Federal

Emergency Savings Accounts Act of 2023

Source: Congress.gov · 3,260 words in original text

What This Bill Does

This bill creates a new type of savings account called an Emergency Savings Account. People can contribute money to these accounts and reduce their taxable income. The money can be withdrawn tax-free to pay for specific emergency expenses like disaster repairs, public health emergency costs, and unemployment-related expenses.

Who It Affects

- Individuals who live in the United States and want to save for emergencies - Banks and insurance companies that will manage these accounts - The Internal Revenue Service (the federal tax agency)

Key Provisions

- Individuals can contribute up to $5,000 per year to an Emergency Savings Account and deduct that amount from their taxable income (Sec. 2(b)) - Money withdrawn from the account is not taxed if used only for qualified disaster recovery, disaster prevention, public health emergency expenses, or unemployment-related expenses under $500 (Sec. 2(f)(1)) - The account must be held in a trust at a bank, insurance company, or other approved person, and cannot be invested in life insurance contracts (Sec. 2(d)(1)(B) and (C)) - If someone withdraws money for non-emergency purposes, that money becomes taxable income plus an extra 20 percent tax penalty (Sec. 2(f)(4)(A)) - People claimed as dependents by another taxpayer cannot use this deduction (Sec. 2(h)(1))

What Changes

The Internal Revenue Code gains a new section allowing individual tax deductions for Emergency Savings Account contributions. Banks and insurance companies must now meet requirements to manage these accounts. Individuals gain a tax-advantaged way to save for emergencies without paying taxes on qualified withdrawals.

Important Definitions

- **Eligible individual**: Any individual who lived in the United States at any time during the tax year (Sec. 2(c)) - **Qualified disaster and public health emergency expenses**: Disaster prevention costs, disaster repair costs, public health emergency expenses, and unemployment-related expenses totaling no more than $500 (Sec. 2(d)(2)) - **Disaster mitigation expenses**: Costs for tornado safe rooms, wind-resistant windows, roof reinforcement, flood-resistant materials, generators, and other activities the Secretary determines prevent future disasters (Sec. 2(d)(3)) - **Disaster recovery expenses**: Costs to replace or repair uninsured disaster losses totaling $1,000 or more (Sec. 2(d)(4)) - **Public health emergency expenses**: Child care, out-of-pocket health costs, housing costs, and utilities during a declared public health emergency while the person is unemployed or working part-time (Sec. 2(d)(7)) - **Unemployment related expenses**: Any expenses during a period of unemployment, limited to $500 total per year (Sec. 2(d)(9)) - **Account beneficiary**: The individual on whose behalf the Emergency Savings Account was established (Sec. 2(d)(10)) - **Federally declared disaster**: A disaster declared by the federal government using the same definition in tax code section 165(i)(5) (Sec. 2(d)(6)) - **Public health emergency declaration**: A declaration by the Secretary of Health and Human Services under a specific section of the Public Health Service Act (Sec. 2(d)(8))

Effective Date

The law applies to tax years beginning after December 31, 2022 (Sec. 2(f)).

I 118TH CONGRESS 1ST SESSION H. R. 312 To amend the Internal Revenue Code of 1986 to provide emergency savings accounts for individuals. IN THE HOUSE OF REPRESENTATIVES JANUARY 12, 2023 Mr. CLOUD 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 emergency savings accounts for individuals. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Emergency Savings 4 Accounts Act of 2023’’. 5 SEC. 2. DEDUCTION FOR CONTRIBUTIONS TO EMERGENCY 6 SAVINGS ACCOUNTS. 7 (a) IN GENERAL.—Part VII of subchapter B of chap- 8 ter 1 of the Internal Revenue Code of 1986 (relating to 9 additional itemized deductions for individuals) is amended 10 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •HR 312 IH by redesignating section 224 as section 225 and by insert- 1 ing after section 223 the following new section: 2 ‘‘SEC. 224. EMERGENCY SAVINGS ACCOUNTS. 3 ‘‘(a) DEDUCTION ALLOWED.—In the case of a eligi- 4 ble individual, there shall be allowed as a deduction for 5 the taxable year an amount equal to the aggregate amount 6 paid during such taxable year by or on behalf of such indi- 7 vidual to an emergency savings account of such individual. 8 ‘‘(b) LIMITATION.— 9 ‘‘(1) IN GENERAL.—The amount allowed as a 10 deduction under subsection (a) to an individual for 11 the taxable year shall not exceed $5,000. 12 ‘‘(2) PARTIAL YEAR OF ELIGIBILITY.—In the 13 case of an individual who is an eligible individual for 14 only a portion of the taxable year, the limitation 15 under paragraph (1) shall be same proportion of 16 $5,000 as such portion bears to the entire taxable 17 year. 18 ‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this 19 section, the term ‘eligible individual’ means any individual 20 if such individual occupied any residence in the United 21 States at any time during the taxable year. 22 ‘‘(d) EMERGENCY SAVINGS ACCOUNT.—For purposes 23 of this section— 24 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •HR 312 IH ‘‘(1) IN GENERAL.—The term ‘emergency sav- 1 ings account’ means a trust created or organized in 2 the United States as an emergency savings account 3 exclusively for the purpose of paying the qualified 4 disaster and public health emergency expenses of the 5 account beneficiary, but only if the written governing 6 instrument creating the trust meets the following re- 7 quirements: 8 ‘‘(A) Except in the case of a rollover con- 9 tribution described in subsection (f)(5), no con- 10 tribution will be accepted— 11 ‘‘(i) unless it is in cash, or 12 ‘‘(ii) to the extent such contribution, 13 when added to previous contributions to 14 the trust for the calendar year, exceeds the 15 dollar limitation in effect under subsection 16 (b). 17 ‘‘(B) The trustee is a bank (as defined in 18 section 408(n)), an insurance company (as de- 19 fined in section 816), or another person who 20 demonstrates to the satisfaction of the Sec- 21 retary that the manner in which such person 22 will administer the trust will be consistent with 23 the requirements of this section. 24 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 4 •HR 312 IH ‘‘(C) No part of the trust assets will be in- 1 vested in life insurance contracts. 2 ‘‘(D) The assets of the trust will not be 3 commingled with other property except in a 4 common trust fund or common investment 5 fund. 6 ‘‘(E) The interest of an individual in the 7 balance in his account is nonforfeitable. 8 ‘‘(2) QUALIFIED DISASTER AND PUBLIC 9 HEALTH EMERGENCY EXPENSES.—The term ‘quali- 10 fied disaster and public health emergency expenses’ 11 means— 12 ‘‘(A) disaster mitigation expenses, 13 ‘‘(B) disaster recovery expenses, 14 ‘‘(C) public health emergency expenses, 15 and 16 ‘‘(D) unemployment related expenses. 17 ‘‘(3) DISASTER MITIGATION EXPENSES.—The 18 term ‘disaster mitigation expenses’ means expenses 19 for any of the following with respect to the residence 20 referred to in subsection (c): 21 ‘‘(A) Tornado safe rooms manufactured or 22 constructed in accordance with FEMA 320 or 23 FEMA 361 guidance or tornado shelters manu- 24 factured or constructed in accordance with the 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 5 •HR 312 IH National Storm Shelter/International Code 1 Council 500 standard. 2 ‘‘(B) Opening protection, including impact 3 and wind resistant windows, exterior doors, and 4 garage doors. 5 ‘‘(C) Reinforcement of roof-to-wall and 6 floor-to-wall connections for wind or seismic ac- 7 tivity. 8 ‘‘(D) Roof covering for impact, fire, or 9 high wind resistance. 10 ‘‘(E) Cripple and shear walls to resist seis- 11 mic activity. 12 ‘‘(F) Flood resistant building materials. 13 ‘‘(G) Elevating structures and utilities 14 above base flood elevation. 15 ‘‘(H) Fire resistant exterior wall assem- 16 blies/systems. 17 ‘‘(I) Lightning protection systems. 18 ‘‘(J) Whole home standby generators. 19 ‘‘(K) Any activity specified by the Sec- 20 retary as appropriate to mitigate the risks of 21 future hazards (including earthquake, flood, 22 hail, hurricane, sinkhole, lightning, power out- 23 age, tornado, and wildfire) and other natural 24 disasters. 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 6 •HR 312 IH ‘‘(4) DISASTER RECOVERY EXPENSES.—The 1 term ‘disaster recovery expenses’ means with respect 2 to the residence referred to in subsection (c) any ex- 3 pense incurred to replace or repair disaster-related 4 uninsured personal casualty personal losses totaling 5 $1,000 or greater. 6 ‘‘(5) DISASTER-RELATED UNINSURED PER- 7 SONAL CASUALTY LOSS.—The term ‘disaster-related 8 uninsured personal casualty loss’ means a personal 9 casualty loss (as defined in section 165(h)(3)(B), de- 10 termined without regard to the second sentence 11 thereof) attributable to a State or federally declared 12 disaster for which a deduction is allowable under 13 section 165 (without regard to subsection (h)(1)). 14 ‘‘(6) FEDERALLY DECLARED DISASTER.—The 15 term ‘federally declared disaster’ has the meaning 16 given such term by section 165(i)(5). 17 ‘‘(7) PUBLIC HEALTH EMERGENCY EX- 18 PENSES.—The term ‘public health emergency ex- 19 penses’ means expenses for any of the following with 20 respect to an individual referred to in subsection (c) 21 if paid or incurred while a public health emergency 22 declaration is in effect and while such individual is 23 unemployed or has their employment status reduced 24 from full-time status: 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 7 •HR 312 IH ‘‘(A) Child care expenses. 1 ‘‘(B) Out-of-pocket health care costs, in- 2 cluding insurance premiums. 3 ‘‘(C) Housing expenses including mort- 4 gage, rent, or property taxes. 5 ‘‘(D) Utilities. 6 ‘‘(8) PUBLIC HEALTH EMERGENCY DECLARA- 7 TION.—The term ‘public health emergency declara- 8 tion’ means any declaration of a public health emer- 9 gency by the Secretary of Health and Human Serv- 10 ices under section 319 of the Public Health Service 11 Act (42 U.S.C. 247d). 12 ‘‘(9) UNEMPLOYMENT RELATED EXPENSES.— 13 The term ‘unemployment related expenses’ means, in 14 the case of an account beneficiary with any period 15 of unemployment during the taxable year, any ex- 16 penses during such taxable year which, in the aggre- 17 gate, do not exceed $500. 18 ‘‘(10) ACCOUNT BENEFICIARY.—The term ‘ac- 19 count beneficiary’ means the individual on whose be- 20 half the emergency savings account was established. 21 ‘‘(e) TREATMENT OF ACCOUNT.— 22 ‘‘(1) IN GENERAL.—An emergency savings ac- 23 count is exempt from taxation under this subtitle 24 unless such account has ceased to be an emergency 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 8 •HR 312 IH savings account. Notwithstanding the preceding sen- 1 tence, any such account is subject to the taxes im- 2 posed by section 511 (relating to imposition of tax 3 on unrelated business income of charitable, etc. or- 4 ganizations). 5 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 6 to the rules of paragraphs (2) and (4) of section 7 408(e) shall apply to emergency savings accounts, 8 and any amount treated as distributed under such 9 rules shall be treated as not used to pay qualified 10 disaster and public health emergency expenses. 11 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.— 12 ‘‘(1) AMOUNTS USED FOR QUALIFIED DISASTER 13 AND PUBLIC HEALTH EMERGENCY EXPENSES.—Any 14 amount paid or distributed out of an emergency sav- 15 ings account which is used exclusively to pay quali- 16 fied disaster and public health emergency expenses 17 of any account beneficiary shall not be includible in 18 gross income. 19 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR 20 QUALIFIED DISASTER AND PUBLIC HEALTH EMER- 21 GENCY EXPENSES.—Any amount paid or distributed 22 out of an emergency savings account which is not 23 used exclusively to pay the qualified disaster and 24 public health emergency expenses of the account 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 9 •HR 312 IH beneficiary shall be included in the gross income of 1 such beneficiary. 2 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE- 3 FORE DUE DATE OF RETURN.— 4 ‘‘(A) IN GENERAL.—If any excess con- 5 tribution is contributed for a taxable year to 6 any emergency savings account of an individual, 7 paragraph (2) shall not apply to distributions 8 from the emergency savings accounts of such 9 individual (to the extent such distributions do 10 not exceed the aggregate excess contributions to 11 all such accounts of such individual for such 12 year) if— 13 ‘‘(i) such distribution is received by 14 the individual on or before the last day 15 prescribed by law (including extensions of 16 time) for filing such individual’s return for 17 such taxable year, and 18 ‘‘(ii) such distribution is accompanied 19 by the amount of net income attributable 20 to such excess contribution. 21 Any net income described in clause (ii) shall be 22 included in the gross income of the individual 23 for the taxable year in which it is received. 24 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 10 •HR 312 IH ‘‘(B) EXCESS CONTRIBUTION.—For pur- 1 poses of subparagraph (A), the term ‘excess 2 contribution’ means any contribution (other 3 than a rollover contribution described in para- 4 graph (5)) which is not deductible under this 5 section. 6 ‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT 7 USED FOR QUALIFIED DISASTER AND PUBLIC 8 HEALTH EMERGENCY EXPENSES.— 9 ‘‘(A) IN GENERAL.—The tax imposed by 10 this chapter on the account beneficiary for any 11 taxable year in which there is a payment or dis- 12 tribution from an emergency savings account of 13 such beneficiary which is includible in gross in- 14 come under paragraph (2) shall be increased by 15 20 percent of the amount which is so includible. 16 ‘‘(B) EXCEPTION FOR DISABILITY OR 17 DEATH.—Subparagraph (A) shall not apply if 18 the payment or distribution is made after the 19 account beneficiary becomes disabled within the 20 meaning of section 72(m)(7) or dies. 21 ‘‘(5) ROLLOVER CONTRIBUTION.—An amount is 22 described in this paragraph as a rollover contribu- 23 tion if it meets the requirements of subparagraphs 24 (A) and (B). 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 11 •HR 312 IH ‘‘(A) IN GENERAL.—Paragraph (2) shall 1 not apply to any amount paid or distributed 2 from an emergency savings account to the ac- 3 count beneficiary to the extent the amount re- 4 ceived is paid into an emergency savings ac- 5 count for the benefit of such beneficiary not 6 later than the 60th day after the day on which 7 the beneficiary receives the payment or distribu- 8 tion. 9 ‘‘(B) LIMITATION.—This paragraph shall 10 not apply to any amount described in subpara- 11 graph (A) received by an individual from an 12 emergency savings account if, at any time dur- 13 ing the 1-year period ending on the day of such 14 receipt, such individual received any other 15 amount described in subparagraph (A) from an 16 emergency savings account which was not in- 17 cludible in the individual’s gross income because 18 of the application of this paragraph. 19 ‘‘(g) COST-OF-LIVING ADJUSTMENT.— 20 ‘‘(1) IN GENERAL.—In the case of any taxable 21 year beginning in a calendar year after 2023, each 22 $5,000 amount in subsection (b) and the $3,000 23 amount in subsection (d)(4) shall be increased by an 24 amount equal to— 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns on DSKJLVW7X2PROD with $$_JOB 12 •HR 312 IH ‘‘(A) such dollar amount, multiplied by 1 ‘‘(B) the cost-of-living adjustment deter- 2 mined under section 1(f)(3) for the calendar 3 year in which such taxable year begins deter- 4 mined by substituting ‘calendar year 2022’ for 5 ‘calendar year 2016’ in subparagraph (A)(ii) 6 thereof. 7 ‘‘(2) ROUNDING.—If any increase under para- 8 graph (1) is not a multiple of $50, such increase 9 shall be rounded to the nearest multiple of $50. 10 ‘‘(h) SPECIAL RULES.— 11 ‘‘(1) DENIAL OF DEDUCTION TO DEPEND- 12 ENTS.—No deduction shall be allowed under this 13 section to any individual with respect to whom a de- 14 duction under section 151 is allowable to another 15 taxpayer for a taxable year beginning in the cal- 16 endar year in which such individual’s taxable year 17 begins. 18 ‘‘(2) TAXABLE YEAR MUST BE FULL TAXABLE 19 YEAR.—Except in the case of a taxable year closed 20 by reason of the death of the taxpayer, no deduction 21 shall be allowed under this section in the case of a 22 taxable year covering a period of less than 12 23 months. 24 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H312.IH H312 pbinns [Text truncated for display. Full text available on Congress.gov.]

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