text: SECTION 1. SHORT TITLE AND AMENDMENT OF 1986 CODE.
  
      (a) Short Title.--This Act may be cited as the ``Long-Term Care 
  Advancement Act of 1998''.
      (b) Amendment of 1986 Code.--Except as otherwise expressly 
  provided, whenever in this Act an amendment or repeal is expressed in 
  terms of an amendment to, or repeal of, a section or other provision, 
  the reference shall be considered to be made to a section or other 
  provision of the Internal Revenue Code of 1986.
  
  SEC. 2. EXCEPTION FROM PENALTY TAX AND EXCLUSION FROM INCOME FOR 
                AMOUNTS WITHDRAWN FROM CERTAIN RETIREMENT PLANS FOR 
                QUALIFIED LONG-TERM CARE INSURANCE.
  
      (a) Exception From Penalty Tax.--Paragraph (2) of section 72(t) 
  (relating to 10-percent additional tax on early distributions from 
  qualified retirement plans) is amended by adding at the end the 
  following new subparagraph:
                      ``(G) Premiums for qualified long-term care 
                  insurance contracts.--
                              ``(i) In general.--Distributions to an 
                          individual from an individual retirement plan, 
                          or from amounts attributable to employer 
                          contributions made pursuant to elective 
                          deferrals described in subparagraph (A) or (C) 
                          of section 402(g)(3), to the extent such 
                          distributions do not exceed the premiums for a 
                          qualified long-term care insurance contract for 
                          such individual or the spouse of such 
                          individual. In applying subparagraph (B), such 
                          premiums shall be treated as amounts not paid 
                          for medical care.
                              ``(ii) No double benefit.--No deduction 
                          shall be allowed under section 213 for any 
                          amount described in this subparagraph unless 
                          the taxpayer elects to have this subparagraph 
                          not apply to such amount.
                              ``(iii) Qualified long-term care insurance 
                          contract.--For purposes of this subparagraph, 
                          the term `qualified long-term care insurance 
                          contract' has the meaning given such term by 
                          section 7702B(b), except that such term 
                          includes only such contracts which are licensed 
                          for sale in the State in which the policy was 
                          purchased.''
      (b) Exclusion From Income for Amounts Withdrawn From Certain Plans 
  To Pay Long-Term Care Premiums.--Part III of subchapter B of chapter 1 
  (relating to items specifically excluded from gross income) is amended 
  by redesignating section 139 as section 140 and by inserting after 
  section 138 the following new section:
  
  ``SEC. 139. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS AND SECTION 
                401(K) PLANS FOR LONG-TERM CARE INSURANCE.
  
      ``(a) General Rule.--The amount which would (but for this section) 
  be includible in the gross income of an individual for the taxable year 
  by reason of distributions from any individual retirement plan (within 
  the meaning of section 7701(a)(37)) or qualified cash or deferred 
  arrangement (within the meaning of section 401(k)) shall be reduced 
  (but not below zero) by the eligible long-term care premiums (as 
  defined in section 213(d)(10)) paid by such individual during such 
  taxable year for any qualified long-term care insurance contract 
  covering such individual or the spouse of such individual.
      ``(b) Special Rules for Section 401(k) Plans.--
              ``(1) Withdrawals cannot exceed elective contributions 
          under qualified cash or deferred arrangement.--This section 
          shall not apply to any distribution from a qualified cash or 
          deferred arrangement (within the meaning of section 401(k)) to 
          the extent the aggregate amount of such distributions for the 
          use described in subsection (a) exceeds the aggregate employer 
          contributions made pursuant to the employee's election under 
  section 401(k)(2).
              ``(2) Withdrawals not to cause disqualification.--A plan 
          shall not be treated as failing to satisfy the requirements of 
          section 401, and an arrangement shall not be treated as failing 
          to be a qualified cash or deferred arrangement (within the 
          meaning of section 401(k)), merely because under the plan or 
          arrangement distributions are permitted which are excludable 
          from gross income by reason of this section.
      ``(c) Qualified Long-Term Care Insurance Contract.--For purposes of 
  this section, the term `qualified long-term care insurance contract' 
  has the meaning given such term by section 7702B(b), except that such 
  term includes only such contracts which are licensed for sale in the 
  State in which the taxpayer purchased the policy.''
      (c) Distributions Permitted From Certain Plans To Pay Long-term 
  Care Premiums.--
              (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
          at the end of subclause (III), by striking ``and'' at the end 
          of subclause (IV) and inserting ``or'', and by inserting after 
          subclause (IV) the following new subclause:
                                      ``(V) the date distributions for 
                                  premiums for a long-term care insurance 
                                  contract (as defined in section 139(c)) 
                                  for coverage of such individual or the 
                                  spouse of such individual are made, 
                                  and''.
              (2) Section 403(b)(11) is amended by striking ``or'' at the 
          end of subparagraph (A), by striking the period at the end of 
          subparagraph (B) and inserting ``, or'', and by inserting after 
          subparagraph (B) the following new subparagraph:
                      ``(C) for the payment of premiums for a long-term 
                  care insurance contract (as defined in section 139(c)) 
                  for coverage of the employee or the spouse of the 
                  employee.''
              (3) Subparagraph (A) of section 457(d)(1) is amended by 
          striking ``or'' at the end of clause (ii), by striking ``and'' 
          at the end of clause (iii) and inserting ``or'', and by 
          inserting after clause (iii) the following new clause:
                              ``(iv) the date distributions for premiums 
                          for a long-term care insurance contract (as 
                          defined in section 139(c)) for coverage of such 
                          individual or the spouse of such individual are 
                          made, and''.
      (d) Conforming Amendments.--
              (1) Section 72(t)(2)(B) is amended by striking 
          ``subparagraph (A), (C), or (D)'' and inserting ``subparagraph 
          (A), (C), (D), or (G)''.
              (2) Section 401(k) is amended by adding at the end the 
          following new paragraph:
              ``(13) Cross reference.--
  
                                  ``For provision permitting tax-free 
  withdrawals for payment of long-term care premiums, see section 139.''
              (3) Section 408(d) is amended by adding at the end the 
          following new paragraph:
              ``(8) Cross reference.--
  
                                  ``For provision permitting tax-free 
  withdrawals from individual retirement plans for payment of long-term 
  care premiums, see section 139.''
              (4) The table of sections for part III of subchapter B of 
          chapter 1 is amended by striking the last item and inserting 
          the following new items:
  
                                ``Sec. 139. Distributions from individual 
                                          retirement plans and section 
                                          401(k) plans for long-term care 
                                          insurance.
                                ``Sec. 140. Cross references to other 
                                          Acts.''
      (e) Effective Date.--The amendments made by this section shall 
  apply to payments and distributions after December 31, 1997.
  
  SEC. 3. REFUNDABLE CREDIT FOR TAXPAYERS WITH CERTAIN PERSONS REQUIRING 
                CUSTODIAL CARE IN THEIR HOUSEHOLDS.
  
      (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
  (relating to refundable credits) is amended by redesignating section 35 
  as section 36 and by inserting after section 34 the following new 
  section:
  
  ``SEC. 35. CREDIT FOR TAXPAYERS WITH CERTAIN PERSONS REQUIRING 
                CUSTODIAL CARE IN THEIR HOUSEHOLDS.
  
      ``(a) Allowance of Credit.--In the case of an individual who 
  maintains a household which includes as a member one or more qualified 
  persons, there shall be allowed as a credit against the tax imposed by 
  this chapter for the taxable year an amount equal to $500 for each such 
  person.
      ``(b) Limitation Based on Adjusted Gross Income.--
              ``(1) In general.--The amount of the credit allowable under 
          subsection (a) shall be reduced (but not below zero) by $50 for 
          each $1,000 (or fraction thereof) by which the taxpayer's 
          modified adjusted gross income exceeds the threshold amount. 
          For purposes of the preceding sentence, the term `modified 
          adjusted gross income' means adjusted gross income increased by 
          any amount excluded from gross income under section 911, 931, 
          or 933.
              ``(2) Threshold amount.--For purposes of paragraph (1), the 
          term `threshold amount' means--
                      ``(A) $110,000 in the case of a joint return,
                      ``(B) $75,000 in the case of an individual who is 
                  not married, and
                      ``(C) $55,000 in the case of a married individual 
                  filing a separate return.
          For purposes of this paragraph, marital status shall be 
          determined under section 7703.
      ``(c) Qualified Person.--For purposes of this section, the term 
  `qualified person' means any individual--
              ``(1) who is a father or mother of the taxpayer, his 
          spouse, or his former spouse or who is an ancestor of such a 
          father or mother,
              ``(2) who is a chronically ill individual (as defined in 
          section 7702B(c)(2)),
              ``(3) who has as his principal place of abode for more than 
          half of the taxable year the home of the taxpayer, and
              ``(4) whose name and TIN are included on the taxpayer's 
          return for the taxable year.
  For purposes of paragraph (1), a stepfather or stepmother shall be 
  treated as a father or mother.
      ``(d) Special Rules.--For purposes of this section, rules similar 
  to the rules of paragraphs (1), (2), (3), and (4) of section 21(e) 
  shall apply.
      ``(e) Phase-In.--In the case of a taxable year beginning in a 
  calendar year before 2002, subsection (a) shall be applied by 
  substituting the applicable amount determined under the following table 
  for the $500 amount appearing in subsection (a):
  
  ``If the calendar year is:
                                                The applicable amount is:
    1998...............................................       $250       
    1999...............................................       $350       
    2000...............................................       $400       
    2001...............................................       $450.      
      ``(f) Inflation Adjustment.--In the case of any taxable year 
  beginning in a calendar year after 2002, the $500 amount contained in 
  subsection (a) shall be increased by an amount equal to--
              ``(1) such dollar amount, multiplied by
              ``(2) the cost-of-living adjustment under section 1(f)(3) 
          for the calendar year in which the taxable year begins, 
          determined by substituting `calendar year 2001' for `calendar 
          year 1992' in subparagraph (B) thereof.
  If any amount as adjusted under the preceding sentence is not a 
  multiple of $50, such amount shall be rounded to the nearest multiple 
  of $50.''
      (b) Clerical Amendment.--The table of sections for subpart C of 
  part IV of subchapter A of chapter 1 is amended by striking the last 
  item and inserting the following:
  
                                ``Sec. 35. Credit for taxpayers with 
                                          certain persons requiring 
                                          custodial care in their 
                                          households.
                                ``Sec. 36. Overpayments of tax.''
      (c) Effective Date.--The amendments made by this section shall 
  apply to taxable years beginning after December 31, 1997.
target: Long-Term Care Advancement Act of 1998 - Amends the Internal Revenue Code to:  (1) except from the penalty tax and exclude from income amounts withdrawn from qualified retirement plans which are used to pay for premiums for qualified long-term care insurance contracts; and (2) provide a limited credit for an individual who maintains a household with a person requiring custodial care.
feat_title: Long-Term Care Advancement Act of 1998