1. Clarification of special rule for certain governmental plans
by striking “the taxpayer” and inserting “a qualified taxpayer”, and
by striking “deceased plan participant's beneficiary” and inserting “deceased employee's beneficiary (other than an individual described in paragraph (3)(B))”.
Qualified taxpayer— Subsection (j) of section 105 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
“(3) Qualified taxpayer—For purposes of paragraph (1), with respect to an accident or health plan described in paragraph (2), the term qualified taxpayer means a taxpayer who is—
“(A) an employee, or
“(B) the spouse, dependent (as defined for purposes of subsection (b)), or child (as defined for purposes of such subsection) of an employee.”
Application to political subdivisions of States— Paragraph (2) of section 105(j) of the Internal Revenue Code of 1986 is amended—
by inserting “or established by or on behalf of a State or political subdivision thereof” after “public retirement system”, and
by inserting “or 501(c)(9)” after “section 115” in subparagraph (B).
Effective date— The amendments made by this section shall apply to payments after the date of the enactment of this Act.