H.R. 1859 - Working Parents Flexibility Act of 2019

116TH CONGRESS
1ST SESSION

H.R. 1859

To amend the Internal Revenue Code of 1986 to provide
for parent savings accounts, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 25, 2019

Mr. KATKO (for himself and Mr. BRINDISI) introduced the following bill;
which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide for parent savings accounts, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the "Working Parents Flexibility Act of 2019".

SEC. 2. PARENTAL LEAVE SAVINGS ACCOUNTS.

(a) IN GENERAL. — Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:

"SEC. 224. PARENTAL LEAVE SAVINGS ACCOUNTS.

"(a) ALLOWANCE OF DEDUCTION. —

"(1) IN GENERAL. — In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by such individual to a parental leave savings account of such individual.

"(b) LIMITATIONS. —

"(1) ANNUAL LIMITATION FOR ANY YEAR. — The amount allowable as a deduction under subsection (a) to an eligible individual for the taxable year shall not exceed $6,750.

"(2) OVERALL LIMITATION. — The aggregate amounts contributed to a parental leave savings account for all taxable years shall not exceed $24,000.

"(3) ADJUSTED GROSS INCOME LIMITATION. — In the case of a taxpayer whose adjusted gross income exceeds $250,000 for the taxable year, the dollar limitation under paragraph (1) for such taxable year shall be zero.

"(4) DENIAL OF DEDUCTION TO DEPENDENTS. — No deduction shall be allowed under this section to 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.

"(5) COORDINATION WITH EMPLOYER 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 aggregate amount contributed to a parental leave savings account of such individual which is excludable from the taxpayer's adjusted gross income for such taxable year under section 139G (and such amount shall not be allowed as a deduction under subsection (a)).

"(c) ELIGIBLE INDIVIDUAL. — For purposes of this section, the term 'eligible individual' means, with respect to any month, any individual who has earned income from employment during the 12 months preceding the month in which the parental leave savings account is established.

"(d) PARENTAL LEAVE SAVINGS ACCOUNT. — For purposes of this section:

"(1) IN GENERAL. — The term 'parental leave savings account' means a trust created or organized in the United States exclusively for the purpose of making distributions for the care of a child of the account owner, 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)(3), no contribution will be accepted —

"(i) unless it is in cash, or

"(ii) to the extent such contribution —

"(I) when added to previous contributions to the trust for the calendar year, exceeds the dollar amount in effect under subsection (b)(1), or

"(II) when added to all previous contributions to the trust, exceeds the limit under subsection (b)(2).

"(B) The trustee is a bank (as defined in section 408(n)), 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) CERTAIN RULES TO APPLY. — Rules similar to the following rules shall apply for purposes of this section:

"(A) Section 219(d)(2) (relating to no deduction for rollovers).

"(B) Section 219(f)(3) (relating to time when contributions deemed made).

"(C) Except as provided in section 106(d), section 219(f)(5) (relating to employer payments).

"(D) Section 408(g) (relating to community property laws).

"(e) TAX TREATMENT OF DISTRIBUTIONS. —

"(1) IN GENERAL. — Except as provided in paragraph (2), any distribution from a parental leave savings account shall be included in the gross income of the account owner.

"(2) EARLY PARENTHOOD PAYMENTS OR IMMEDIATE RETURN OF CONTRIBUTIONS. —

"(A) IN GENERAL. — Any amount paid or distributed out of a parental leave savings account which —

"(i) is made pursuant to a request by the account owner and not later than 1 year after the birth or adoption of a child of the account owner, or

"(ii) is not more than the amount of contributions made to the account during the 30-day period ending on the date of such distribution, shall not be included in gross income. Clause

(ii) shall not apply if a deduction is allowed with respect to such contribution.

"(B) RETURN OF CONTRIBUTION NOT TAKEN INTO ACCOUNT IN DETERMINING DEDUCTION. — The amount allowed as a deduction under subsection (a) for the taxable year (determined without regard to this subparagraph) shall be reduced by the amount of distributions made during the taxable year under subparagraph (A)(ii).

"(C) COORDINATION WITH DEPENDENT CARE TAX CREDIT. — The employment-related expenses (as defined in section 21(b)(2)) taken into account with respect to any child of the taxpayer in determining the credit under section 21 for the taxable year (determined without regard to this subparagraph) shall be reduced by any amounts excluded from gross income for the taxable year under subparagraph (A)(i) with respect to such child.

"(3) ROLLOVER CONTRIBUTIONS. — 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 (1) shall not apply to any amount paid or distributed from a parental leave savings account to the account owner if —

"(i) the entire amount received is paid into an individual retirement account or individual retirement annuity (other than an endowment contract) for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution, or

"(ii) the entire amount received is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to this paragraph).

For purposes of clause (ii), the term 'eligible retirement plan' means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B).

"(B) LIMITATION. — This paragraph does not apply to any amount described in subparagraph (A)(i) received by an individual from a parental leave savings 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 that subparagraph from a parental leave savings account which was not includible in his gross income because of the application of this paragraph.

"(C) SPECIAL RULE FOR 529 AND 529A FUNDING DISTRIBUTIONS. —

"(i) IN GENERAL. — A plan shall not fail to be treated as a parental leave savings account under this section solely because the account provides for distributions from a parental leave savings account to a qualified tuition program (as defined in section 529(b)) or a qualified ABLE program (as defined in section 529A(b)) of the taxpayer or a child of the taxpayer (as defined in section 529(e)).

"(ii) TAX TREATMENT. — Paragraph (1) shall not apply to so much of any such distribution as is allocable to earnings on the amounts contributed by the taxpayer to the parental leave savings account.

"(4) ADDITIONAL TAX FOR DISTRIBUTIONS NOT USED FOR EARLY PARENTHOOD PAYMENTS. — The tax imposed by this chapter on the account owner for any taxable year in which there is a payment or distribution from a parental leave savings account of  such account owner which is includible in gross income under subparagraph (1) shall be increased by 20 percent of the amount which is so includible. The preceding sentence shall not apply to the portion of a distribution described in subparagraph (C)(i) that is so includible.

"(5) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF RETURN. —

"(A) IN GENERAL. — If any excess contribution is contributed for a taxable year to any parental leave savings account of an individual, paragraph (1) shall not apply to distributions from the parental leave savings account of such individual (to the extent such distributions do not exceed the aggregate excess contributions to the account 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.

Any net income described in clause (ii) shall be included in the gross income of the individual for the taxable year in which it is received.

"(B) EXCESS CONTRIBUTION. — For purposes of subparagraph (A), the term 'excess contribution' means any contribution (other than a rollover contribution described in paragraph (3)) which is neither excludable from gross income under section 139G nor deductible under this section.

"(6) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE. — The transfer of an individual's interest in a parental leave savings account 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 parental leave savings account with respect to which such spouse is the account owner.

"(7) TREATMENT AFTER DEATH OF ACCOUNT OWNER. —

"(A) TREATMENT IF DESIGNATED BENEFICIARY IS SPOUSE. —

"(i) IN GENERAL. — If a qualified individual acquires such owner's interest in a parental leave savings account by reason of being the designated beneficiary of such account at the death of the account owner, such parental leave savings account shall be treated as if the qualified individual were the account owner.

"(ii) QUALIFIED INDIVIDUAL. — For purposes of clause (i), the term 'qualified individual' means, with respect to any account owner —

"(I) the account owner's surviving spouse, or

"(II) any other person with custody of any child of the deceased account owner, but only if such death occurred not later than 1 year after the birth or adoption of such child by the deceased account owner.

"(B) OTHER CASES. —

"(i) IN GENERAL. — If, by reason of the death of the account owner, any person acquires the account owner's interest in a parental leave savings account in a case to which subparagraph (A) does not apply —

"(I) such account shall cease to be a parental leave savings account as of the date of death, and

"(II) an amount equal to the fair market value of the assets in such account on such date shall be includible if such person is not the estate of such owner, in such person's gross income for the taxable year which includes such date, or if such person is the estate of such owner, in such owner's gross income for the last taxable year of such owner.

"(ii) SPECIAL RULES. — An appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent or the decedent's spouse) with respect to amounts included in gross income under clause (i) by such person.

"(f) TAX TREATMENT OF ACCOUNT. —

"(1) IN GENERAL. — A parental leave savings account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the parental leave savings account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).

"(2) ACCOUNT TERMINATIONS. — Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any parental leave savings account.

"(g) ONE ACCOUNT PER INDIVIDUAL. — An individual may not own more than one parental leave savings account. The Secretary shall prescribe such rules as are necessary to provide for liquidating an individual's parental leave savings account for transfer to a new parental leave savings account of the individual and for treating such amounts as a rollover distribution described in subsection (e)(3).

"(h) REPORTS. — The owner of a parental leave savings account shall make such reports regarding such account to the Secretary with respect to contributions, distributions, the return of excess contributions, and such other matters as the Secretary may require. 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.

"(i) COST-OF-LIVING ADJUSTMENT. —

"(1) IN GENERAL. — In the case of taxable years beginning in a calendar year after 2020, each dollar amount in subsections (b)(1) and (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 in which such taxable year begins determined by substituting 'calendar year 2019' for 'calendar year 2016' in subparagraph (A)(ii) thereof.

"(2) ROUNDING. — If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.".

(b) DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL ITEMIZES OTHER DEDUCTIONS. — Section 62(a) of such Code is amended by inserting after paragraph (21) the following new paragraph:

"(22) PARENTAL LEAVE SAVINGS ACCOUNTS. — The deduction allowed under section 224.".

(c) EXCLUSION FOR EMPLOYER CONTRIBUTIONS TO PARENTAL LEAVE SAVINGS ACCOUNTS. —

(1) IN GENERAL. — Part III of subchapter B of chapter 1 of such Code is amended by inserting after section 139F the following new section:

"SEC. 139G. CONTRIBUTIONS BY EMPLOYER TO PARENTAL LEAVE SAVINGS ACCOUNTS.

"(a) IN GENERAL. — Gross income of an employee does not include contributions by the employer to the parental leave savings account of the employee to the extent such amounts do not exceed the limitation under section 224(b)(1) (determined without regard to this section) which is applicable to such employee for such taxable year.

"(b) PARENTAL LEAVE SAVINGS ACCOUNT. — For purposes of this section, the term 'parental leave savings account' shall have the meaning given to such term by section 224.

"(c) EXCLUSION NOT TO EXCEED COMPENSATION. —

"(1) EMPLOYEES. — The amount excluded from gross income by subsection (a) with respect to an  employee shall not exceed such employee's wages, salaries, tips, and other employee compensation which are attributable to such employee's employment by the employer referred to in such subsection.

"(2) SELF-EMPLOYED INDIVIDUALS. — The amount excluded from gross income by subsection (a) for contributions with respect to an individual who is self-employed shall not exceed such individual's earned income (as defined in section 401(c)(2)) derived by the taxpayer from the trade or business with respect to which the individual is self-employed.

"(3) COMMUNITY PROPERTY LAWS NOT TO APPLY. — The limitations under this subsection shall be determined without regard to community property laws.".

(2) CONFORMING AMENDMENTS. —

(A) Section 3121(a) of such Code is amended by striking "or" at the end of paragraph (22), by striking the period at the end of paragraph (23) and inserting "; or", and by inserting after paragraph (23) the following new paragraph:

"(24) any payment made to a parental leave savings account (as defined in section 224) or an employee.".

(B) Section 3231(e) of such Code is amended by adding at the end the following new paragraph:

"(13) PARENTAL LEAVE SAVINGS ACCOUNT CONTRIBUTIONS. — The term 'compensation' shall not include any payment made to a parental leave savings account (as defined in section 224) of an employee.".

(C) Section 3306(b) of such Code is amended by striking "or" at the end of paragraph (19), by striking the period at the end of paragraph (20) and inserting "; or", and by inserting after paragraph (20) the following new paragraph:

"(21) any payment made to a parental leave savings account (as defined in section 224) of an employee.".

(D) Section 3401(a) of such Code is amended by striking "or" at the end of paragraph (21), by striking the period at the end of paragraph (22) and inserting "; or", and by inserting after paragraph (22) the following new paragraph:

"(23) any payment made to a parental leave savings account (as defined in section 224) of an employee.".

(E) Section 6051(a) of such Code is amended by striking "and" at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting ", and", and by inserting after paragraph (14) the following new paragraph:

"(15) the amount contributed to any parental leave savings account (as defined in section 224) of such employee.".

(d) PROHIBITED TRANSACTIONS. —

(1) EXCEPTION FOR TAXABLE DISTRIBUTIONS FROM PARENTAL LEAVE SAVINGS ACCOUNTS. — Subsection (c) of section 4975 of such Code (defining prohibited transaction) is amended by adding at the end the following new paragraph:

"(7) SPECIAL RULE FOR PARENTAL LEAVE SAVINGS ACCOUNTS. — An individual for whose benefit a parental leave savings account (with the meaning of section 224) is established and any contributor to such account 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 parental leave savings account by reason of the application of section 224(f)(2) to such account.".

(2) PLAN DEFINED. — Section 4975(e)(1) of such Code 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:

"(G) a parental leave savings account described in section 224, or".

(e) PENALTY ON FAILURE TO REPORT. — Section 6693(a)(2) of such Code is amended by striking "and" at the end of subparagraph (D), by striking the period at the end of subparagraph (E) and inserting ", and", and by inserting after subparagraph (E) the following new subparagraph:

"(F) section 224(g) (relating to parental leave savings accounts).".

(f) CONFORMING AMENDMENT. — Section 26(b)(2) of such Code is amended by striking "and" at the end of subparagraph (X), by striking the period at the end of subparagraph (Y) and inserting ", and", and by adding at the end the following new subparagraph:

"(Z) section 224(e)(4) (relating to additional tax with respect to distributions not used for early parenthood payment purposes).".

(g) CLERICAL AMENDMENTS. —

(1) The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by redesignating the item relating to section 224 as an item relating to section 225 and by inserting after the item relating to section 223 the following new item:

"Sec. 224. Parental leave savings accounts.".

(2) 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 139F the following new item:

"Sec. 139G. Contributions by employer to parental leave savings accounts.".

(h) EFFECTIVE DATE. — The amendments made by this section shall apply to taxable years beginning after December 31, 2019.