Sec. 2. Medicare flex fund accounts
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Part VIII of subchapter F of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section: A Medicare flex fund account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the Medicare flex fund account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations). For purposes of this section: The term Medicare flex fund account means a trust created or organized in the United States as a Medicare flex fund account 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:
Except in the case of a rollover contribution described in subsection (c)(2), section 220(f)(5), or section 223(f)(5) or a contribution described in section 138A(1), no contribution will be accepted— unless it is in cash, unless the account beneficiary is an eligible individual for the taxable year in which the contribution is made, and to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the sum of— the dollar amount in effect under section 223(b)(2)(A), plus in the case of an individual who has attained age 55 before the close of the calendar year, the dollar amount in effect under section 223(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. No part of the trust assets will be invested in life insurance contracts. The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.
The interest of an individual in the balance in his account is nonforfeitable. Except as otherwise provided in this paragraph, the term qualified medical expenses shall have the meaning given such term under section 223(d)(2) (determined without regard to subparagraph
(B)thereof). Such term shall not include any premium for a medicare supplemental policy under section 1882 of the Social Security Act ( 42 U.S.C. 1395ss ). The term eligible individual means, with respect to any taxable year, any individual entitled to, or enrolled for, benefits under part A of title XVIII of the Social Security Act or enrolled for benefits under part B or D of such title, including individuals covered under a Medicare Advantage plan, on the last day of such taxable year. Rules similar to the following rules shall apply for purposes of this section: Section 219(f)(3) (relating to time when contributions made). Section 408(g) (relating to community property laws). Section 408(h) (relating to custodial accounts). Paragraphs
(2)and
(4)of section 408(e). Any amount distributed out of a Medicare flex fund account shall be subject to tax in the same extent and in the same manner as distributions from a health savings account under section 223(f), except that— amounts described in paragraph
(2)thereof shall be includible in gross income in the manner provided under section 72 (after taking into account rules similar to the rules of section 408(d)(2)), for purposes of paragraph (3)(B) thereof a rollover contribution described in paragraph
(2)shall not be considered an excess contribution, and paragraph
(4)thereof shall not apply. An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs
(A)and (B). An amount distributed from a Medicare flex fund account shall not be includible in gross income if such amount is paid or distributed from a Medicare flex fund account to the account beneficiary to the extent the amount received is paid into a Medicare flex fund account for the benefit of such beneficiary not later than the 60th day after the day on which the beneficiary receives the payment or distribution. This paragraph shall not apply to any amount described in subparagraph
(A)received by an individual from a Medicare flex fund account 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 Medicare flex fund account which was not includible in the individual's gross income because of the application of this paragraph. The Secretary may require the trustee of a Medicare flex fund account 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. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary. . Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 138 the following new section: Gross income shall not include any payment to the Medicare flex fund account (as defined in section 530A) of an individual by— the Secretary of Health and Human Services, or the administrator of a Medicare Advantage plan. . Section 223(f)(5) of the Internal Revenue Code of 1986 is amended by inserting or a Medicare flex fund account (as defined in section 530A) after paid into a health savings account . Section 220(f)(5) of such Code is amended by striking or a health savings account (as defined in section 223(d)) and inserting , a health savings account (as defined in section 223(d)), or a Medicare flex fund account (as defined in section 530A) . Section 408(d) of such Code is amended by adding at the end the following new paragraph: In the case of an individual who is an eligible individual (as defined in section 530A(b)(3)) and who elects the application of this paragraph for a taxable year, gross income of the individual for the taxable year does not include a qualified Medicare FFA funding distribution to the extent such distribution is otherwise includible in gross income. For purposes of this paragraph, the term qualified Medicare FFA funding distribution means a distribution from an individual retirement plan (other than a plan described in subsection
(k)or (p)) of the employee to the extent that such distribution is contributed to the Medicare flex fund account (as defined in section 530A) of the individual in a direct trustee-to-trustee transfer. The amount excluded from gross income by subparagraph
(A)shall not exceed the annual limitation under section 530A(b)(1)(A)(iii). An individual may make an election under subparagraph
(A)only for one qualified Medicare FFA funding distribution during the lifetime of the individual. Such an election, once made, shall be irrevocable. Rules similar to the rules of paragraph (9)(E) shall apply for purposes of this paragraph. . Section 4973(a) of such Code is amended by striking or at the end of paragraph (5), by inserting or at the end of paragraph (6), and by inserting after paragraph
(6)the following new paragraph: a Medicare flex fund account (within the meaning of section 530A), . Section 4973 of such Code is amended by adding at the end the following new subsection: In the case of a Medicare flex fund account, the term excess contributions means the sum of— the amount by which the amount contributed for the taxable year to such accounts exceeds the contribution limitation determined under section 530A(b)(1)(A)(iii), and the amount determined under this subsection for the preceding taxable year, reduced by the sum of— the distributions out of the accounts for the taxable year which were not used exclusively to pay the qualified medical expenses (as determined under section 223(f)(2)) of the account beneficiary, the excess of— the distributions out of the accounts for such taxable year which were used exclusively to pay the qualified medical expenses (as determined under section 223(f)(1)) of the account beneficiary, over the amount which would be taxable by reason of section 530A(c)(1)(A) if such amounts were described in section 223(f)(2) with respect to such distributions, and the excess (if any) of the maximum amount which may be contributed to the accounts for the taxable year over the amount contributed to the accounts for the taxable year. For purposes of paragraph (1), the following contributions shall not be taken into account: Any contribution which is distributed out of the Medicare flex fund account in a distribution if— 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 such distribution is accompanied by the amount of net income attributable to such excess contribution. Any rollover contribution described in section 220(f)(5), 223(f)(5), or 530A(c)(2). . Section 4975(e)(1) of the Internal Revenue Code of 1986 is amended by striking or at the end of subparagraph (F), by redesignating subparagraph
(G)as subparagraph (H), and by inserting after subparagraph
(F)the following new subparagraph: a Medicare flex fund account described in section 530A, or . Section 4975(c) of such Code is amended by adding at the end the following new paragraph: An individual for whose benefit a Medicare flex fund account (within the meaning of section 530A) is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to be a Medicare flex fund account by reason of the application of section 530A(b)(4)(D) to such account. . Section 35(g)(3) of the Internal Revenue Code of 1986 is amended by striking or from a health savings account (as defined in section 223(d)) and inserting , from a health savings account (as defined in section 223(d)), or from a Medicare flex fund account (as defined in section 530A(b)) . Section 848(e)(1)(B) of such Code is amended by striking and at the end of clause (iv), by striking the period at the end of clause
(v)and inserting , and , and by adding at the end the following new clause: any contract which is a Medicare flex fund account (as defined in section 530A(b)). . Section 877A(e)(2) of such Code is amended by inserting a Medicare flex fund account (as defined in section 530A(b)), after a health savings account (as defined in section 223) . Section 6693(a)(2) of such Code is amended by striking and at the end of subparagraph (E), by striking the period at the end of subparagraph
(F)and inserting , and , and by inserting after subparagraph
(G)the following new subparagraph: section 530A(d) (relating to Medicare flex fund accounts). . Section 1027(g)(4) of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5517(g)(4) ) is amended by striking or 530 and inserting 530, or 530A . The table of sections for part VIII of subchapter F of chapter 1 of such Code is amended by adding at the end the following new item: Sec. 530A. Medicare flex fund accounts. . The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 138 the following new item: Sec. 138A. Certain contributions to Medicare flex fund accounts. . The amendments made by this section shall apply to taxable years beginning on or after January 1, 2026.
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