S 2225 IS

106th CONGRESS

2d Session

S. 2225

To amend the Internal Revenue Code of 1986 to allow individuals a deduction for qualified long-term care insurance premiums, use of such insurance under cafeteria plans and flexible spending arrangements, and a credit for individuals with long-term care needs.

IN THE SENATE OF THE UNITED STATES

March 9, 2000

Mr. GRASSLEY (for himself and Mr. GRAHAM) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Long-Term Care and Retirement Security Act of 2000'.

SEC. 2. TREATMENT OF PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.

(a) IN GENERAL- Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions) is amended by redesignating section 222 as section 223 and by inserting after section 221 the following new section:

`SEC. 222. PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.

`(a) IN GENERAL- In the case of an individual, there shall be allowed as a deduction an amount equal to the applicable percentage of the amount of eligible long-term care premiums (as defined in section 213(d)(10)) paid during the taxable year for coverage for the taxpayer, his spouse, and dependents under a qualified long-term care insurance contract (as defined in section 7702B(b)).

`(b) APPLICABLE PERCENTAGE- For purposes of subsection (a)--

`(1) IN GENERAL- Except as otherwise provided in this subsection, the applicable percentage shall be determined in accordance with the following table based on the number of years of continuous coverage (as of the close of the taxable year) of the individual under any qualified long-term care insurance contracts (as defined in section 7702B(b)):

`If the number of years of

--The applicable long-term

continuous coverage is--

--care percentage is--

Less than 1

--60

At least 1 but less than 2

--70

At least 2 but less than 3

--80

At least 3 but less than 4

--90

At least 4

--100.

`(2) SPECIAL RULES FOR INDIVIDUALS WHO HAVE ATTAINED AGE 55- In the case of an individual who has attained age 55 as of the close of the taxable year, the following table shall be substituted for the table in paragraph (1).

`If the number of years of

--The applicable long-term

continuous coverage is--

--care percentage is--

Less than 1

--70

At least 1 but less than 2

--85

At least 2

--100.

`(3) ONLY COVERAGE AFTER 1999 TAKEN INTO ACCOUNT- Only coverage for periods after December 31, 1999, shall be taken into account under this subsection.

`(4) CONTINUOUS COVERAGE- An individual shall not fail to be treated as having continuous coverage if the aggregate breaks in coverage during any 1-year period are less than 60 days.

`(c) COORDINATION WITH OTHER DEDUCTIONS- Any amount paid by a taxpayer for any qualified long-term care insurance contract to which subsection (a) applies shall not be taken into account in computing the amount allowable to the taxpayer as a deduction under section 162(l) or 213(a).'

(b) CONTINGENT NONFORFEITURE REQUIREMENTS ADDED TO CONSUMER PROTECTION PROVISIONS-

(1) Section 7702B(g)(2)(A)(i) of the Internal Revenue Code of 1986 (relating to model regulation) is amended by adding at the end the following new subclause:

`(XII) Section 23 (relating to contingent nonforfeiture benefits), if the policyholder declines the offer of a nonforfeiture provision described in paragraph (4).'

(2) Section 7702B(g)(2)(A)(ii) of such Code (relating to model Act) is amended by adding at the end the following new subclause:

`(III) Section 8 (relating to contingent nonforfeiture benefits), if the policyholder declines the offer of a nonforfeiture provision described in paragraph (4).'

(c) REFERENCE TO NAIC MODEL ACT UPDATED- Section 7702B(g)(2)(B)(i) of the Internal Revenue Code of 1986 (relating to model provisions) is amended by striking `January 1993' and inserting `January 1999'.

(d) LONG-TERM CARE INSURANCE PERMITTED TO BE OFFERED UNDER CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS-

(1) CAFETERIA PLANS- Section 125(f) of the Internal Revenue Code of 1986 (defining qualified benefits) is amended by inserting before the period at the end `; except that such term shall include the payment of premiums for any qualified long-term care insurance contract (as defined in section 7702B) to the extent the amount of such payment does not exceed the eligible long-term care premiums (as defined in section 213(d)(10)) for such contract'.

(2) FLEXIBLE SPENDING ARRANGEMENTS- Section 106 of such Code (relating to contributions by an employer to accident and health plans) is amended by striking subsection (c).

(e) CONFORMING AMENDMENTS-

(1) Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (17) the following new item:

`(18) PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS- The deduction allowed by section 222.'

(2) Section 7702B(g)(2)(A)(i) of such Code, as amended by subsection (b)(1), is amended by striking `7A' both places it appears, `7B', `7C', `7D', `7E', `8', `9', `9F', `10', `11', `12', and `23' the first place it appears and inserting `6A', `6B', `6C', `6D', `6E', `7', `8', `8F', `9', `10', `11', and `22', respectively.

(3) Section 4980C(c)(1)(A) of such Code is amended by striking `13', `14', `20', `21', `21C(1)', `21C(6)', `22', `24', and `25' and inserting `12', `13', `19', `20C(1)', `20C(6)', `21', `25', and `26', respectively.

(4) The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the last item and inserting the following new items:

`Sec. 222. Premiums on qualified long-term care insurance contracts.

`Sec. 223. Cross reference.'

(f) EFFECTIVE DATES-

(1) IN GENERAL- Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 1999.

(2) CONSUMER PROTECTION PROVISIONS- The amendments made by subsections (b), (c), (e)(2), and (e)(3) shall apply to policies issued after the date which is 1 year after the date of the enactment of this Act.

(3) CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS- The amendments made by subsection (c) shall apply to taxable years beginning after December 31, 2001.

SEC. 3. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.

(a) IN GENERAL- Subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to nonrefundable personal credits) is amended by inserting after section 25A the following new section:

`SEC. 25B. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.

`(a) ALLOWANCE OF CREDIT-

`(1) IN GENERAL- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable credit amount multiplied by the number of applicable individuals with respect to whom the taxpayer is an eligible caregiver for the taxable year.

`(2) APPLICABLE CREDIT AMOUNT- For purposes of paragraph (1), the applicable credit amount shall be determined in accordance with the following table:

`For taxable years beginning

--The applicable

in calendar year--

--credit amount is--

2000

--$1,000

2001

-- 1,500

2002

-- 2,000

2003

-- 2,500

2004 or thereafter

-- 3,000.

`(b) LIMITATION BASED ON ADJUSTED GROSS INCOME-

`(1) IN GENERAL- The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $100 for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income exceeds the threshold amount. For purposes of the preceding sentence, the term `modified adjusted gross income' means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.

`(2) THRESHOLD AMOUNT- For purposes of paragraph (1), the term `threshold amount' means--

`(A) $150,000 in the case of a joint return, and

`(B) $75,000 in any other case.

`(3) INDEXING- In the case of any taxable year beginning in a calendar year after 2000, each dollar amount contained in paragraph (2) shall be increased by an amount equal to the product of--

`(A) such dollar amount, and

`(B) the medical care cost adjustment determined under section 213(d)(10)(B)(ii) for the calendar year in which the taxable year begins, determined by substituting `August 1999' for `August 1996' in subclause (II) thereof.

If any increase determined under the preceding sentence is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.

`(c) DEFINITIONS- For purposes of this section--

`(1) APPLICABLE INDIVIDUAL-

`(A) IN GENERAL- The term `applicable individual' means, with respect to any taxable year, any individual who has been certified, before the due date for filing the return of tax for the taxable year (without extensions), by a physician (as defined in section 1861(r)(1) of the Social Security Act) as being an individual with long-term care needs described in subparagraph (B) for a period--

`(i) which is at least 180 consecutive days, and

`(ii) a portion of which occurs within the taxable year.

Such term shall not include any individual otherwise meeting the requirements of the preceding sentence unless within the 39 1/2 month period ending on such due date (or such other period as the Secretary prescribes) a physician (as so defined) has certified that such individual meets such requirements.

`(B) INDIVIDUALS WITH LONG-TERM CARE NEEDS- An individual is described in this subparagraph if the individual meets any of the following requirements:

`(i) The individual is at least 6 years of age and--

`(I) is unable to perform (without substantial assistance from another individual) at least 3 activities of daily living (as defined in section 7702B(c)(2)(B)) due to a loss of functional capacity, or

`(II) requires substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment and is unable to preform, without reminding or cuing assistance, at least 1 activity of

daily living (as so defined) or to the extent provided in regulations prescribed by the Secretary (in consultation with the Secretary of Health and Human Services), is unable to engage in age appropriate activities.

`(ii) The individual is at least 2 but not 6 years of age and is unable due to a loss of functional capacity to perform (without substantial assistance from another individual) at least 2 of the following activities: eating, transferring, or mobility.

`(iii) The individual is under 2 years of age and requires specific durable medical equipment by reason of a severe health condition or requires a skilled practitioner trained to address the individual's condition to be available if the individual's parents or guardians are absent.

`(2) ELIGIBLE CAREGIVER-

`(A) IN GENERAL- A taxpayer shall be treated as an eligible caregiver for any taxable year with respect to the following individuals:

`(i) The taxpayer.

`(ii) The taxpayer's spouse.

`(iii) An individual with respect to whom the taxpayer is allowed a deduction under section 151 for the taxable year.

`(iv) An individual who would be described in clause (iii) for the taxable year if section 151(c)(1)(A) were applied by substituting for the exemption amount an amount equal to the sum of the exemption amount, the standard deduction under section 63(c)(2)(C), and any additional standard deduction under section 63(c)(3) which would be applicable to the individual if clause (iii) applied.

`(v) An individual who would be described in clause (iii) for the taxable year if--

`(I) the requirements of clause (iv) are met with respect to the individual, and

`(II) the requirements of subparagraph (B) are met with respect to the individual in lieu of the support test of section 152(a).

`(B) RESIDENCY TEST- The requirements of this subparagraph are met if an individual has as his principal place of abode the home of the taxpayer and--

`(i) in the case of an individual who is an ancestor or descendant of the taxpayer or the taxpayer's spouse, is a member of the taxpayer's household for over half the taxable year, or

`(ii) in the case of any other individual, is a member of the taxpayer's household for the entire taxable year.

`(C) SPECIAL RULES WHERE MORE THAN 1 ELIGIBLE CAREGIVER-

`(i) IN GENERAL- If more than 1 individual is an eligible caregiver with respect to the same applicable individual for taxable years ending with or within the same calendar year, a taxpayer shall be treated as the eligible caregiver if each such individual (other than the taxpayer) files a written declaration (in such form and manner as the Secretary may prescribe) that such individual will not claim such applicable individual for the credit under this section.

`(ii) NO AGREEMENT- If each individual required under clause (i) to file a written declaration under clause (i) does not do so, the individual with the highest modified adjusted gross income (as defined in section 32(c)(5)) shall be treated as the eligible caregiver.

`(iii) MARRIED INDIVIDUALS FILING SEPARATELY- In the case of married individuals filing separately, the determination under this subparagraph as to whether the husband or wife is the eligible caregiver shall be made under the rules of clause (ii) (whether or not one of them has filed a written declaration under clause (i)).

`(d) IDENTIFICATION REQUIREMENT- No credit shall be allowed under this section to a taxpayer with respect to any applicable individual unless the taxpayer includes the name and taxpayer identification number of such individual, and the identification number of the physician certifying such individual, on the return of tax for the taxable year.

`(e) TAXABLE YEAR MUST BE FULL TAXABLE YEAR- Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.'

(b) CONFORMING AMENDMENTS-

(1) Section 6213(g)(2) of the Internal Revenue Code of 1986 is amended by striking `and' at the end of subparagraph (K), by striking the period at the end of subparagraph (L) and inserting `, and', and by inserting after subparagraph (L) the following new subparagraph:

`(M) an omission of a correct TIN or physician identification required under section 25B(d) (relating to credit for taxpayers with long-term care needs) to be included on a return.'

(2) The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 25A the following new item:

`Sec. 25B. Credit for taxpayers with long-term care needs.'

END