[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 176 Introduced in House (IH)]
108th CONGRESS
1st Session
H. R. 176
To amend the Internal Revenue Code of 1986 to allow amounts elected for
reimbursement of medical care expenses under a health flexible spending
arrangement that are unused during a plan year to be carried over for
such use for subsequent plan years.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 7, 2003
Mr. Royce (for himself and Mr. Kennedy of Minnesota) introduced the
following bill; which was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to allow amounts elected for
reimbursement of medical care expenses under a health flexible spending
arrangement that are unused during a plan year to be carried over for
such use for subsequent plan years.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. CARRYOVER OF UNUSED BENEFITS FROM HEALTH FLEXIBLE SPENDING
ARRANGEMENTS.
(a) In General.--Section 125 of the Internal Revenue Code of 1986
(relating to cafeteria plans) is amended by redesignating subsections
(h) and (i) as subsections (i) and (j), respectively, and by inserting
after subsection (g) the following new subsection:
``(h) Allowance of Carryovers of Unused Funds to Subsequent Taxable
Years.--
``(1) In general.--For purposes of this title--
``(A) a plan or other arrangement shall not fail to
be treated as a cafeteria plan or health flexible
spending arrangement, and
``(B) no amount shall be required to be included in
gross income by reason of this section or any other
provision of this chapter,
solely because under such plan or other arrangement any amounts
elected for reimbursement of eligible medical care expenses
under a health flexible spending arrangement which are unused
during a plan year may be carried forward to one or more
succeeding plan years.
``(2) Amounts included in gross income.--Any carryover
amount described in paragraph (1) shall be included in gross
income for purposes of subtitle and subtitle B (relating to
withholding and employment taxes). Any such carryover shall be
treated as wages for the taxable year from which the amount was
carried.
``(3) Treatment of and limitation on rollover amounts.--
Amounts carried over under paragraph (1) shall be limited as
follows:
``(A) Amounts carried forward pursuant to paragraph
(1) shall be limited to $2,000 per plan year (as
indexed for future years by the cost of living
adjustment determined under section 1(f)(3)). Any
unused amounts during any plan year in excess of this
amount shall be forfeited and shall be treated in
accordance with the applicable regulations issued under
section 125.
``(B) Amounts carried forward pursuant to paragraph
(1) shall be used only for reimbursement of qualified
medical care expenses (as defined in paragraph (5)).
``(C) The employer may invest such carryover
amounts in guaranteed principal and interest
investments which provide 100 percent liquidity within
the account.
``(4) Forfeitures for terminating participants permitted.--
Nothing in this subsection shall preclude the application of
the requirement set forth in the regulations promulgated under
section 125 that participants who terminate participation prior
to the end of the plan year must forfeit any health flexible
spending arrangement account balance provided such amounts do
not consist of carry over amounts described in paragraph (1).
``(5) Qualified medical expenses.--
``(A) In general.--The term `qualified medical
expenses' means amounts paid 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 expenses.--
``(i) In general.--Subparagraph (A) shall
not apply to any payment for coverage under a
group health plan of an employer of the health
flexible spending arrangement participant or
the spouse of the participant.
``(ii) Exceptions.--Clause (i) shall not
apply to any expense for coverage under--
``(I) a group 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 Medicare supplemental
policy under section 1882 of the Social
Security Act, or
``(IV) an individual health
insurance policy.
``(6) Carryover amounts to be expended after health
flexible spending arrangement contribution.--All qualified
medical care expenses that are submitted for reimbursement must
be reimbursed first from amounts in the participant's health
care flexible spending arrangement that do not constitute
carryover amounts described in paragraph (1), to the extent
such amounts may be reimbursed from the portion of the health
flexible spending arrangement that does not consist of
carryover amounts pursuant to rules set forth in the
regulations promulgated under section 125 relative to health
flexible spending arrangements.
``(7) Treatment of carryover amounts following termination
of employment or other loss of eligibility.--Upon a termination
of employment or other loss of eligibility under the health
care flexible spending arrangement, the employer must provide
for one or more of the following methods of distribution of a
participant's accumulated carryover amount plus interest earned
and allocated to such participant pursuant to paragraph (3)(C):
``(A) The participant's accumulated carryover
amount, including any interest earned and allocated to
such health care spending arrangement balance pursuant
to paragraph (3)(C), may be retained by the employer to
be used to reimburse qualifying medical care expenses
of the former participant and the former employee's
spouse or dependents incurred after the date of
termination;
``(B) The carryover amount calculated as of the day
of the termination of employment or other loss of
eligibility may be transferred to the subsequent
employer to be used by the former participant in a
manner consistent with the rule of this subsection,
provided the subsequent employer provides a similar
arrangement and agrees in writing; or
``(C) The employer may distribute the carryover
amount, including any interest earned and allocated to
such account pursuant to paragraph (3)(C), to any
appropriate vehicle as defined by the Department of
Treasury in regulations or to the participant in cash.
If carryover amounts are received in cash, the interest
earned and allocated to such participant pursuant to
paragraph (3)(C) shall be treated as ordinary income
for purposes of this subtitle.
The employer must offer at least one of the options set forth
above; however, nothing in this subsection requires the
employer to offer more than one option. If the employer offers
more than one of the options listed above, the employee must
choose the applicable option within 60 days of the date of
termination of employment or loss of eligibility. Should no
election be made, the funds will revert to the employer
consistent with Federal regulations. If the termination of
employment or loss of eligibility is a result of the
participant's death, the surviving spouse, or dependents, if no
surviving spouse, will receive the participant's carry over
funds in a manner consistent with paragraph (7)(C).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
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