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1 which such employer does not have an election under
2 section 4980H(a) in effect.
3 ‘‘(4) SPECIAL RULE FOR SEPARATE ELEC-

4 TIONS.—In the case of an employer who makes a

5 separate election described in section 4980H(a)(4)
6 for any period, paragraph (1) shall be applied for
7 such period by taking into account only the wages
8 paid to employees who are not subject to such elec-
9 tion.
10 ‘‘(5) AGGREGATION; PREDECESSORS.—For pur-
11 poses of this subsection—
12 ‘‘(A) all persons treated as a single em-
13 ployer under subsection (b), (c), (m), or (o) of
14 section 414 shall be treated as 1 employer, and
15 ‘‘(B) any reference to any person shall be
16 treated as including a reference to any prede-
17 cessor of such person.’’.
18 (b) DEFINITIONS.—Section 3121 of such Code is
19 amended by adding at the end the following new sub-
20 section:
21 ‘‘(aa) SPECIAL RULES FOR TAX ON EMPLOYERS
22 ELECTING NOT TO PROVIDE HEALTH BENEFITS.—For
23 purposes of section 3111(c)—
24 ‘‘(1) Paragraphs (1), (5), and (19) of sub-
25 section (b) shall not apply.

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1 ‘‘(2) Paragraph (7) of subsection (b) shall apply
2 by treating all services as not covered by the retire-
3 ment systems referred to in subparagraphs (C) and
4 (F) thereof.
5 ‘‘(3) Subsection (e) shall not apply and the
6 term ‘State’ shall include the District of Columbia.’’.
7 (c) CONFORMING AMENDMENT.—Subsection (d) of
8 section 3111 of such Code, as redesignated by this section,
9 is amended by striking ‘‘this section’’ and inserting ‘‘sub-
10 sections (a) and (b)’’.
11 (d) APPLICATION TO RAILROADS.—
12 (1) IN GENERAL.—Section 3221 of such Code
13 is amended by redesignating subsection (c) as sub-
14 section (d) and by inserting after subsection (b) the
15 following new subsection:
16 ‘‘(c) EMPLOYERS ELECTING TO NOT PROVIDE
17 HEALTH BENEFITS.—
18 ‘‘(1) IN GENERAL.—In addition to other taxes,
19 there is hereby imposed on every nonelecting em-
20 ployer an excise tax, with respect to having individ-
21 uals in his employ, equal to 8 percent of the com-
22 pensation paid during any calendar year by such em-
23 ployer for services rendered to such employer.

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1 ‘‘(2) EXCEPTION FOR SMALL EMPLOYERS.—

2 Rules similar to the rules of section 3111(c)(2) shall

3 apply for purposes of this subsection.
4 ‘‘(3) NONELECTING EMPLOYER.—For purposes
5 of paragraph (1), the term ‘nonelecting employer’
6 means any employer for any period with respect to
7 which such employer does not have an election under
8 section 4980H(a) in effect.
9 ‘‘(4) SPECIAL RULE FOR SEPARATE ELEC-

10 TIONS.—In the case of an employer who makes a

11 separate election described in section 4980H(a)(4)
12 for any period, subsection (a) shall be applied for
13 such period by taking into account only the wages
14 paid to employees who are not subject to such elec-
15 tion.’’.
16 (2) DEFINITIONS.—Subsection (e) of section
17 3231 of such Code is amended by adding at the end
18 the following new paragraph:
19 ‘‘(13) SPECIAL RULES FOR TAX ON EMPLOYERS

20 ELECTING NOT TO PROVIDE HEALTH BENEFITS.—

21 For purposes of section 3221(c)—

22 ‘‘(A) Paragraph (1) shall be applied with-
23 out regard to the third sentence thereof.
24 ‘‘(B) Paragraph (2) shall not apply.’’.

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1 (3) CONFORMING AMENDMENT.—Subsection (d)
2 of section 3221 of such Code, as redesignated by
3 this section, is amended by striking ‘‘subsections (a)
4 and (b), see section 3231(e)(2)’’ and inserting ‘‘this
5 section, see paragraphs (2) and (13)(B) of section
6 3231(e)’’.
7 (e) EFFECTIVE DATE.—The amendments made by
8 this section shall apply to periods beginning after Decem-
9 ber 31, 2012.
10 Subtitle B—Credit for Small Busi-
11 ness Employee Health Coverage
12 Expenses
13 SEC. 421. CREDIT FOR SMALL BUSINESS EMPLOYEE

14 HEALTH COVERAGE EXPENSES.

15 (a) IN GENERAL.—Subpart D of part IV of sub-

16 chapter A of chapter 1 of the Internal Revenue Code of
17 1986 (relating to business-related credits) is amended by
18 adding at the end the following new section:
19 ‘‘SEC. 45R. SMALL BUSINESS EMPLOYEE HEALTH COV-

20 ERAGE CREDIT.

21 ‘‘(a) IN GENERAL.—For purposes of section 38, in

22 the case of a qualified small employer, the small business
23 employee health coverage credit determined under this sec-
24 tion for the taxable year is an amount equal to the applica-

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1 ble percentage of the qualified employee health coverage
2 expenses of such employer for such taxable year.
3 ‘‘(b) APPLICABLE PERCENTAGE.—
4 ‘‘(1) IN GENERAL.—For purposes of this sec-
5 tion, the applicable percentage is 50 percent.
6 ‘‘(2) PHASEOUT BASED ON AVERAGE COM-

7 PENSATION OF EMPLOYEES.—In the case of an em-

8 ployer whose average annual employee compensation
9 for the taxable year exceeds $20,000, the percentage
10 specified in paragraph (1) shall be reduced by a
11 number of percentage points which bears the same
12 ratio to 50 as such excess bears to $20,000.
13 ‘‘(c) LIMITATIONS.—
14 ‘‘(1) PHASEOUT BASED ON EMPLOYER SIZE.—

15 In the case of an employer who employs more than

16 10 qualified employees during the taxable year, the
17 credit determined under subsection (a) shall be re-
18 duced by an amount which bears the same ratio to
19 the amount of such credit (determined without re-
20 gard to this paragraph and after the application of
21 the other provisions of this section) as—
22 ‘‘(A) the excess of—
23 ‘‘(i) the number of qualified employees
24 employed by the employer during the tax-
25 able year, over

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1 ‘‘(ii) 10, bears to
2 ‘‘(B) 15.
3 ‘‘(2) CREDIT NOT ALLOWED WITH RESPECT TO

4 CERTAIN HIGHLY COMPENSATED EMPLOYEES.—No

5 credit shall be allowed under subsection (a) with re-

6 spect to qualified employee health coverage expenses
7 paid or incurred with respect to any employee for
8 any taxable year if the aggregate compensation paid
9 by the employer to such employee during such tax-
10 able year exceeds $80,000.
11 ‘‘(d) QUALIFIED EMPLOYEE HEALTH COVERAGE EX-
12 PENSES.—For purposes of this section—
13 ‘‘(1) IN GENERAL.—The term ‘qualified em-
14 ployee health coverage expenses’ means, with respect
15 to any employer for any taxable year, the aggregate
16 amount paid or incurred by such employer during
17 such taxable year for coverage of any qualified em-
18 ployee of the employer (including any family cov-
19 erage which covers such employee) under qualified
20 health coverage.
21 ‘‘(2) QUALIFIED HEALTH COVERAGE.—The

22 term ‘qualified health coverage’ means acceptable

23 coverage (as defined in section 59B(d)) which—
24 ‘‘(A) is provided pursuant to an election
25 under section 4980H(a), and

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1 ‘‘(B) satisfies the requirements referred to
2 in section 4980H(c).
3 ‘‘(e) OTHER DEFINITIONS.—For purposes of this
4 section—
5 ‘‘(1) QUALIFIED SMALL EMPLOYER.—For pur-
6 poses of this section, the term ‘qualified small em-
7 ployer’ means any employer for any taxable year
8 if—
9 ‘‘(A) the number of qualified employees
10 employed by such employer during the taxable
11 year does not exceed 25, and
12 ‘‘(B) the average annual employee com-
13 pensation of such employer for such taxable
14 year does not exceed the sum of the dollar
15 amounts in effect under subsection (b)(2).
16 ‘‘(2) QUALIFIED EMPLOYEE.—The term ‘quali-
17 fied employee’ means any employee of an employer
18 for any taxable year of the employer if such em-
19 ployee received at least $5,000 of compensation from
20 such employer during such taxable year.
21 ‘‘(3) AVERAGE ANNUAL EMPLOYEE COMPENSA-

22 TION.—The term ‘average annual employee com-

23 pensation’ means, with respect to any employer for
24 any taxable year, the average amount of compensa-

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1 tion paid by such employer to qualified employees of
2 such employer during such taxable year.
3 ‘‘(4) COMPENSATION.—The term ‘compensa-
4 tion’ has the meaning given such term in section
5 408(p)(6)(A).
6 ‘‘(5) FAMILY COVERAGE.—The term ‘family
7 coverage’ means any coverage other than self-only
8 coverage.
9 ‘‘(f) SPECIAL RULES.—For purposes of this sec-
10 tion—
11 ‘‘(1) SPECIAL RULE FOR PARTNERSHIPS AND

12 SELF-EMPLOYED.—In the case of a partnership (or

13 a trade or business carried on by an individual)
14 which has one or more qualified employees (deter-
15 mined without regard to this paragraph) with re-
16 spect to whom the election under 4980H(a) applies,
17 each partner (or, in the case of a trade or business
18 carried on by an individual, such individual) shall be
19 treated as an employee.
20 ‘‘(2) AGGREGATION RULE.—All persons treated
21 as a single employer under subsection (b), (c), (m),
22 or (o) of section 414 shall be treated as 1 employer.
23 ‘‘(3) DENIAL OF DOUBLE BENEFIT.—Any de-
24 duction otherwise allowable with respect to amounts
25 paid or incurred for health insurance coverage to

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