Long-Term Care and Retirement Security Act of 2005 - Amends the Internal Revenue Code to: (1) allow a tax deduction from gross income for long-term care insurance premiums; (2) include long-term care insurance in employee benefit cafeteria plans and flexible spending arrangements; (3) allow a tax credit for certain long-term care costs; (4) set forth certain consumer protections for long-term care insurance contracts; and (5) allow tax free exchanges of long-term care insurance contracts.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 1244 Introduced in Senate (IS)]
109th CONGRESS
1st Session
S. 1244
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
June 14, 2005
Mr. Grassley (for himself and Mrs. Lincoln) introduced the following
bill; which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to 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.
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 2005''.
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 224 as section 225 and
by inserting after section 223 the following new section:
``SEC. 224. 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
and the taxpayer's 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), the
applicable percentage shall be determined in accordance with the
following table:
The
applicable
``For taxable years beginning in calendar year-- percentage
is--
2005, 2006, or 2007........................................ 25
2008....................................................... 35
2009....................................................... 65
2010 or thereafter......................................... 100.
``(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) Long-Term Care Insurance Permitted to Be Offered Under
Cafeteria Plans and Flexible Spending Arrangements.--
(1) Cafeteria plans.--The last sentence of section 125(f)
of such Code (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) and
redesignating subsection (d) as subsection (c).
(c) Conforming Amendments.--
(1) Section 62(a) of such Code is amended by inserting
before the last sentence at the end the following new
paragraph:
``(21) Premiums on qualified long-term care insurance
contracts.--The deduction allowed by section 224.''.
(2) Sections 223(b)(4)(B), 223(d)(4)(C), 223(f)(3)(B),
3231(e)(11), 3306(b)(18), 3401(a)(22), 4973(g)(1), and
4973(g)(2)(B)(i) of such Code are each amended by striking
``section 106(d)'' and inserting ``section 106(c)''.
(3) Section 6041 of such Code is amended--
(A) in subsection (f)(1) by striking ``(as defined
in section 106(c)(2))'', and
(B) by adding at the end the following new
subsection:
``(h) Flexible Spending Arrangement Defined.--For purposes of this
section, a flexible spending arrangement is a benefit program which
provides employees with coverage under which--
``(1) specified incurred expenses may be reimbursed
(subject to reimbursement maximums and other reasonable
conditions), and
``(2) the maximum amount of reimbursement which is
reasonably available to a participant for such coverage is less
than 500 percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably available
shall be determined on the basis of the underlying coverage.''.
(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. 224. Premiums on qualified long-term care insurance contracts.
``Sec. 225. Cross reference.''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2004.
(2) Cafeteria plans and flexible spending arrangements.--
The amendments made by subsection (b) shall apply to taxable
years beginning after December 31, 2006.
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 25B the
following new section:
``SEC. 25C. 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:
The
applicable
``For taxable years beginning in calendar year-- credit
amount is--
2005....................................................... $1,000
2006....................................................... 1,500
2007....................................................... 2,000
2008....................................................... 2,500
2009 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 2005, 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 2004' 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.
Notwithstanding the preceding sentence, a certification
shall not be treated as valid unless it is made within
the 39\1/2\ month period ending on such due date (or
such other period as the Secretary prescribes).
``(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 perform, 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(c) for the taxable year.
``(iv) An individual who would be described
in clause (iii) for the taxable year if section
151(c) 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 under subsection (c)(1)(D)
or (d)(1)(C) of section 152.
``(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 adjusted gross
income 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 such Code is amended by striking
``and'' at the end of subparagraph (L), by striking the period
at the end of subparagraph (M) and inserting ``, and'', and by
inserting after subparagraph (M) the following new
subparagraph:
``(N) an omission of a correct TIN or physician
identification required under section 25C(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 25B the following new item:
``Sec. 25C. Credit for taxpayers with long-term care needs.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 4. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM CARE INSURANCE.
(a) Additional Protections Applicable to Long-Term Care
Insurance.--Subparagraphs (A) and (B) of section 7702B(g)(2) of the
Internal Revenue Code of 1986 (relating to requirements of model
regulation and Act) are amended to read as follows:
``(A) In general.--The requirements of this
paragraph are met with respect to any contract if such
contract meets--
``(i) Model regulation.--The following
requirements of the model regulation:
``(I) Section 6A (relating to
guaranteed renewal or
noncancellability), other than
paragraph (5) thereof, and the
requirements of section 6B of the model
Act relating to such section 6A.
``(II) Section 6B (relating to
prohibitions on limitations and
exclusions) other than paragraph (7)
thereof.
``(III) Section 6C (relating to
extension of benefits).
``(IV) Section 6D (relating to
continuation or conversion of
coverage).
``(V) Section 6E (relating to
discontinuance and replacement of
policies).
``(VI) Section 7 (relating to
unintentional lapse).
``(VII) Section 8 (relating to
disclosure), other than sections 8F,
8G, 8H, and 8I thereof.
``(VIII) Section 11 (relating to
prohibitions against post-claims
underwriting).
``(IX) Section 12 (relating to
minimum standards).
``(X) Section 13 (relating to
requirement to offer inflation
protection).
``(XI) Section 25 (relating to
prohibition against preexisting
conditions and probationary periods in
replacement policies or certificates).
``(XII) The provisions of section
26 relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
``(ii) Model act.--The following
requirements of the model Act:
``(I) Section 6C (relating to
preexisting conditions).
``(II) Section 6D (relating to
prior hospitalization).
``(III) The provisions of section 8
relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
``(B) Definitions.--For purposes of this
paragraph--
``(i) Model provisions.--The terms `model
regulation' and `model Act' mean the long-term
care insurance model regulation, and the long-
term care insurance model Act, respectively,
promulgated by the National Association of
Insurance Commissioners (as adopted as of
October 2000).
``(ii) Coordination.--Any provision of the
model regulation or model Act listed under
clause (i) or (ii) of subparagraph (A) shall be
treated as including any other provision of
such regulation or Act necessary to implement
the provision.
``(iii) Determination.--For purposes of
this section and section 4980C, the
determination of whether any requirement of a
model regulation or the model Act has been met
shall be made by the Secretary.''.
(b) Excise Tax.--Paragraph (1) of section 4980C(c) of the Internal
Revenue Code of 1986 (relating to requirements of model provisions) is
amended to read as follows:
``(1) Requirements of model provisions.--
``(A) Model regulation.--The following requirements
of the model regulation must be met:
``(i) Section 9 (relating to required
disclosure of rating practices to consumer).
``(ii) Section 14 (relating to application
forms and replacement coverage).
``(iii) Section 15 (relating to reporting
requirements).
``(iv) Section 22 (relating to filing
requirements for marketing).
``(v) Section 23 (relating to standards for
marketing), including inaccurate completion of
medical histories, other than paragraphs (1),
(6), and (9) of section 23C.
``(vi) Section 24 (relating to
suitability).
``(vii) Section 29 (relating to standard
format outline of coverage).
``(viii) Section 30 (relating to
requirement to deliver shopper's guide).
The requirements referred to in clause (vi) shall not
include those portions of the personal worksheet
described in Appendix B relating to consumer protection
requirements not imposed by section 4980C or 7702B.
``(B) Model act.--The following requirements of the
model Act must be met:
``(i) Section 6F (relating to right to
return).
``(ii) Section 6G (relating to outline of
coverage).
``(iii) Section 6H (relating to
requirements for certificates under group
plans).
``(iv) Section 6J (relating to policy
summary).
``(v) Section 6K (relating to monthly
reports on accelerated death benefits).
``(vi) Section 7 (relating to
incontestability period).
``(C) Definitions.--For purposes of this paragraph,
the terms `model regulation' and `model Act' have the
meanings given such terms by section 7702B(g)(2)(B).''.
(c) Effective Date.--The amendments made by this section shall
apply to policies issued more than 1 year after the date of the
enactment of this Act.
SEC. 5. TREATMENT OF EXCHANGES OF LONG-TERM CARE INSURANCE CONTRACTS.
(a) In General.--Subsection (a) of section 1035 of the Internal
Revenue Code of 1986 (relating to exchanges of insurance policies) is
amended by striking the period at the end of paragraph (3) and
inserting ``; or'' and by adding at the end the following new
paragraph:
``(4) a qualified long-term care insurance contract for
another qualified long-term care insurance contract.''.
(b) Qualified Long-Term Care Insurance Contract.--Subsection (b) of
section 1035 of such Code (relating to definitions) is amended by
adding at the end the following new paragraph:
``(4) Qualified long-term care insurance contract.--The
term `qualified long-term care insurance contract' means--
``(A) any qualified long-term care insurance
contract (as defined in section 7702B), and
``(B) any contract which is treated as such by
section 321(f)(2) of the Health Insurance Portability
and Accountability Act of 1996.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to exchanges after December 31, 1997.
(2) Waiver of limitations.--If the credit or refund of any
overpayment of tax with respect to a taxable year ending before
the date of the enactment of this Act resulting from the
application of section 1035(a)(4) of the Internal Revenue Code
of 1986, as added by this section, is prevented at any time by
the operation of any law or rule of law (including res
judicata), such credit or refund may nevertheless be allowed or
made if the claim therefor is filed before the close of the 1-
year period beginning on the date of the enactment of this Act.
<all>
Introduced in Senate
Sponsor introductory remarks on measure. (CR S6489)
Read twice and referred to the Committee on Finance. (text of measure as introduced: CR S6490-6491)
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