “(ii) tort liabilities, “(iii) liabilities relating to ownership or use of property, or “(iv) such other similar liabilities as the Secretary may specify by regulations, “(C) insurance for a specified disease or illness, and “(D) insurance paying a fixed amount per day (or other period) of hospitalization. “(4) Small employer.— “(A) In general.— The term ‘small employer’ means, with respect to any calendar year, any employer if such employer employed an average of 50 or fewer employees on business days during either of the 2 preceding calendar years. For purposes of the preceding sentence, 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) 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. “(C) Certain growing employers retain treatment as small employer.— The term ‘small employer’ includes, with respect to any calendar year, any employer if— “(i) such employer met the requirement of subparagraph (A) (determined without regard to subparagraph (B)) for any preceding calendar year after 1996, “(ii) any amount was contributed to the medical savings account of any employee of such employer with respect to coverage of such employee under a high deductible health plan of such employer during such preceding calendar year and such amount was excludable from gross income under section 106(b) or allowable as a deduction under this section, and “(iii) such employer employed an average of 200 or fewer employees on business days during each preceding calendar year after 1996. “(D) Special rules.— “(i) Controlled groups.— For purposes of this paragraph, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer. “(ii) Predecessors.— Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer. “(5) Family coverage.— The term ‘family coverage’ means any coverage other than self-only coverage. “(d) Medical Savings Account.— For purposes of this section— “(1) Medical savings account.— The term ‘medical savings account’ means a trust created or organized in the United States exclusively for the purpose of paying the qualified medical expenses of the account holder, 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— “(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 75 percent of the highest annual limit deductible permitted under subsection (c)(2)(A)(ii) for such calendar year. “(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 his account is nonforfeitable. “(2) Qualified medical expenses.— “(A) In general.— The term ‘qualified medical expenses’ means, with respect to an account holder, amounts paid by such holder for medical care (as defined in section 213(d)) for such individual, the spouse of such individual, and any dependent (as defined in section 152) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise. “(B) Health insurance may not be purchased from account.— “(i) In general.— Subparagraph (A) shall not apply to any payment for insurance. “(ii) Exceptions.— Clause (i) shall not apply to any expense for coverage under— “(I) a health plan during any period of continuation coverage required under any Federal law, “(II) a qualified long-term care insurance contract (as defined in section 7702B(b)), or “(III) a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law. “(C) Medical expenses of individuals who are not eligible individuals.— Subparagraph (A) shall apply to an amount paid by an account holder for medical care of an individual who is not an eligible individual for the month in which the expense for such care is incurred only if no amount is contributed (other than a rollover contribution) to any medical savings account of such account holder for the taxable year which includes such month. This subparagraph shall not apply to any expense for coverage described in subclause (I) or (III) of subparagraph (B)(ii). “(3) Account holder.— The term ‘account holder’ means the individual on whose behalf the medical savings account was established. “(4) 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) Except as provided in section 106(b), 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). “(e) Tax Treatment of Accounts.— “(1) In general.— A medical savings account is exempt from taxation under this subtitle unless such account has ceased to be a medical 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 medical savings accounts, and any amount treated as distributed under such rules shall be treated as not used to pay qualified medical expenses. “(f) Tax Treatment of Distributions.— “(1) Amounts used for qualified medical expenses.— Any amount paid or distributed out of a medical savings account which is used exclusively to pay qualified medical expenses of any account holder 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 medical savings account which is not used exclusively to pay the qualified medical expenses of the account holder shall be included in the gross income of such holder. “(3) Excess contributions returned before due date of return.— “(A) In general.— If any excess contribution is contributed for a taxable year to any medical savings account of an individual, paragraph (2) shall not apply to distributions from the medical savings 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) which is neither excludable from gross income under section 106(b|) 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 holder for any taxable year in which there is a payment or distribution from a medical savings account of such holder which is includible in gross income under paragraph (2) shall be increased by 15 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 holder becomes disabled within the meaning of section 72(m)(7) or dies. “(C) Exception for distributions after medicare eligibility.— Subparagraph (A) shall not apply to any payment or distribution after the date on which the account holder attains the age specified in section 1811 of the Social Security Act. “(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 medical savings account to the account holder to the extent the amount received is paid into a medical savings account for the benefit of such holder not later than the 60th day after the day on which the holder receives the payment or distribution. “(B) Limitation.— This paragraph shall not apply to any amount described in subparagraph (A) received by an individual from a medical savings 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 medical savings account which was not includible in the individual’s gross income because of the application of this paragraph. “(6) Coordination with medical expense deduction.— For purposes of determining the amount of the deduction under section 213, any payment or distribution out of a medical savings account for qualified medical expenses shall not be treated as an expense paid for medical care. “(7) Transfer of account incident to divorce.— The transfer of an individual’s interest in a medical savings account to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as a medical savings account with respect to which such spouse is the account holder. “(8) Treatment after death of account holder.— “(A) Treatment if designated beneficiary is spouse.— If the account holder’s surviving spouse acquires such holder’s interest in a medical savings account by reason of being the designated beneficiary of such account at the death of the account holder, such medical savings account shall be treated as if the spouse were the account holder. “(B) Other cases.— “(i) In general.— If, by reason of the death of the account holder, any person acquires the account holder’s interest in a medical savings account in a case to which subparagraph (A) does not apply— “(I) such account shall cease to be a medical savings account as of the date of death, and “(II) an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such holder, in such person’s gross income for the taxable year which includes such date, or if such person is the estate of such holder, in such holder’s gross income for the last taxable year of such holder. “(ii) Special rules.— “(I) reduction of inclusion for pre-death expenses.— The Amount includible in gross income under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified medical expenses which were incurred by the decedent before the date of the decedent’s death and paid by such person within 1 year after such date. “(II) Deduction for estate taxes.— An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent or the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such person. “(g) Cost-of-Living Adjustment.— In the case of any taxable year beginning in a calendar year after 1998, each dollar amount in subsection (c)(2) shall be increased by an amount equal to— “(1) such dollar amount, multiplied by “(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins by substituting ‘calendar year 1997’ for ‘calendar year 1992’ in subparagraph (B) thereof. If any increase under the preceding sentence is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50. “(h) Reports.— The Secretary may require the trustee of a medical savings account to make such reports regarding such account to the Secretary and to the account holder with respect to contributions, distributions, and such other matters as the Secretary determines appropriate. 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. “(i) Limitation on Number of Taxpayers Having Medical Savings Accounts.— “(1) In general.— Except as provided in paragraph (5), no individual shall be treated as an eligible individual for any taxable year beginning after the cut-off year unless— “(A) such individual was an active MSA participant for any taxable year ending on or before the close of the cut-off year, or “(B) such individual first became an active MSA participant for a taxable year ending after the cut-off year by reason of coverage under a high deductible health plan of an MSA-participating employer. “(2) Cut-off year.— For purposes of paragraph (1), the term ‘cut-off year’ means the earlier of— “(A) calendar year 2000, or “(B) the first calendar year before 2000 for which the Secretary determines under subsection (j) that the numerical limitation for such year has been exceeded. “(3) Active msa participant.— For purposes of this subsection— “(A) In general.— The term ‘active MSA participant’ means, with respect to any taxable year, any individual who is the account holder of any medical savings account into which any contribution was made which was excludable from gross income under section 106(b), or allowable as a deduction under this section, for such taxable year. “(B) Special rule for cut-off years before 2000.— In the case of a cut-off year before 2000— “(i) an individual shall not be treated as an eligible individual for any month of such year or an active MSA participant under paragraph (1)(A) unless such individual is, on or before the cut-off date, covered under a high deductible health plan, and “(ii) an employer shall not be treated as an MSA-participating employer unless the employer, on or before the cut-off date, offered coverage under a high deductible health plan to any employee. “(C) Cut-off date.— For purposes of subparagraph (B)— “(i) In general.— Except as otherwise provided in this subparagraph, the cut-off date is October 1 of the cut-off year. “(ii) Employees with enrollment periods after october 1.— In the case of an individual described in subclause (I) of subsection (c)(1)(A)(iii), if the regularly scheduled enrollment period for health plans of the individual’s employer occurs during the last 3 months of the cut-off year, the cut-off date is December 31 of the cut-off year. “(iii) Self-employed individuals.— In the case of an individual described in subclause (II) of subsection (c)(1)(A)(iii), the cut-off date is November 1 of the cutoff year. “(iv) Special rules for 1997.— If 1997 is a cutoff year by reason of subsection (j)(1)( A)— “(I) each of the cut-off dates under clauses (i) and (iii) shall be 1 month earlier than the date determined without regard to this clause, and “(II) clause (ii) shall be applied by substituting ‘4 months’ for ‘3 months’. “(4) MSA-participating employer.— For purposes of this subsection, the term ‘MSA-participating employer’ means any small employer if— “(A) such employer made any contribution to the medical savings account of any employee during the cut-off year or any preceding calendar year which was excludable from gross income under section 106(b), or “(B) at least 20 percent of the employees of such employer who are eligible individuals for any month of the cut-off year by reason of coverage under a high deductible health plan of such employer each made a contribution of at least $100 to their medical savings accounts for any taxable year ending with or within the cut-off year which was allowable as a deduction under this section, “(5) Additional eligibility after cut-off year.— If the Secretary determines under subsection (j)(2)(A) that the numerical limit for the calendar year following a cut-off year described in paragraph (2)(B) has not been exceeded— “(A) this subsection shall not apply to any otherwise eligible individual who is covered under a high deductible health plan during the first 6 months of the second calendar year following the cut-off year (and such individual shall be treated as an active MSA participant for purposes of this subsection if a contribution is made to any medical savings account with respect to such coverage), and “(B) any employer who offers coverage under a high deductible health plan to any employee during such 6- month period shall be treated as an MSA-participating employer for purposes of this subsection if the requirements of paragraph (4) are met with respect to such coverage. For purposes of this paragraph, subsection (j)(2)(A) shall be applied for 1998 by substituting ‘750,000’ for ‘600,000’. “(j) Determination of Whether Numerical Limits are Exceeded.— “(1) Determination of Whether Limit Exceeded for 1997.— The numerical limitation for 1997 is exceeded if, based on the reports required under paragraph (4), the number of medical savings accounts established as of— “(A) April 30, 1997, exceeds 375,000, or “(B) June 30, 1997, exceeds 525,000. “(2) Determination of Whether Limit Exceeded for 1998 or 1999.— “(A) In general.— The numerical limitation for 1998 or 1999 is exceeded if the sum of— “(i) the number of MSA returns filed on or before April 15 of such calendar year for taxable years ending with or within the preceding calendar year, plus “(ii) the Secretary’s estimate (determined on the basis of the returns described in clause (i)) of the number of MSA returns for such taxable years which will be filed after such date, exceeds 600,000 (750,000 in the case of 1999). For purposes of the preceding sentence, the term ‘MSA return’ means any return on which any exclusion is claimed under section 106(b) or any deduction is claimed under this section. “(B) Alternative computation of limitation.— The numerical limitation for 1998 or 1999 is also exceeded if the sum of— “(i) 90 percent of the sum determined under subparagraph (A) for such calendar year, plus “(ii) the product of 2.5 and the number of medical savings accounts established during the portion of such year preceding July 1 (based on the reports required under paragraph (4)) for taxable years beginning in such year, exceeds 750,000. “(3) Previously uninsured individuals not included in determination.— “(A) In general.— The determination of whether any calendar year is a cut-off year shall be made by not counting the medical savings account of any previously uninsured individual. “(B) Previously uninsured individual.— For purposes of this subsection, the term ‘previously uninsured individual’ means, with respect to any medical savings account, any individual who had no health plan coverage (other than coverage referred to in subsection (c)(1)(B)) at any time during the 6-month period before the date such individual’s coverage under the high deductible health plan commences. “(4) Reporting by msa trustees.— “(A) In general.— Not later than August 1 of 1997, 1998, and 1999, each person who is the trustee of a medical savings account established before July 1 of such calendar year shall make a report to the Secretary (in such form and manner as the Secretary shall specify) which specifies— “(i) the number of medical savings accounts established before such July 1 (for taxable years beginning in such calendar year) of which such person is the trustee, “(ii) the name and TIN of the account holder of each such account, and “(iii) the number of such accounts which are accounts of previously uninsured individuals. “(B) Additional report for 1997.— Not later than June 1, 1997, each person who is the trustee of a medical savings account established before May 1, 1997, shall make an additional report described in subparagraph (A) but only with respect to accounts established before May 1, 1997. “(C) Penalty for failure to file report.— The penalty provided in section 6693(a) shall apply to any report required by this paragraph, except that— “(i) such section shall be applied by substituting ‘$25’ for ‘$50’, and “(ii) the maximum penalty imposed on any trustee shall not exceed $5,000. “(D) Aggregation of accounts.— To the extent practicable, in determining the number of medical savings accounts on the basis of the reports under this paragraph, all medical savings accounts of an individual shall be treated as 1 account and all accounts of individuals who are married to each other shall be treated as 1 account. “(5) Date of making determinations.— Any determination under this subsection that a calendar year is a cut-off year shall be made by the Secretary and shall be published not later than October 1 of such year.”.

11. 1997

    Pub. L. 105–34 title II § 202(a) · 111 Stat. 788

    Changed · 26 U.S.C. § 226

    Pub. L. 105–34 renumbered section 221 of this title as this section

    Source evidence

    Code amendment note
    Pub. L. 105–34 renumbered section 221 of this title as this section.

    Enacted provision · exact public law section
    (a) In General.— Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 221 as section 222 and by inserting after section 220 the following new section: “SEC. 221. INTEREST ON EDUCATION LOANS. “(a) Allowance of Deduction.— In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to the interest paid by the taxpayer during the taxable year on any qualified education loan. “(b) Maximum Deduction.— “(1) In general.— Except as provided in paragraph (2), the deduction allowed by subsection (a) for the taxable year shall not exceed the amount determined in accordance with the following table: “In the case of taxable years beginning in: The dollar amount is: 1998 $1,000 1999 $1,500 2000 $2,000 2001 or thereafter $2,500.00 “(2) Limitation based on modified adjusted gross income.— “(A) In general.— The amount which would (but for this paragraph) be allowable as a deduction under this section shall be reduced (but not below zero) by the amount determined under subparagraph (B). “(B) Amount of reduction.— The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as— “(i) the excess of— “(I) the taxpayer’s modified adjusted gross income for such taxable year, over “(II) $40,000 ($60,000 in the case of a joint return), bears to “(ii) $15,000. “(C) Modified adjusted gross income.— The term ‘modified adjusted gross income’ means adjusted gross income determined— “(i) without regard to this section and sections 135, 137, 911, 931, and 933, and “(ii) after application of sections 86, 219, and 469. For purposes of sections 86, 135, 137, 219, and 469, adjusted gross income shall be determined without regard to the deduction allowed under this section. “(c) Dependents Not Eligible for Deduction.— No deduction shall be allowed by this section to an individual for the taxable year if a deduction under section 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individual’s taxable year begins. “(d) Limit on Period Deduction Allowed.— A deduction shall be allowed under this section only with respect to interest paid on any qualified education loan during the first 60 months (whether or not consecutive) in which interest payments are required. For purposes of this paragraph, any loan and all refinancings of such loan shall be treated as 1 loan. “(e) Definitions.— For purposes of this section— “(1) Qualified education loan.— The term ‘qualified education loan’ means any indebtedness incurred to pay qualified higher education expenses— “(A) which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred, “(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and “(C) which are attributable to education furnished during a period during which the recipient was an eligible student. Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term ‘qualified education loan’ shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer. “(2) Qualified higher education expenses.— The term ‘qualified higher education expenses’ means the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 108711, as in effect on the day before the date of the enactment of this Act) at an eligible educational institution, reduced by the sum of— “(A) the amount excluded from gross income under section 127, 135, or 530 by reason of such expenses, and “(B) the amount of any scholarship, allowance, or payment described in section 25A(g)(2). For purposes of the preceding sentence, the term ‘eligible educational institution’ has the same meaning given such term by section 25A(f)(2), except that such term shall also include an institution conducting an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training. “(3) Eligible student.— The term ‘eligible student’ has the meaning given such term by section 25A(b)(3). “(4) Dependent.— The term ‘dependent’ has the meaning given such term by section 152. “(f) Special Rules.— “(1) Denial of double benefit.—No deduction shall be allowed under this section for any amount for which a deduction is allowable under any other provision of this chapter. “(2) Married couples must file joint return.— If the taxpayer is married at the close of the taxable year, the deduction shall be allowed under subsection (a) only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. “(3) Marital status.— Marital status shall be determined in accordance with section 7703. “(g) Inflation Adjustments.— “(1) In general.— In the case of a taxable year beginning after 2002, the $40,000 and $60,000 amounts in subsection (b)(2) shall each 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 the taxable year begins, determined by substituting ‘calendar year 2001’ for ‘calendar year 1992’ in subparagraph (B) thereof. “(2) Rounding.— If any amount as adjusted under paragraph (1) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.”.

12. 2001

    Pub. L. 107–16 title IV § 431(a) · 115 Stat. 38

    Changed · 26 U.S.C. § 226

    Pub. L. 107–16 renumbered section 222 of this title as this section

    Source evidence

    Code amendment note
    Pub. L. 107–16 renumbered section 222 of this title as this section.

    Enacted provision · exact public law section
    (a) Deduction Allowed.— Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 222 as section 223 and by inserting after section 221 the following: “SEC. 222. QUALIFIED TUITION AND REIATED EXPENSES. “(a) Allowance of Deduction.— In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified tuition and related expenses paid by the taxpayer during the taxable year. “(b) Dollar Limitations.— “(1) In general.— The amount allowed as a deduction under subsection (a) with respect to the taxpayer for any taxable year shall not exceed the applicable dollar limit. “(2) Applicable dollar limit.— “(A) 2002 AND 2003.—In the case of a taxable year beginning in 2002 or 2003, the applicable dollar limit shall be equal to— “(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $3,000, and— “(ii) in the case of any other taxpayer, zero. “(B) 2004 and 2005.— In the case of a taxable year beginning in 2004 or 2005, the applicable dollar amount shall be equal to— “(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $4,000, “(ii) in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $80,000 ($160,000 in the case of a joint return), $2,000, and “(iii) in the case of any other taxpayer, zero. “(C) Adjusted gross income.— For purposes of this paragraph, adjusted gross income shall be determined— “(i) without regard to this section and sections 911, 931, and 933, and “(ii) after application of sections 86, 135, 137, 219, 221, and 469. “(c) No Double Benefit.— “(1) In general.— No deduction shall be allowed under subsection (a) for any expense for which a deduction is allowed to the taxpayer under any other provision of this chapter. “(2) Coordination with other education incentives.— “(A) Denial of deduction if credit elected.— No deduction shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses with respect to an individual if the taxpayer or any other person elects to have section 25A apply with respect to such individual for such year. “(B) Coordination with exclusions.— The total amount of qualified tuition and related expenses shall be reduced by the amount of such expenses taken into account in determining any amount excluded under section 135, 529(c)(1), or 530(d)(2). For purposes of the preceding sentence, the amount taken into account in determining the amount excluded under section 529(c)(1) shall not include that portion of the distribution which represents a return of any contributions to the plan. “(3) Dependents.— No deduction shall be allowed under subsection (a) 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. “(d) Definitions and Special Rules.— For purposes of this section— “(1) Qualified tuition and related expenses.— The term ‘qualified tuition and related expenses’ has the meaning given such term by section 25A(f). Such expenses shall be reduced in the same manner as under section 25A(g)(2). “(2) Identification requirement.— No deduction shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of the individual on the return of tax for the taxable year. “(3) Limitation on taxable year of deduction.— “(A) In general.— A deduction shall be allowed under subsection (a) for qualified tuition and related expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher education during the taxable year. “(B) Certain prepayments allowed.— Subparagraph (A) shall not apply to qualified tuition and related expenses paid during a taxable year if such expenses are in connection with an academic term beginning during such taxable year or during the first 3 months of the next taxable year. “(4) No deduction for married individuals filing separate returns.— If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. “(5) Nonresident aliens.— If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. “(6) Regulations.— The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and information reporting. “(e) Termination.— This section shall not apply to taxable years beginning after December 31, 2005.”.

13. 2003

    Medicare Prescription Drug, Improvement, and Modernization Act of 2003

    Pub. L. 108–173 title XII § 1201(a) · 117 Stat. 2066

    Changed · 26 U.S.C. § 226

    Pub. L. 108–173 renumbered section 223 of this title as this section

    Source evidence

    Code amendment note
    Pub. L. 108–173 renumbered section 223 of this title as this section.

    Enacted provision · exact public law section
    (a) In General.— Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 223 as section 224 26 USC 223, 224. and by inserting after section 222 the following new section: “SEC. 223. HEALTH SAVINGS 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 health savings account of such individual. 26 USC 223. “(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 has self-only coverage under a high deductible health plan as of the first day of such month, the lesser of— “(i) the annual deductible under such coverage, or “(ii) $2,250, or “(B) in the case of an eligible individual who has family coverage under a high deductible health plan as of the first day of such month, the lesser of— “(i) the annual deductible under such coverage, or “(ii) $4,500. “(3) Additional contributions for individuals 55 or older.— “(A) In general.— 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 the additional contribution amount. “(B) Additional contribution amount.— For purposes of this section, the additional contribution amount is the amount determined in accordance with the following table: “For taxable years beginning in:The additional contribution amount is: 2004 $500   2005 $600   2006 $700   2007 $800   2008 $900   2009 and thereafter $1,000. “(4) Coordination with other contributions.— 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— “(A) the aggregate amount paid for such taxable year to Archer MSAs of such individual, and “(B) the aggregate amount contributed to health savings 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)). Subparagraph (A) 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, if either spouse has family coverage— “(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and “(B) the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))— “(i) shall be reduced by the aggregate amount paid to Archer MSAs of such spouses for the taxable year, and “(ii) after such reduction, shall be divided equally between them unless they agree on a different division. “(6) 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. “(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. “(c) Definitions and Special Rules.— For purposes of this section— “(1) Eligible individual.— “(A) In general.— The term ‘eligible individual’ means, with respect to any month, any individual if— “(i) such individual is covered under a high deductible health plan as of the 1st day of such month, and “(ii) such individual is not, while covered under a high deductible health plan, covered under any health plan— “(I) which is not a high deductible health plan, and “(II) which provides coverage for any benefit which is covered under the high deductible health plan. “(B) Certain coverage disregarded.— Subparagraph (A)(ii) shall be applied without regard to— “(i) coverage for any benefit provided by permitted insurance, and “(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. “(2) High deductible health plan.— “(A) In general.— The term ‘high deductible health plan’ means a health plan— “(i) which has an annual deductible which is not less than— “(I) $1,000 for self-only coverage, and “(II) twice the dollar amount in subclause (I) for family coverage, and “(ii) the sum of the annual deductible and the other annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed— “(I) $5,000 for self-only coverage, and “(II) twice the dollar amount in subclause (I) for family coverage. “(B) Exclusion of certain plans.— Such term does not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B). “(C) Safe harbor for absence of preventive care deductible.— A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section 1871 of the Social Security Act, except as otherwise provided by the Secretary). “(D) Special rules for network plans.— In the case of a plan using a network of providers— “(i) Annual out-of-pocket limitation.— Such plan shall not fail to be treated as a high deductible health plan by reason of having an out-of-pocket limitation for services provided outside of such network which exceeds the applicable limitation under subparagraph (A)(ii). “(ii) Annual deductible.— Such plan’s annual deductible for services provided outside of such network shall not be taken into account for purposes of subsection (b)(2). “(3) Permitted insurance.— The term ‘permitted insurance’ means— “(A) insurance if substantially all of the coverage provided under such insurance relates to— “(i) liabilities incurred under workers’ compensation laws, “(ii) tort liabilities, “(iii) liabilities relating to ownership or use of property, or “(iv) such other similar liabilities as the Secretary may specify by regulations, “(B) insurance for a specified disease or illness, and “(C) insurance paying a fixed amount per day (or other period) of hospitalization. “(4) Family coverage.— The term ‘family coverage’ means any coverage other than self-only coverage. “(5) Archer msa.— The term ‘Archer MSA’ has the meaning given such term in section 220(d). “(d) Health Savings Account.— For purposes of this section— “(1) In general.— The term ‘health savings account’ means a trust created or organized in the United States as a health savings 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)(B)(ii), and “(II) the dollar amount in effect under subsection (b)(3)(B). “(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 his 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 medical care (as defined in section 213(d) for such individual, the spouse of such individual, and any dependent (as defined in section 152) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise. “(B) Health insurance may not be purchased from account.— Subparagraph (A) shall not apply to any payment for insurance. “(C) Exceptions.— Subparagraph (B) shall not apply to any expense for coverage under— “(i) a health plan during any period of continuation coverage required under any Federal law, “(ii) a qualified long-term care insurance contract (as defined in section 7702B(b)), “(iii) a health plan during a period in which the individual is receiving unemployment compensation under any Federal or State law, or “(iv) in the case of an account beneficiary who has attained the age specified in section 1811 of the Social Security Act, any health insurance other than a medicare supplemental policy (as defined in section 1882 of the Social Security Act). “(3) Account beneficiary.— The term ‘account beneficiary’ means the individual on whose behalf the health savings account was established. “(4) 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) Except as provided in section 106(d), 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). “(e) Tax Treatment of Accounts.— “(1) In general.— A health savings account is exempt from taxation under this subtitle unless such account has ceased to be a health 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 health savings accounts, and any amount treated as distributed under such rules shall be treated as not used to pay qualified medical expenses. “(f) Tax Treatment of Distributions.— “(1) Amounts used for qualified medical expenses.— Any amount paid or distributed out of a health savings 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 health savings 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 health savings account of an individual, paragraph (2) shall not apply to distributions from the health savings 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 health savings account of such beneficiary which is includible in gross income under paragraph (2) shall be increased by 10 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) Exception 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.— 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 health savings account to the account beneficiary to the extent the amount received is paid into a health 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 individual from a health savings 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 which was not includible in the individual’s gross income because of the application of this paragraph. “(6) Coordination with medical expense deduction.— For purposes of determining the amount of the deduction under section 213, any payment or distribution out of a health savings account for qualified medical expenses shall not be treated as an expense paid for medical care. “(7) Transfer of account incident to divorce.— The transfer of an individual’s interest in a health savings account to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as a health savings account with respect to which such spouse is the account beneficiary. “(8) Treatment after death of account beneficiary.— “(A) Treatment if designated beneficiary is spouse.— If the account beneficiary’s surviving spouse acquires such beneficiary’s interest in a health savings account by reason of being the designated beneficiary of such account at the death of the account beneficiary, such health savings account shall be treated as if the spouse were the account beneficiary. “(B) Other cases.— “(i) In general.— If, by reason of the death of the account beneficiary, any person acquires the account beneficiary’s interest in a health savings account in a case to which subparagraph (A) does not apply— “(I) such account shall cease to be a health savings account as of the date of death, and “(II) an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such beneficiary, in such person’s gross income for the taxable year which includes such date, or if such person is the estate of such beneficiary, in such beneficiary’s gross income for the last taxable year of such beneficiary. “(ii) Special rules.— “(I) Reduction of inclusion for predeath expenses.— The amount includible in gross income under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified medical expenses which were incurred by the decedent before the date of the decedent’s death and paid by such person within 1 year after such date. “(II) Deduction for estate taxes.— An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent or the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such person. “(g) Cost-of-Living Adjustment.— “(1) In general.— Each dollar amount in subsections (b)(2) and (c)(2)(A) 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 for ‘calendar year 1992’ in subparagraph (B) thereof— “(i) except as provided in clause (ii), ‘calendar year 1997’, and “(ii) in the case of each dollar amount in subsection (c)(2)(A), ‘calendar year 2003’. “(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.— The Secretary may require— “(1) the trustee of a health 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, and “(2) any person who provides an individual with a high deductible health plan to make such reports to the Secretary and to the account beneficiary with respect to such plan as the Secretary determines appropriate. 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.” .

14. 2025

    Pub. L. 119–21 title VII · 139 Stat. 170

    Changed · 26 U.S.C. § 226

    Pub. L. 119–21 successively renumbered sections 224 and 225 of this title as this section

    Unresolved: Pub. L. 119–21 was not found in the local Statutes at Large index.

    Source evidence

    Code amendment note
    Pub. L. 119–21 successively renumbered sections 224 and 225 of this title as this section.

    Effective date note
    Amendment by section 70201(a) of Pub. L. 119–21 applicable to taxable years beginning after Dec. 31, 2024, see section 70201(j) of Pub. L. 119–21, set out as a note under section 45B of this title. Amendment by section 70202(a) of Pub. L. 119–21 applicable to taxable years beginning after Dec. 31, 2024, see section 70202(g) of Pub. L. 119–21, set out as a note under section 63 of this title.

14 of 17 references resolved to an enrolled provision · 2 partial · 1 unresolved