THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY FOLMER, ALLOWAY, D. WHITE, MENSCH, RAFFERTY, ERICKSON, ORIE, BROWNE, PIPPY, BRUBAKER, PILEGGI, WAUGH AND BAKER, JANUARY 21, 2011

REFERRED TO FINANCE, JANUARY 21, 2011  

AN ACT

Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An

act relating to tax reform and State taxation by codifying

and enumerating certain subjects of taxation and imposing

taxes thereon; providing procedures for the payment,

collection, administration and enforcement thereof; providing

for tax credits in certain cases; conferring powers and

imposing duties upon the Department of Revenue, certain

employers, fiduciaries, individuals, persons, corporations

and other entities; prescribing crimes, offenses and

penalties," providing for a small business health savings

account tax credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  The act of March 4, 1971 (P.L.6, No.2), known as

the Tax Reform Code of 1971, is amended by adding an article to

read:

ARTICLE XVII-G

SMALL BUSINESS HEALTH SAVINGS ACCOUNT TAX CREDIT

Section 1701-G.  Scope.

This article relates to small business health savings account

tax credit.

Section 1702-G.  Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Department."  The Department of Revenue of the Commonwealth.

"Employee" or "employees."  An individual or group of

individuals employed by a small business. The term shall also

include a sole proprietor.

"Health insurance policy."  An individual or group health,

sickness or accident policy or subscriber contract or

certificate issued by an entity subject to any one of the

following:

(1)  The act of May 17, 1921 (P.L.682, No.284), known as

The Insurance Company Law of 1921.

(2)  The act of December 29, 1972 (P.L.1701, No.364),

known as the Health Maintenance Organization Act.

(3)  The act of May 18, 1976 (P.L.123, No.54), known as

the Individual Accident and Sickness Insurance Minimum

Standards Act.

(4)  40 Pa.C.S. Ch. 61 (relating to hospital plan

corporations) or 63 (relating to professional health services

plan corporations).

"Health Savings Account."  As defined in section 223(d) of

the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C.

§ 223(d)).

"Qualified high deductible health plan."  A health insurance

policy that would qualify as a high deductible health plan under

section 223(c)(2) of the Internal Revenue Code of 1986 (Public

Law 99-514, 26 U.S.C. § 223(c)(2)).

"Qualified tax liability."  The liability for taxes imposed

under Article III, IV or VI. The term shall include the

liability for taxes imposed under Article III on an owner of a

pass-through entity.

"Pass-through entity."  Any of the following:

(1)  A partnership, limited partnership, limited

liability company, business trust or other unincorporated

entity that for Federal income tax purposes is taxable as a

partnership.

(2)  A Pennsylvania S corporation.

"Secretary."  The Secretary of Revenue of the Commonwealth.

"Small business."  An employer who, on at least 50% of its

working days during the taxable year, employed fewer than 100

employees.

"Tax credit."  The small business health savings account tax

credit authorized under this article.

"Taxpayer."  A small business subject to tax under Article

III, IV or VI. The term includes:

(1)  the partner, shareholder, owner or member of a pass-

through entity; or

(2)  a sole proprietor.

Section 1703-G.  Credit for Health Savings Account

contributions.

(a)  Application.--A taxpayer who purchases and provides a

qualified high deductible health plan to employees and makes a

contribution to a health savings account on behalf of employees

in a taxable year may apply for a tax credit as provided in this

article. By September 15, a taxpayer must submit an application

to the department for the aggregate contribution made by the

taxpayer to employee health savings accounts in the taxable year

that ended in the prior calendar year.

(b)  Computation.--A taxpayer who qualifies under subsection

(a) shall receive a tax credit for the taxable year in

accordance with the following:

(1)  Fifty percent of the aggregate contribution made by

the taxpayer to employee health savings accounts when the

contribution is provided for the benefit of employees,

spouses and dependents for the taxable year.

(2)  Twenty-five percent of the aggregate contribution

made by the taxpayer to employee health savings accounts when

the contribution is provided solely for the benefit of an

employee.

(c)  Notification.--By December 15 of the calendar year

following the close of the taxable year during which the

contribution to employee health savings accounts was made, the

department shall notify the taxpayer of the amount of the

taxpayer's tax credit approved by the department.

Section 1704-G.  Limitation on credits.

(a)  Limit.--The total amount of credits approved by the

department shall not exceed $30,000,000 in any fiscal year.

(b)  Calculation.--If the total amount of small business

health savings account tax credits applied for by all taxpayers

exceeds the amount allocated for those credits, then the small

business health savings account tax credit to be received by

each applicant shall be the product of the allocated amount

multiplied by the quotient of the small business health savings

account tax credit applied for by the applicant divided by the

total of all small business health savings account credits

applied for by all applicants, the algebraic equivalent of which

is:

taxpayer's small business health savings account tax

credit=amount allocated for those credits X (small business

health savings account tax credit applied for by the

applicant/total of all small business health savings account tax

credits applied for by all applicants).

Section 1705-G.  Carryover, carryback, refund and assignment of

credit.

(a)  Carryover.--If the taxpayer cannot use the entire amount

of the tax credit for the taxable year in which the tax credit

is first approved, then the excess may be carried over to

succeeding taxable years and used as a credit against the

qualified tax liability of the taxpayer for those taxable years.

Each time that the tax credit is carried over to a succeeding

taxable year, it is to be reduced by the amount that was used as

a credit during the immediately preceding taxable year. The tax

credit may be carried over and applied to succeeding taxable

years for no more than 15 taxable years following the first

taxable year for which the taxpayer was entitled to claim the

credit.

(b)  Application of credit.--A tax credit approved by the

department for monetary contributions made to employee health

savings accounts in a taxable year first shall be applied

against the taxpayer's qualified tax liability for the current

taxable year as of the date on which the credit was approved

before the tax credit is applied against any tax liability under

subsection (a).

(c)  Prohibition.--A taxpayer is not entitled to assign,

carry back or obtain a refund of an unused tax credit.

Section 1706-G.  Shareholder, owner or member pass-through.

(a)  Shareholder's calculation.--If a Pennsylvania S

corporation does not have an eligible tax liability against

which the tax credit may be applied, a shareholder of the

Pennsylvania S corporation is entitled to a tax credit equal to

the tax credit determined for the Pennsylvania S corporation for

the taxable year multiplied by the percentage of the

Pennsylvania S corporation's distributive income to which the

shareholder is entitled.

(b)  Owner or member calculation.--If a pass-through entity

other than a Pennsylvania S corporation does not have an

eligible tax liability against which the tax credit may be

applied, an owner or member of the pass-through entity is

entitled to a tax credit equal to the tax credit determined for

the pass-through entity for the taxable year multiplied by the

percentage of the pass-through entity's distributive income to

which the owner or member is entitled.

(c)  Application and restrictions.--The credit provided under

subsection (a) or (b) is in addition to any tax credit to which

a shareholder, owner or member of a pass-through entity is

otherwise entitled under this article. However, a pass-through

entity and a shareholder, owner or member of a pass-through

entity may not claim a credit under this article for the same

contributions made to employee health savings accounts.

Section 1707-G.  Report to General Assembly.

The secretary shall submit an annual report to the General

Assembly indicating the effectiveness of the credit provided by

this article no later than March 15 following the year in which

the credits were approved. The report shall include the names of

all taxpayers utilizing the credit as of the date of the report

and the amount of credits approved and utilized by each

taxpayer. Notwithstanding any law providing for the

confidentiality of tax records, the information contained in the

report shall be public information. The report may also include

any recommendations for changes in the calculation or

administration of the credit.

Section 1708-G.  Regulations.

The secretary shall promulgate regulations necessary for the

implementation and administration of this article.

Section 2.  This act shall apply to all tax years beginning

after December 31, 2011.

Section 3.  This act shall take effect immediately.