Title II — Reform of Tax Provisions Relating to Health Care

“IX Health savings accounts

“530A. Roth HSAs

“(a) In general—With the exception of the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations), a Roth HSA shall be exempt from taxation under this subtitle. No deduction shall be allowed for any contribution to a Roth HSA.

“(b) Dollar limitation

“(1) In general—The aggregate amount of contributions for any taxable year to all Roth HSAs maintained for the benefit of an individual shall not exceed the sum of the monthly limitations for any month during such taxable year that the individual is an eligible individual.

“(2) Monthly limitation—The monthly limitation for any month is 1/12 of—

“(A) in the case of an eligible individual who has self-only creditable coverage as of the first day of such month, $5,000, and

“(B) in the case of an eligible individual who has family creditable coverage as of the first day of such month, the amount in effect under subparagraph (A) for the taxable year multiplied by the number of individuals (including the eligible individual) covered under such family creditable coverage as of such day.

“(3) Additional contributions for individuals 55 or older—In the case of an individual who has attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of paragraph (2) shall be increased by $1,000.

“(4) Coordination with other contributions—The limitation which would (but for this paragraph) apply under this subsection to an individual for any taxable year shall be reduced (but not below zero) by the sum of—

“(A) the aggregate amount paid for such taxable year to Archer MSAs of such individual, and

“(B) the aggregate amount contributed to Roth HSAs of such individual for such taxable year under section 408(d)(9).

“(5) Special rule for married individuals—In the case of individuals who are married to each other, if either spouse has family coverage—

“(A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under different plans, as having the family coverage with the lowest annual deductible), and

“(B) the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))—

“(i) shall be reduced by the aggregate amount paid to Archer MSAs of such spouses for the taxable year, and

“(ii) after such reduction, shall be divided equally between them unless they agree on a different division.

“(6) Denial of deduction to dependents—No contribution may be made to a Roth HSA under this section by 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.

“(7) Medicare eligible individuals—The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.

“(8) Increase in limit for individuals becoming eligible individuals after the beginning of the year

“(A) In general—For purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month of such taxable year shall be treated—

“(i) as having been an eligible individual during each of the months in such taxable year, and

“(ii) as having been enrolled, during each of the months such individual is treated as an eligible individual solely by reason of clause (i), in the same health plan in which the individual was enrolled for the last month of such taxable year.

“(B) Failure to maintain creditable coverage

“(i) In general—If, at any time during the testing period, the individual is not an eligible individual, then—

“(I) the gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual shall be increased by the aggregate amount of all contributions to the Roth HSA of the individual which could not have been made but for subparagraph (A), and

“(II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount of such increase.

“(ii) Exception for disability or death—Clause (i) shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)).

“(iii) Testing period—The term testing period means the period beginning with the last month of the taxable year referred to in subparagraph (A) and ending on the last day of the 12th month following such month.

“(9) Limitation not to apply to certain contributions made under Patient Freedom Act—Any contributions made under 103(b) of the Patient Freedom Act of 2017 or as provided in section 36C shall not be taken into account for purposes of determining whether the limitation under paragraph (1) has been met.

“(c) Roth HSA—For purposes of this title—

“(1) In general—The term Roth HSA or Roth health savings account means a trust created or organized in the United States as a Roth HSA exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if the written governing instrument creating the trust meets the following requirements:

“(A) Except in the case of a rollover contribution described in subsection (e)(5) or section 220(f)(5) or 223(f)(5), no contribution will be accepted—

“(i) unless it is in cash, or

“(ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the sum of—

“(I) the dollar amount in effect under subsection (b)(2)(B), and

“(II) the dollar amount in effect under subsection (b)(3).

“(B) The trustee is a bank (as defined in section 408(n)), an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section.

“(C) No part of the trust assets will be invested in life insurance contracts.

“(D) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

“(E) The interest of an individual in the balance in his account is nonforfeitable.

“(2) Qualified medical expenses—For purposes of this section—

“(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) as in effect on the day before the date of the enactment of the Patient Freedom Act of 2017) for such individual, the spouse of such individual, and any dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, but only to the extent such amounts are not compensated for by insurance or otherwise.

“(B) Limitation on health insurance purchased from account—Such term shall not include any payment for health benefits coverage that is not creditable coverage (within the meaning of title XXVII of the Public Health Service Act).

“(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 a period in which the individual is receiving unemployment compensation under any Federal or State law, or

“(iv) in the case of an account beneficiary who has attained the age specified in section 1811 of the Social Security Act, any health insurance other than a medicare supplemental policy (as defined in section 1882 of the Social Security Act).

“(3) Account beneficiary—The term account beneficiary means the individual on whose behalf the Roth HSA was established.

“(4) Certain rules to apply—Rules similar to the following rules shall apply for purposes of this section:

“(A) Section 219(f)(3) (relating to time when contributions deemed made).

“(B) Section 219(f)(5) (relating to employer payments).

“(C) Section 408(g) (relating to community property laws).

“(D) Section 408(h) (relating to custodial accounts).

“(5) Account terminations—Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to Roth HSAs, and any amount treated as distributed under such rules shall be treated as not used to pay qualified medical expenses.

“(d) Eligible individual—For purposes of this section, the term eligible individual means, with respect to any month, any individual who is covered under creditable coverage (within the meaning of title XXVII of the Public Health Service Act) as of the 1st day of such month.

“(e) Tax treatment of distributions

“(1) Amounts used for qualified medical expenses—Any amount paid or distributed out of a Roth HSA which is used exclusively to pay qualified medical expenses of any account beneficiary shall not be includible in gross income in the manner provided in section 72.

“(2) Inclusion of amounts not used for qualified medical expenses—Any amount paid or distributed out of a Roth HSA which is not used exclusively to pay the qualified medical expenses of the account beneficiary shall be included in the gross income of such beneficiary.

“(3) Excess contributions returned before due date of return

“(A) In general—If any excess contribution is contributed for a taxable year to any Roth HSA of an individual, paragraph (2) shall not apply to distributions from the Roth HSAs of such individual (to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) 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 excess contribution.

“(B) Excess contribution—For purposes of subparagraph (A), the term excess contribution means any contribution (other than a rollover contribution described in paragraph (5) or section 220(f)(5) or 223(f)(5)) which exceeds the contribution limitation with respect to the individual for the taxable year.

“(4) Additional tax on distributions not used for qualified medical expenses

“(A) In general—The tax imposed by this chapter on the account beneficiary for any taxable year in which there is a payment or distribution from a Roth HSA of such beneficiary which is includible in gross income under paragraph (2) shall be increased by 10 percent of the amount which is so includible.

“(B) Exception for disability or death—Subparagraph (A) shall not apply if the payment or distribution is made after the account beneficiary becomes disabled within the meaning of section 72(m)(7) or dies.

“(C) Exception for distributions after medicare eligibility—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account beneficiary attains the age specified in section 1811 of the Social Security Act.

“(5) Rollover contribution—An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).

“(A) In general—Paragraph (2) shall not apply to any amount paid or distributed from a health savings account (as defined in section 223) or a Roth HSA to the account beneficiary to the extent the amount received is paid into a Roth HSA for the benefit of such beneficiary not later than the 60th day after the day on which the beneficiary receives the payment or distribution.

“(B) Limitation—This paragraph shall not apply to any amount described in subparagraph (A) received by an individual from a health savings account or a Roth HSA if, at any time during the 1-year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from a health savings account or Roth HSA which was not includible in the individual’s gross income because of the application of this paragraph.

“(6) Transfer of account incident to divorce—The transfer of an individual’s interest in a Roth HSA to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest shall, after such transfer, be treated as a Roth HSA with respect to which such spouse is the account beneficiary.

“(7) Treatment after death of account beneficiary—If an individual acquires an account beneficiary’s interest in a health savings account by reason of the death of the account beneficiary, such health savings account shall be treated as if the individual were the account beneficiary.

“(f) Cost-of-Living adjustment

“(1) In general—In the case of any calendar year beginning after 2017, the $5,000 dollar amount in subsection (b)(2) shall be increased by an amount equal to—

“(A) such dollar amount, multiplied by

“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined—

“(i) by substituting “calendar year 2016” for “calendar year 1992” in subparagraph (B) thereof, and

“(ii) by substituting “CPI medical care component” for “CPI”.

“(2) CPI medical care component—For purposes of this paragraph, the term CPI medical care component means the medical care component for the Consumer Price Index for All Urban Consumers published by the Department of Labor.

“(3) Rounding—If the amount of any increase under the preceding sentence is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.

“(g) Reports—The Secretary may require—

“(1) the trustee of a Roth HSA to make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, the return of excess contributions, and such other matters as the Secretary determines appropriate, and

“(2) any person who provides an individual with creditable coverage to make such reports to the Secretary and to the account beneficiary with respect to such plan as the Secretary determines appropriate.”

“(i) Limited contributions after 2016

“(1) In general—No contribution may be accepted by a health savings account after the date of the enactment of this subsection.

“(2) Exceptions—Paragraph (1) shall not apply to a rollover contribution described in subsection (f)(5).”

“(8) Treatment after death of account beneficiary—If an individual acquires an account beneficiary’s interest in a health savings account by reason of the death of the account beneficiary, such health savings account shall be treated as if the individual were the account beneficiary.”

“(E) Special rule for residents of States continuing PPACA implementation—No credit shall be allowed under this section to any individual who is not a qualified resident (as defined in section 100(15) of the Patient Freedom Act of 2017) of a State that has elected the option under section 102(a)(1) of such Act in relation to the implementation of title I of the Patient Protection and Affordable Care Act.”

“(4) Limitation on amount of credit—In the case of any taxable year beginning in a calendar year which begins after the date of the enactment of this paragraph, the Secretary shall reduce the amount determined under this subsection (determined before the application of this paragraph) for each qualified resident (as defined in section 100 of the Patient Freedom Act of 2017) of a State that makes an election under section 102(a)(1) of such Act by an amount equal to—

“(A) the amount of the reduction described in section 102(a)(1)(A) of such Act for such year (calculated by only taking into account credit allowed under this section), divided by

“(B) the total number of such qualified residents of such State estimated by the Secretary to claim the credit allowed under subsection (a) for such year.”

“36C. Roth HSA credit

“(a) In general—In the case of a qualifying individual, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year, an amount equal to the Roth HSA credit amount of the individual for the taxable year.

“(b) Qualifying individual—For purposes of this section, the term qualifying individual means, with respect to any month, any individual who for such month is a deposit qualifying resident (as defined in section 103(b)(2) of the Patient Freedom Act of 2017) of a State described in section 102(a)(2) of such Act that elects to have section 103(b) of such Act carried out by way of the credit determined under this section.

“(c) Roth HSA credit amount—For purposes of this section, the term Roth HSA credit amount means, with respect to any taxable year, the sum of the Roth HSA deposit amounts determined under section 104 of the Patient Freedom Act of 2017 with respect to the individual for all months ending during the taxable year.

“(d) Special rules—For purposes of this section—

“(1) Reconciliation of credit and advance credit

“(A) Excess advance payments—If the advance payments to an individual for a taxable year under subsection (e) exceed the credit allowed by this section with respect to such individual for such taxable year, the tax imposed by this chapter for the taxable year shall be increased by the amount of such excess.

“(B) Advance payment shortfall—If the credit allowed by this section (determined without regard to this subparagraph) with respect to an individual for a taxable year exceeds the advance payments to such individual for such taxable year under subsection (e), the Secretary shall, in lieu of a credit allowed against the tax imposed by this subtitle, make a payment on behalf of such individual to such individual’s health savings account in an amount equal to such excess.

“(2) Married couples must file joint return—If the taxpayer is married (within the meaning of section 7703) at the close of the taxable year, the credit shall be allowed under this section only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

“(e) Advance payment program

“(1) In general—The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, shall establish a program—

“(A) to make advance determinations with respect to the eligibility of individuals for the credit allowed under this section, and

“(B) to make advance payments of the credit allowed under this section directly to the Roth HSA of any such individual so eligible.

“(2) Program requirements—Such program shall be established under rules similar to the rules of section 1412 of the Patient Protection and Affordable Care Act, except that advance determinations and advance payments shall be made on request of the individual with respect to whom the determination is to be made and taking into account the enrollment process (including any opt-out election under such process) established under section 105(c) of the Patient Freedom Act of 2017.

“(3) Treatment as income—The amount of any credit allowed under this section shall be included in gross income.”