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                                 HOUSE AMENDED
        PRIOR PRINTER'S NOS. 312, 710                 PRINTER'S NO. 1902

THE GENERAL ASSEMBLY OF PENNSYLVANIA


SENATE BILL

No. 300 Session of 2005


        INTRODUCED BY ARMSTRONG, JUBELIRER, BRIGHTBILL, MADIGAN,
           RHOADES, SCARNATI, WAUGH, PILEGGI, KASUNIC, WENGER, THOMPSON,
           EARLL, WONDERLING, CORMAN, RAFFERTY, KITCHEN, GREENLEAF,
           TOMLINSON, PUNT, VANCE, PIPPY, GORDNER, PICCOLA, LEMMOND,
           D. WHITE, COSTA, CONTI, M. WHITE, BOSCOLA, ERICKSON, ROBBINS,
           ORIE, O'PAKE, C. WILLIAMS AND REGOLA, FEBRUARY 15, 2005

        AS RE-REPORTED FROM COMMITTEE ON INSURANCE, HOUSE OF
           REPRESENTATIVES, AS AMENDED, JUNE 21, 2006

                                     AN ACT

     1  Authorizing the establishment and maintenance of health savings   <--
     2     accounts; providing for special tax provision; and imposing
     3     restrictions on health savings accounts.
     4  AMENDING THE ACT OF MARCH 4, 1971 (P.L.6, NO.2), ENTITLED "AN     <--
     5     ACT RELATING TO TAX REFORM AND STATE TAXATION BY CODIFYING
     6     AND ENUMERATING CERTAIN SUBJECTS OF TAXATION AND IMPOSING
     7     TAXES THEREON; PROVIDING PROCEDURES FOR THE PAYMENT,
     8     COLLECTION, ADMINISTRATION AND ENFORCEMENT THEREOF; PROVIDING
     9     FOR TAX CREDITS IN CERTAIN CASES; CONFERRING POWERS AND
    10     IMPOSING DUTIES UPON THE DEPARTMENT OF REVENUE, CERTAIN
    11     EMPLOYERS, FIDUCIARIES, INDIVIDUALS, PERSONS, CORPORATIONS
    12     AND OTHER ENTITIES; PRESCRIBING CRIMES, OFFENSES AND
    13     PENALTIES," FURTHER PROVIDING, IN PERSONAL INCOME TAX, FOR
    14     MEDICAL AND HEALTH SAVINGS ACCOUNTS; AND REPEALING PROVISIONS
    15     RELATING TO TAXATION OF MEDICAL AND HEALTH SAVINGS ACCOUNTS.

    16     THE GENERAL ASSEMBLY FINDS AND DECLARES AS FOLLOWS:
    17     IT IS THE INTENT OF THE GENERAL ASSEMBLY TO ADDRESS THE
    18  PERSONAL INCOME TAX TREATMENT OF HEALTH SAVINGS ACCOUNTS
    19  PURSUANT TO SECTION 223 OF THE INTERNAL REVENUE CODE OF 1986
    20  (PUBLIC LAW 99-514, 26 U.S.C. § 223).
    21     The General Assembly of the Commonwealth of Pennsylvania


     1  hereby enacts as follows:
     2  Section 1.  Short title.                                          <--
     3     This act shall be known and may be cited as the Health
     4  Savings Account Act.
     5  Section 2.  Legislative intent.
     6     It is the intent f the General Assembly to extend to health
     7  savings accounts established in this Commonwealth pursuant to
     8  section 223 of the Internal Revenue Code of 1986 (Public Law 99-
     9  514, 26 U.S.C. § 223).
    10  Section 3.  Definitions.
    11     The following words and phrases when used in this act shall
    12  have the meanings given to them in this section unless the
    13  context clearly indicates otherwise:
    14     "Account beneficiary."  As defined in section 223(d)(3) of
    15  the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C.
    16  § 223(d)(3)).
    17     "Excess contribution distribution."  A distribution described
    18  in section 223(f)(3) of the Internal Revenue Code of 1986
    19  (Public Law 99-514, 26 U.S.C. § 223(f)(3)). The term shall not
    20  include amounts of income attributable to such distribution.
    21     "Health insurance policy."  An individual or group health,
    22  sickness or accident policy or subscriber contract or
    23  certificate issued by an entity subject to any one of the
    24  following:
    25         (1)  The act of May 17, 1921 (P.L.682, No.284), known as
    26     The Insurance Company Law of 1921.
    27         (2)  The act of December 29, 1972 (P.L.1701, No.364),
    28     known as the Health Maintenance Organization Act.
    29         (3)  The act of May 18, 1976 (P.L.123, No.54), known as
    30     the Individual Accident and Sickness Insurance Minimum
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     1     Standards Act.
     2         (4)  40 Pa.C.S. Ch. 61 (relating to hospital plan
     3     corporations) or 63 (relating to professional health services
     4     plan corporations).
     5     "Health savings account."  As defined in section 223(d) of
     6  the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C.
     7  § 223(d)).
     8     "Qualified medical expenses."  As defined in section 223(d)
     9  of the Internal Revenue Code of 1986 (Public Law 99-514, 26
    10  U.S.C. § 223(d)).
    11  Section 4.  Special tax provisions.
    12     (a)  General rule.--The following shall be excluded from
    13  taxation under Article III of the act of March 4, 1971 (P.L.6,
    14  No.2), known as the Tax Reform Code of 1971:
    15         (1)  any contribution to a health savings account by an
    16     account beneficiary or the employer of that account
    17     beneficiary that conforms to section 223(a) and (b) of the
    18     Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
    19     223(a) and (b));
    20         (2)  any income of a health savings account;
    21         (3)  any amount paid or distributed out of a health
    22     savings account that is used exclusively to pay the qualified
    23     medical expenses of the account beneficiary; and
    24         (4)  any amount paid or distributed out of a health
    25     savings account that is used exclusively to reimburse an
    26     account beneficiary for qualified medical expenses.
    27     (b)  Taxable distributions.--The following shall be included
    28  in the income of the account beneficiary and shall be subject to
    29  taxation under Article III of the Tax Reform Code of 1971:
    30         (1)  Any amount paid or distributed out of a health
    20050S0300B1902                  - 3 -     

     1     savings account that is used for any purpose other than to
     2     pay the qualified medical expenses of the account
     3     beneficiary.
     4         (2)  Any excess contribution distribution that has not
     5     previously been included in the account beneficiary's income.
     6         (3)  Any amount of the account beneficiary's income
     7     attributable to an excess contribution distribution.
     8  Section 5.  Mandated benefits.
     9     (a)  General rule.--A health insurance policy that would
    10  qualify as a high deductible health plan under section 223(c)(2)
    11  of the Internal Revenue Code of 1986 (Public Law 99-514, 26
    12  U.S.C. § 223(c)(2)) shall be subject to any provision of law
    13  mandating a minimum health insurance benefit or reimbursement.
    14     (b)  Construction.--Nothing in this act shall be construed to
    15  prohibit or prevent a health insurance policy that would qualify
    16  as a high deductible health plan under section 223(c)(2) of the
    17  Internal Revenue Code of 1986 from applying deductibles or
    18  copayments to benefits offered under these mandated minimum
    19  health insurance benefits.
    20  Section 6.  Applicability.
    21     Section 4 shall apply to taxable years beginning after
    22  December 31, 2004.
    23  Section 7.  Effective date.
    24     This act shall take effect in 60 days.
    25     SECTION 1.  SECTION 303(A)(6) OF THE ACT OF MARCH 4, 1971      <--
    26  (P.L.6, NO.2), KNOWN AS THE TAX REFORM CODE OF 1971, AMENDED
    27  JULY 7, 2005 (P.L.149, NO.40), IS AMENDED AND THE SECTION IS
    28  AMENDED BY ADDING A SUBSECTION TO READ:
    29     SECTION 303.  CLASSES OF INCOME.--(A)  THE CLASSES OF INCOME
    30  REFERRED TO ABOVE ARE AS FOLLOWS:
    20050S0300B1902                  - 4 -     

     1     * * *
     2     (6)  INTEREST DERIVED FROM OBLIGATIONS WHICH ARE NOT
     3  STATUTORILY FREE FROM STATE OR LOCAL TAXATION UNDER ANY OTHER
     4  ACT OF THE GENERAL ASSEMBLY OF THE COMMONWEALTH OF PENNSYLVANIA
     5  OR UNDER THE LAWS OF THE UNITED STATES AND ANY AMOUNT PAID UNDER
     6  CONTRACT OF LIFE INSURANCE OR ENDOWMENT OR ANNUITY CONTRACT,
     7  WHICH IS INCLUDABLE IN GROSS INCOME FOR FEDERAL INCOME TAX
     8  PURPOSES[.] AND ANY AMOUNT PAID OUT OF THE ARCHER MEDICAL
     9  SAVINGS ACCOUNT OR HEALTH SAVINGS ACCOUNT THAT IS INCLUDABLE IN
    10  THE GROSS INCOME OF AN ACCOUNT BENEFICIARY FOR FEDERAL INCOME
    11  TAX PURPOSES.
    12     * * *
    13     (A.6)  EXCEPT AS PROVIDED IN THIS ARTICLE AND WITHOUT REGARD
    14  TO SECTIONS 220(F)(4) AND 223(F)(4) OF THE INTERNAL REVENUE CODE
    15  OF 1986, THE REQUIREMENTS OF SECTIONS 106(B) AND (D), 220 AND
    16  223 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED TO JANUARY
    17  1, 2005, SHALL BE APPLICABLE.
    18     * * *
    19     SECTION 2.  REPEALS ARE AS FOLLOWS:
    20         (1)  THE GENERAL ASSEMBLY DECLARES THAT THE REPEALS UNDER
    21     THIS SECTION ARE NECESSARY TO EFFECTUATE THE AMENDMENT OF
    22     SECTION 303 OF THE ACT.
    23         (2)  SECTIONS 2 AND 3 OF THE ACT OF DECEMBER 19, 1996
    24     (P.L.1335, NO.179), KNOWN AS THE MEDICAL CARE SAVINGS ACCOUNT
    25     ACT, ARE REPEALED.
    26         (3)  SECTION 4 OF THE ACT OF JULY 14, 2005 (P.L.278,
    27     NO.48), KNOWN AS THE HEALTH SAVINGS ACCOUNT ACT, IS REPEALED.
    28     SECTION 3.  THIS ACT SHALL APPLY TO TAX YEARS BEGINNING AFTER
    29  DECEMBER 31, 2005.
    30     SECTION 4.  THIS ACT SHALL TAKE EFFECT IMMEDIATELY.
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