“224. Standard deduction for health insurance
“(a) Deduction allowed—In the case of an individual, there shall be allowed as a deduction to the taxpayer for the taxable year the standard deduction for health insurance.
“(b) Standard deduction for health insurance—For purposes of this section—
“(1) In general—The term standard deduction for health insurance means the sum of the monthly limitations for months during the taxable year.
“(2) Monthly limitation
“(A) In general—The monthly limitation for any month is 1/12 of—
“(i) $20,000, in the case of a taxpayer who is allowed a deduction under section 151 for more than one individual who for such month is an eligible individual, and
“(ii) $7,500, in the case of a taxpayer who is allowed a deduction under section 151 for only one individual who for such month is an eligible individual.
“(B) Cost-of-living adjustment
“(i) In general—In the case of taxable years beginning in calendar years after the first calendar year to which this section applies, the dollar amounts under subparagraph (A) shall be increased by an amount equal to—
“(I) such dollar amount, multiplied by
“(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins, determined by substituting “the calendar year preceding the first calendar year to which section 224 applies” for “calendar year 1992” in subparagraph (B) thereof.
“(ii) Rounding—If any increase under clause (i) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.
“(3) Yearly limitation—The amount allowed as a deduction under subsection (a) for any taxable year shall not exceed the taxpayer’s earned income (as defined in section 32(c)(2)) for such taxable year.
“(c) Limitations and special rules relating to standard deduction—For purposes of this section—
“(1) Special rule for married individuals filing separately—In the case of a married individual who files a separate return for the taxable year, the deduction allowed under subsection (a) shall be equal to one-half of the amount which would otherwise be determined under subsection (a) if such individual filed a joint return for the taxable year.
“(2) 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.
“(3) Coordination with other health tax incentives
“(A) Denial of deduction if health insurance costs credit allowed—No deduction shall be allowed under this section to any taxpayer if a credit is allowed to the taxpayer under section 35 for the taxable year.
“(B) Reduction for insurance purchased with msa or hsa funds—The amount allowed as a deduction under subsection (a) for the taxable year shall be reduced by the aggregate amount—
“(i) paid during the taxable year from an Archer MSA to which section 220(d)(2)(B)(ii) (other than subclause (II) thereof) applies, and
“(ii) paid during the taxable year from a health savings account to which section 223(d)(2)(C) (other than clause (ii) thereof) applies.
“(4) Special rule for divorced parents, etc—Notwithstanding subsection (b)(1), an individual who is a child may be taken into account on the return of the parent other than the parent for whom a deduction with respect to the child is allowed under section 151 for a taxable year beginning in a calendar year if—
“(A) the parent for whom the deduction under section 151 is allowed for a taxable year beginning in such calendar year signs a written declaration (in such manner and form as the Secretary may by regulations prescribe) that such parent will not claim the deduction allowable under this section with respect to the child for taxable years beginning in such calendar year, and
“(B) the parent for whom the deduction under section 151 is not allowed attaches such written declaration to the parent’s return for the taxable year beginning in such calendar year.
“(d) Other definitions—For purposes of this section—
“(1) Eligible individual
“(A) In general—The term eligible individual means, with respect to any month, an individual who is covered under a qualified health plan as of the 1st day of such month.
“(B) Coverage under medicare, medicaid, schip, tricare, and grandfathered employer coverage—The term eligible individual shall not include any individual who for any month is—
“(i) entitled to benefits under part A of title XVIII of the Social Security Act or enrolled under part B of such title,
“(ii) enrolled in the program under title XIX or XXI of such Act (other than under section 1928 of such Act),
“(iii) receiving benefits (other than under continuation coverage under section 4980B) which constitute medical care from an employer—
“(I) from whom such individual is separated from service at the time of receipt of such benefits, and
“(II) after such separation, if such benefits began before January 1, 2015, unless such individual is also covered by a qualified health plan as of the 1st day of such month, or
“(iv) entitled to receive benefits under chapter 55 of title 10, United States Code.
“(C) Identification requirements—The term eligible individual shall not include any individual for any month unless the policy number associated with coverage under the qualified health plan and the TIN of each eligible individual covered under such coverage for such month is included on the return for the taxable year in which such month occurs.
“(2) Qualified health plan
“(A) In general—The term qualified health plan means a health plan (within the meaning of section 223(c)(2), without regard to subparagraph (A)(i) thereof) which, under regulations prescribed by the Secretary, meets the following requirements:
“(i) The plan has coverage for inpatient and outpatient care, emergency benefits, and physician care.
“(ii) The plan has coverage which meaningfully limits individual economic exposure to extraordinary medical expenses
“(B) Exclusion of certain plans—The term qualified health plan does not include—
“(i) a health plan if substantially all of its coverage is coverage described in section 223(c)(1)(B),
“(ii) any program or benefits referred to in clause (i), (ii), or (iii) of paragraph (1)(B), and
“(iii) a medicare supplemental policy (as defined in section 1882 of the Social Security Act).
“(e) Regulations—The Secretary may prescribe such regulations as may be necessary to carry out this section.”
“(22) Standard deduction for health insurance—The deduction allowed by section 224.”
“(9) Election not to claim credit—This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.”
“(g) Subsections (a) and (c) apply only to individuals covered by medicare, medicaid, SCHIP, TRICARE, or grandfathered employer plans
“(1) In general—Except as provided in paragraph (2), subsections (a) and (c) shall not apply for any taxable year with respect to which a deduction under section 224 is allowable.
“(2) Exception for individuals covered by medicare, medicaid, schip, or grandfathered employer plans—Paragraph (1) shall not apply to an individual for any taxable year if such individual is not an eligible individual (as defined in section 224(d)(1)) for any month during such taxable year by reason of coverage described in section 224(d)(1)(B).”
“(6) Termination—This subsection shall not apply to taxable years with respect to which a deduction under section 224 is allowable.”
“3511. Exclusion of standard deduction from employment taxes
“(a) In general—For purposes of chapters 21, 22, and 23, each of the following amounts for any period (determined without regard to this section) shall be reduced by the portion of the standard deduction for health insurance (as defined in section 224) allocable to the period:
“(1) The amount of wages determined under section 3121(a).
“(2) The amount of compensation determined under section 3231(e).
“(3) The amount of wages determined under section 3306(b).
“(b) Determination of standard deduction allocable to a period—For purposes of subsection (a)—
“(1) In general—The determination of the portion of the standard deduction for health insurance allocable to a period shall be made on the basis of a qualified certificate of eligible coverage furnished by the employee to the employer.
“(2) Qualified certificate of eligible coverage—The term qualified certificate of eligible coverage means a statement of eligibility for the deduction allowable under section 224 which contains such information, is in such form, and is provided at such times, as the Secretary may prescribe.
“(3) Only 1 certificate in effect at a time—Except as provided by the Secretary, an employee may have only 1 qualified certificate of eligible coverage in effect for any period.
“(4) Election—An employee may elect not to have this section apply for any period for purposes of chapter 21 or 22.
“(c) Reconciliation of erroneous payments to be made at employee level
“(1) In general—If the application of this subsection results in an incorrect amount being treated as wages or compensation for purposes of chapter 21, 22, or 23, whichever is applicable, with respect to any employee for 1 or more periods ending within a taxable year of the employee—
“(A) in the case of an aggregate overpayment of the taxes imposed by any such chapter for all such periods, there shall be allowed as a credit against the tax imposed by chapter 1 for such taxable year on such employee an amount equal to the amount of such overpayment, and
“(B) in the case of an aggregate underpayment of the taxes imposed by any such chapter for all such periods, the employee shall be liable for payment of the entire amount of such underpayment.
“(2) Credits treated as refundable—For purposes of this title, any credit determined under paragraph (1)(A) or subsection (d)(2) shall be treated as if it were a credit allowed under subpart C of part IV of subchapter A of chapter 1.
“(3) Rules for reporting and collection of tax—Any tax required to be paid by an employee under paragraph (1)(B) shall be included with the employee’s return of Federal income tax for the taxable year.
“(4) Secretarial authority—The Secretary shall prescribe such rules as may be necessary to carry out the provisions of this subsection.”
“(m) Standard deduction for health insurance—For purposes of this chapter—
“(1) In general—The self-employment income of a taxpayer for any period (determined without regard to this subsection) shall be reduced by the excess (if any) of—
“(A) the portion of the standard deduction for health insurance (as defined in section 224) allocable to the period, over
“(B) the amount of any reduction in wages or compensation for such period under section 3511.
“(2) Determination of standard deduction allocable to a period—For purposes of paragraph (1), the portion of the standard deduction allocable to any period shall be determined in a manner similar to the manner under section 3511.”
“(20) any amount excluded from wages under section 3511(a) of the Internal Revenue Code of 1986 (relating to exclusion of standard deduction from employment taxes).”
“(C) by disregarding the exclusion from wages in subsection (a)(20),”
“6050X. Coverage under qualified health plan
“(a) In general—Every person providing coverage under a qualified health plan (as defined in section 224(d)(2)) during a calendar year shall, on or before January 31 of the succeeding year, make a return described in subsection (b) with respect to each individual who is covered by such person under a qualified health plan for any month during the calendar year.
“(b) Return—A return is described in this subsection if such return—
“(1) is in such form as the Secretary prescribes, and
“(2) contains—
“(A) the name of the person providing coverage under the qualified health plan,
“(B) the name, address, and TIN of the individual covered by the plan,
“(C) if such individual is the owner of the policy under which such plan is provided, the name, address, and TIN of each other individual covered by such policy and the relationship of each such individual to such owner, and
“(D) the specific months of the year for which each individual referred to in subparagraph (B) is, as of the first day of each such month, covered by such plan.
“(c) Statement To be furnished with respect to whom information is required—Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return under subsection (b)(2)(A) a written statement showing—
“(1) the name, address, and phone number of the information contact of the person required to make such return, and
“(2) the information described in subsection (b)(2).”
“(14) the value (determined under section 4980B(f)(4)) of employer-provided coverage for each month under an accident or health plan and the category of such coverage for purposes of section 6116.”
“(xxvi) section 6050X (relating to returns relating to payments for qualified health insurance), and”
“(II) section 6050X(d) (relating to returns relating to payments for qualified health insurance).”
“(vii) a taxpayer may elect to exclude from earned income amounts that would have been excluded from gross income under section 106 but for subsection (g) thereof.”
“(C) Special rule where both spouses are eligible individuals with 1 account—If—
“(i) an individual and the individual's spouse have both attained age 55 before the close of the taxable year, and
“(ii) the spouse is not an account beneficiary of a health savings account as of the close of such year,”
“(C) Special rule for individuals eligible for certain veterans benefits—For purposes of subparagraph (A)(ii), an individual shall not be treated as covered under a health plan described in such subparagraph merely because the individual receives periodic hospital care or medical services for a service-connected disability under any law administered by the Secretary of Veterans Affairs but only if the individual is not eligible to receive such care or services for any condition other than a service-connected disability.”
“(D) Special rule for individuals eligible for assistance under Indian Health Service programs—For purposes of subparagraph (A)(ii), an individual shall not be treated as covered under a health plan described in such subparagraph merely because the individual receives hospital care or medical services under a medical care program of the Indian Health Service or of a tribal organization.”
“(E) Special rule for individuals eligible for assistance under tricare—For purposes of subparagraph (A)(ii), an individual shall not be treated as covered under a health plan described in such subparagraph merely because the individual is eligible to receive hospital care, medical services, or prescription drugs under TRICARE Extra or TRICARE Standard and such individual is not enrolled in TRICARE Prime.”
“(iv) coverage under a health flexible spending arrangement or a health reimbursement arrangement in the plan year a qualified HSA distribution as described in section 106(e) is made on behalf of the individual if after the qualified HSA distribution is made and for the remaining duration of the plan year, the coverage provided under the health flexible spending arrangement or health reimbursement arrangement is converted to—
“(I) coverage that does not pay or reimburse any medical expense incurred before the minimum annual deductible under paragraph (2)(A)(i) (prorated for the period occurring after the qualified HSA distribution is made) is satisfied,
“(II) coverage that, after the qualified HSA distribution is made, does not pay or reimburse any medical expense incurred after the qualified HSA distribution is made other than preventive care as defined in paragraph (2)(C),
“(III) coverage that, after the qualified HSA distribution is made, pays or reimburses benefits for coverage described in clause (ii) (but not through insurance or for long-term care services),
“(IV) coverage that, after the qualified HSA distribution is made, pays or reimburses benefits for permitted insurance or coverage described in clause (ii) (but not for long-term care services),
“(V) coverage that, after the qualified HSA distribution is made, pays or reimburses only those medical expenses incurred after an individual’s retirement (and no expenses incurred before retirement), or
“(VI) coverage that, after the qualified HSA distribution is made, is suspended, pursuant to an election made on or before the date the individual elects a qualified HSA distribution or, if later, on the date of the individual enrolls in a high deductible health plan, that does not pay or reimburse, at any time, any medical expense incurred during the suspension period except as defined in the preceding subclauses of this clause.”
“(1) In general—A plan shall not fail to be treated as a health flexible spending arrangement under this section, section 105, or section 125, or as a health reimbursement arrangement under this section or section 105, merely because such plan provides for a qualified HSA distribution.”
“(E) Exception for qualified HSA distributions—Subparagraph (A) shall not apply to the extent that there is an amount remaining in a health flexible spending account at the end of a plan year that an individual elects to contribute to a health savings account pursuant to a qualified HSA distribution (as defined in section 106(e)(2)).”
“(2) Qualified HSA distribution
“(A) In general—The term qualified HSA distribution means a distribution from a health flexible spending arrangement or health reimbursement arrangement to the extent that such distribution does not exceed the lesser of—
“(i) the balance in such arrangement as of the date of such distribution, or
“(ii) the amount determined under subparagraph (B).
“(B) Dollar limitations
“(i) Distributions from a health flexible spending arrangement—A qualified HSA distribution from a health flexible spending arrangement shall not exceed the applicable amount.
“(ii) Distributions from a health reimbursement arrangement—A qualified HSA distribution from a health reimbursement arrangement shall not exceed—
“(I) the applicable amount divided by 12, multiplied by
“(II) the number of months during which the individual is a participant in the health reimbursement arrangement.
“(iii) Applicable amount—For purposes of this subparagraph, the applicable amount is—
“(I) $2,250 in the case of an eligible individual who has self-only coverage under a high deductible health plan at the time of such distribution, and
“(II) $4,500 in the case of an eligible individual who has family coverage under a high deductible health plan at the time of such distribution.”
“(5) Limited purpose FSAs and HRAs—A plan shall not fail to be a health flexible spending arrangement or health reimbursement arrangement under this section or section 105 merely because the plan converts coverage for individuals who enroll in a high deductible health plan described in section 223(c)(2) to coverage described in section 223(c)(1)(B)(iv). Coverage for such individuals may be converted as of the date of enrollment in the high deductible health plan, without regard to the period of coverage under the health flexible spending arrangement or health reimbursement arrangement, and without requiring any change in coverage to individuals who do not enroll in a high deductible health plan.”
“(6) Cost-of-living adjustment
“(A) In general—In the case of any taxable year beginning in a calendar year after 2013, each of the dollar amounts in paragraph (2)(B)(iii) shall be increased by an amount equal to such dollar amount, multiplied by 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 2012” for “calendar year 1992” in subparagraph (B) thereof.
“(B) Rounding—If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.”
“(v) any coverage (including prospective coverage) under a health plan that is not a high deductible health plan which is disclaimed in writing, at the time of the creation or organization of the health savings account, including by execution of a trust described in subsection (d)(1) through a governing instrument that includes such a disclaimer, or by acceptance of an amendment to such a trust that includes such a disclaimer.”
“(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 any individual covered by a high deductible health plan of the account beneficiary, but only to the extent such amounts are not compensated for by insurance or otherwise.
“(B) Health insurance may not be purchased from account—Except as provided in subparagraph (C), 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 any period in which the individual is receiving unemployment compensation under any Federal or State law,
“(iv) a high deductible health plan, or
“(v) any health insurance under title XVIII of the Social Security Act, other than a Medicare supplemental policy (as defined in section 1882 of such Act).”
“(D) Certain medical expenses incurred before establishment of account treated as qualified—An expense shall not fail to be treated as a qualified medical expense solely because such expense was incurred before the establishment of the health savings account if such expense was incurred—
“(i) during either—
“(I) the taxable year in which the health savings account was established, or
“(II) the preceding taxable year in the case of a health savings account established after the taxable year in which such expense was incurred but before the time prescribed by law for filing the return for such taxable year (not including extensions thereof), and
“(ii) for medical care of an individual during a period that such individual was covered by a high deductible health plan and met the requirements of subsection (c)(1)(A)(ii) (after application of subsection (c)(1)(B)).”
“(r) Treatment of health savings accounts—For purposes of this section, any health savings account (as described in section 223 of the Internal Revenue Code of 1986) shall be treated in the same manner as an individual retirement account described in section 408 of such Code.”
“(D) Exception for administrative errors corrected before due date of return—Subparagraph (A) shall not apply if any payment or distribution is made to correct an administrative, clerical or payroll contribution error and 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 contribution.”
“(2) Initial demonstration—The demonstration program under this section shall begin on January 1, 2007. The Secretary shall approve States to conduct demonstration programs under this section for a 5-year period, with each State demonstration program covering one or more geographic areas specified by the State. With respect to a State, after the initial 5-year period of any demonstration program conducted under this section by the State, unless the Secretary finds, taking into account cost-effectiveness and quality of care, that the State demonstration program has been unsuccessful, the demonstration program may be extended or made permanent in the State.”
“(B) Maintenance of health opportunity account after becoming ineligible for public benefit—Notwithstanding any other provision of law, if an account holder of a health opportunity account becomes ineligible for benefits under this title because of an increase in income or assets—
“(i) no additional contribution shall be made into the account under paragraph (2)(A)(i); and
“(ii) the account shall remain available to the account holder for 3 years after the date on which the individual becomes ineligible for such benefits for withdrawals under the same terms and conditions as if the account holder remained eligible for such benefits, and such withdrawals shall be treated as medical assistance in accordance with subsection (c)(4).”
“(i) Application to health care sharing ministries—For purposes of this section, membership in a health care sharing ministry (as defined in section 5000A(d)(2)(B)(ii)) shall be treated as coverage under a high deductible health plan.”
“(6) Treatment of direct primary care service arrangements—An arrangement under which an individual is provided coverage restricted to primary care services in exchange for a fixed periodic fee—
“(A) shall not be treated as a health plan for purposes of paragraph (1)(A)(ii), and
“(B) shall not be treated as insurance for purposes of subsection (d)(2)(B).”
“(12) Exercise equipment and physical fitness programs
“(A) In general—The term medical care shall include amounts paid—
“(i) to purchase or use equipment used in a program (including a self-directed program) of physical exercise,
“(ii) to participate, or receive instruction, in a program of physical exercise, and
“(iii) for membership dues in a fitness club the primary purpose of which is to provide access to equipment and facilities for physical exercise.
“(B) Limitation—Amounts treated as medical care under subparagraph (A) shall not exceed $1,000 with respect to any individual for any taxable year.”
“(13) Nutritional and dietary supplements
“(A) In general—The term medical care shall include amounts paid to purchase herbs, vitamins, minerals, homeopathic remedies, meal replacement products, and other dietary and nutritional supplements.
“(B) Limitation—Amounts treated as medical care under subparagraph (A) shall not exceed $1,000 with respect to any individual for any taxable year.
“(C) Meal replacement product—For purposes of this paragraph, the term meal replacement product means any product that—
“(i) is permitted to bear labeling making a claim described in section 403(r)(3) of the Federal Food, Drug, and Cosmetic Act, and
“(ii) is permitted to claim under such section that such product is low in fat and is a good source of protein, fiber, and multiple essential vitamins and minerals.”
“(14) Periodic provider fees—The term medical care shall include periodic fees paid to a primary care physician for the right to receive medical services on an as-needed basis.”
“(j) Child health savings accounts
“(1) In general—In the case of an individual, in addition to any deduction allowed under subsection (a) for any taxable year, there shall be allowed as a deduction under this section an amount equal to the aggregate amount paid in cash by the taxpayer during the taxable year to a child health savings account of a child of the taxpayer.
“(2) Limitation—The amount taken into account under paragraph (1) with respect to each child of the taxpayer for the taxable year shall not exceed an amount equal to $3,000.
“(3) Child health savings account—For purposes of this subsection, the term child health savings account means a health savings account designated as a child health savings account and established for the benefit of a child of a taxpayer, but only if—
“(A) such account was established for the benefit of the child before the child attains the age of 5, and
“(B) under the written governing instrument creating the trust, no contribution will be accepted to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the dollar amount in effect under paragraph (2).
“(4) Treatment of account before age 18—For purposes of this section, except as otherwise provided in this subsection, a child health savings account established for the benefit of the child of a taxpayer shall be treated as a health savings account of the taxpayer until the child attains the age of 18, after which such account shall be treated as a health savings account of the child.
“(5) Distributions
“(A) In general—In the case of a child health savings account established under this section for the benefit of a child of a taxpayer—
“(i) Before age 18—Any amount paid or distributed out of such account before the child has attained the age of 18, shall be included in the gross income of the taxpayer, and subparagraph (A) of subsection (f) shall apply (relating to additional tax on distributions not used for qualified medical expenses).
“(ii) Age 18 and older—Any amount paid or distributed out of such account after the child has attained the age of 18 may only be treated as used to pay qualified medical expenses to the extent such child is not covered as a dependent under insurance (other than permitted insurance) of a parent.
“(B) Exceptions for disability or death of child—If the child becomes disabled within the meaning of section 72(m)(7) or dies—
“(i) subparagraph (A) shall not apply to any subsequent payment or distribution, and
“(ii) the taxpayer may rollover the amount in such account to an individual retirement plan of the taxpayer, to any health savings account of the taxpayer, or to any child health savings account of any other child of the taxpayer.
“(C) Health insurance may be purchased from account—Subparagraph (B) of subsection (d)(2) shall not apply to any health savings account originally established as a child health savings account.
“(6) Regulations—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including rules for determining application of this subsection in the case of legal guardians and in the case of parents of a child who file separately, are separated, or are not married.”
“(9) Exception for certain abortion expenses
“(A) In general—Notwithstanding paragraph (1), any amount used to pay for an abortion (other than an abortion described in subparagraph (B)) shall be included in the gross income of such beneficiary.
“(B) Exceptions—Subparagraph (A) shall not apply to—
“(i) an abortion—
“(I) in the case of a pregnancy that is the result of an act of rape or incest, or
“(II) in the case where a woman suffers from a physical disorder, physical injury, or physical illness that would, as certified by a physician, place the woman in danger of death unless an abortion is performed, including a life-endangering physical condition caused by or arising from the pregnancy, and
“(ii) the treatment of any infection, injury, disease, or disorder that has been caused by or exacerbated by the performance of an abortion.”