
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC105]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
         PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
 
Sec. 105. Amounts received under accident and health plans


(a) Amounts attributable to employer contributions

    Except as otherwise provided in this section, amounts received by an 
employee through accident or health insurance for personal injuries or 
sickness shall be included in gross income to the extent such amounts 
(1) are attributable to contributions by the employer which were not 
includible in the gross income of the employee, or (2) are paid by the 
employer.

(b) Amounts expended for medical care

    Except in the case of amounts attributable to (and not in excess of) 
deductions allowed under section 213 (relating to medical, etc., 
expenses) for any prior taxable year, gross income does not include 
amounts referred to in subsection (a) if such amounts are paid, directly 
or indirectly, to the taxpayer to reimburse the taxpayer for expenses 
incurred by him for the medical care (as defined in section 213(d)) of 
the taxpayer, his spouse, and his dependents (as defined in section 
152). Any child to whom section 152(e) applies shall be treated as a 
dependent of both parents for purposes of this subsection.

(c) Payments unrelated to absence from work

    Gross income does not include amounts referred to in subsection (a) 
to the extent such amounts--
        (1) constitute payment for the permanent loss or loss of use of 
    a member or function of the body, or the permanent disfigurement, of 
    the taxpayer, his spouse, or a dependent (as defined in section 
    152), and
        (2) are computed with reference to the nature of the injury 
    without regard to the period the employee is absent from work.

[(d) Repealed. Pub. L. 98-21, title I, Sec. 122(b), Apr. 20, 1983, 97 
        Stat. 87]

(e) Accident and health plans

    For purposes of this section and section 104--
        (1) amounts received under an accident or health plan for 
    employees, and
        (2) amounts received from a sickness and disability fund for 
    employees maintained under the law of a State or the District of 
    Columbia,

shall be treated as amounts received through accident or health 
insurance.

(f) Rules for application of section 213

    For purposes of section 213(a) (relating to medical, dental, etc., 
expenses) amounts excluded from gross income under subsection (c) or (d) 
shall not be considered as compensation (by insurance or otherwise) for 
expenses paid for medical care.

(g) Self-employed individual not considered an employee

    For purposes of this section, the term ``employee'' does not include 
an individual who is an employee within the meaning of section 401(c)(1) 
(relating to self-employed individuals).

(h) Amount paid to highly compensated individuals under a discriminatory 
        self-insured medical expense reimbursement plan

                           (1) In general

        In the case of amounts paid to a highly compensated individual 
    under a self-insured medical reimbursement plan which does not 
    satisfy the requirements of paragraph (2) for a plan year, 
    subsection (b) shall not apply to such amounts to the extent they 
    constitute an excess reimbursement of such highly compensated 
    individual.

                  (2) Prohibition of discrimination

        A self-insured medical reimbursement plan satisfies the 
    requirements of this paragraph only if--
            (A) the plan does not discriminate in favor of highly 
        compensated individuals as to eligibility to participate; and
            (B) the benefits provided under the plan do not discriminate 
        in favor of participants who are highly compensated individuals.

          (3) Nondiscriminatory eligibility classifications

        (A) In general

            A self-insured medical reimbursement plan does not satisfy 
        the requirements of subparagraph (A) of paragraph (2) unless 
        such plan benefits--
                (i) 70 percent or more of all employees, or 80 percent 
            or more of all the employees who are eligible to benefit 
            under the plan if 70 percent or more of all employees are 
            eligible to benefit under the plan; or
                (ii) such employees as qualify under a classification 
            set up by the employer and found by the Secretary not to be 
            discriminatory in favor of highly compensated individuals.

        (B) Exclusion of certain employees

            For purposes of subparagraph (A), there may be excluded from 
        consideration--
                (i) employees who have not completed 3 years of service;
                (ii) employees who have not attained age 25;
                (iii) part-time or seasonal employees;
                (iv) employees not included in the plan who are included 
            in a unit of employees covered by an agreement between 
            employee representatives and one or more employers which the 
            Secretary finds to be a collective bargaining agreement, if 
            accident and health benefits were the subject of good faith 
            bargaining between such employee representatives and such 
            employer or employers; and
                (v) employees who are nonresident aliens and who receive 
            no earned income (within the meaning of section 911(d)(2)) 
            from the employer which constitutes income from sources 
            within the United States (within the meaning of section 
            861(a)(3)).

                   (4) Nondiscriminatory benefits

        A self-insured medical reimbursement plan does not meet the 
    requirements of subparagraph (B) of paragraph (2) unless all 
    benefits provided for participants who are highly compensated 
    individuals are provided for all other participants.

              (5) Highly compensated individual defined

        For purposes of this subsection, the term ``highly compensated 
    individual'' means an individual who is--
            (A) one of the 5 highest paid officers,
            (B) a shareholder who owns (with the application of section 
        318) more than 10 percent in value of the stock of the employer, 
        or
            (C) among the highest paid 25 percent of all employees 
        (other than employees described in paragraph (3)(B) who are not 
        participants).

             (6) Self-insured medical reimbursement plan

        The term ``self-insured medical reimbursement plan'' means a 
    plan of an employer to reimburse employees for expenses referred to 
    in subsection (b) for which reimbursement is not provided under a 
    policy of accident and health insurance.

      (7) Excess reimbursement of highly compensated individual

        For purposes of this section, the excess reimbursement of a 
    highly compensated individual which is attributable to a self-
    insured medical reimbursement plan is--
            (A) in the case of a benefit available to highly compensated 
        individuals but not to all other participants (or which 
        otherwise fails to satisfy the requirements of paragraph 
        (2)(B)), the amount reimbursed under the plan to the employee 
        with respect to such benefit, and
            (B) in the case of benefits (other than benefits described 
        in subparagraph (A) \1\ paid to a highly compensated individual 
        by a plan which fails to satisfy the requirements of paragraph 
        (2), the total amount reimbursed to the highly compensated 
        individual for the plan year multiplied by a fraction--
---------------------------------------------------------------------------
    \1\ So in original. Probably should be followed by a closing 
parenthesis.
---------------------------------------------------------------------------
                (i) the numerator of which is the total amount 
            reimbursed to all participants who are highly compensated 
            individuals under the plan for the plan year, and
                (ii) the denominator of which is the total amount 
            reimbursed to all employees under the plan for such plan 
            year.

    In determining the fraction under subparagraph (B), there shall not 
    be taken into account any reimbursement which is attributable to a 
    benefit described in subparagraph (A).

                 (8) Certain controlled groups, etc.

        All employees who are treated as employed by a single employer 
    under subsection (b), (c), or (m) of section 414 shall be treated as 
    employed by a single employer for purposes of this section.

                           (9) Regulations

        The Secretary shall prescribe such regulations as may be 
    necessary to carry out the provisions of this section.

                       (10) Time of inclusion

        Any amount paid for a plan year that is included in income by 
    reason of this subsection shall be treated as received or accrued in 
    the taxable year of the participant in which the plan year ends.

(i) Sick pay under Railroad Unemployment Insurance Act

    Notwithstanding any other provision of law, gross income includes 
benefits paid under section 2(a) of the Railroad Unemployment Insurance 
Act for days of sickness; except to the extent such sickness (as 
determined in accordance with standards prescribed by the Railroad 
Retirement Board) is the result of on-the-job injury.

(Aug. 16, 1954, ch. 736, 68A Stat. 30; Pub. L. 87-792, Sec. 7(e), Oct. 
10, 1962, 76 Stat. 829; Pub. L. 88-272, title II, Sec. 205(a), Feb. 26, 
1964, 78 Stat. 38; Pub. L. 94-455, title V, Sec. 505(a), title XIX, 
Sec. 1901(c)(2), Oct. 4, 1976, 90 Stat. 1566, 1803; Pub. L. 95-600, 
title III, Sec. 366(a), title VII, Sec. 701(c)(1), Nov. 6, 1978, 92 
Stat. 2855, 2899; Pub. L. 96-222, title I, Sec. 103(a)(13)(B), (C), Apr. 
1, 1980, 94 Stat. 213; Pub. L. 96-605, title II, Sec. 201(b)(1), Dec. 
28, 1980, 94 Stat. 3527; Pub. L. 96-613, Sec. 5(b)(1), Dec. 28, 1980, 94 
Stat. 3581; Pub. L. 97-34, title I, Secs. 103(c)(2), 111(b)(4), Aug. 13, 
1981, 95 Stat. 188, 194; Pub. L. 97-248, title II, Sec. 202(b)(3)(C), 
Sept. 3, 1982, 96 Stat. 421; Pub. L. 98-21, title I, Sec. 122(b), Apr. 
20, 1983, 97 Stat. 87; Pub. L. 98-76, title II, Sec. 241(a), Aug. 12, 
1983, 97 Stat. 430; Pub. L. 98-369, div. A, title IV, Sec. 423(b)(2), 
July 18, 1984, 98 Stat. 800; Pub. L. 99-514, title XI, Sec. 1151(c)(2), 
title XIII, Sec. 1301(j)(9), Oct. 22, 1986, 100 Stat. 2503, 2658; Pub. 
L. 101-140, title II, Sec. 203(a)(1), Nov. 8, 1989, 103 Stat. 830.)

                       References in Text

    Section 2(a) of the Railroad Unemployment Insurance Act, referred to 
in subsec. (i), is classified to section 352(a) of Title 45, Railroads.


                               Amendments

    1989--Subsecs. (h), (i). Pub. L. 101-140 amended subsecs. (h) and 
(i) to read as if amendments by Pub. L. 99-514, Sec. 1151(c)(2), had not 
been enacted, see 1986 Amendment note below.
    1986--Subsec. (d)(5)(C). Pub. L. 99-514, Sec. 1301(j)(9), which 
directed that subpar. (C) be amended by substituting ``section 7703(a)'' 
for ``section 143(a)'', could not be executed because subsec. (d) was 
previously repealed by Pub. L. 98-21. See 1983 Amendment note below.
    Subsecs. (h), (i). Pub. L. 99-514, Sec. 1151(c)(2), redesignated 
subsec. (i) as (h) and struck out former subsec. (h) which related to 
amount paid to highly compensated individuals under a discriminatory 
self-insured medical expense reimbursement plan.
    1984--Subsec. (b). Pub. L. 98-369 inserted ``Any child to whom 
section 152(e) applies shall be treated as a dependent of both parents 
for purposes of this subsection.''
    1983--Subsec. (d). Pub. L. 98-21 struck out subsec. (d) which 
provided that no deduction or credit would be allowed with respect to 
any expenditure which is properly associated with any amount excluded 
from gross income under subsec. (a).
    Subsec. (i). Pub. L. 98-76 added subsec. (i).
    1982--Subsec. (b). Pub. L. 97-248 substituted ``section 213(d)'' for 
``section 213(e)''.
    1981--Subsec. (d)(3). Pub. L. 97-34, Sec. 103(c)(2), substituted 
``this subsection and section 221'' for ``this subsection'' in 
parenthetical provision.
    Subsec. (h)(3)(B)(v). Pub. L. 97-34, Sec. 111(b)(4), substituted 
``section 911(d)(2)'' for ``section 911(b)''.
    1980--Subsec. (h)(3)(A). Pub. L. 96-222, Sec. 103(a)(13)(B), 
substituted ``highly compensated individuals'' for ``highly compensated 
participants''.
    Subsec. (h)(7)(A). Pub. L. 96-222, Sec. 103(a)(13)(C), substituted 
``highly compensated individuals but not to all other participants (or 
which otherwise fails to satisfy the requirements of paragraph (2)(B))'' 
for ``a highly compensated individual but not to a broad cross-section 
of employees''.
    Subsec. (h)(8). Pub. L. 96-613 and Pub. L. 96-605 made identical 
amendments by substituting in heading ``controlled groups, etc.'' for 
``controlled groups'', and by substituting in text ``subsection (b), 
(c), or (m) of section 414'' for ``subsection (b) or (c) of section 
414''.
    1978--Subsec. (d)(4). Pub. L. 95-600, Sec. 701 (c)(1), redesignated 
par. (5) as (4). Former par. (4) redesignated (5)(A) and (C).
    Subsec. (d)(5). Pub. L. 95-600, Sec. 701(c)(1), added heading and 
subpar. (B), redesignated former par. (4) as subpars. (A) and (C), 
adding subpar. (C) heading and substituting ``section 143(a)'' for 
``section 143''; and redesignated former par. (6) as subpar. (D), 
inserting ``defined'' in heading.
    Subsec. (d)(6), (7). Pub. L. 95-600, Sec. 701(c)(1), redesignated 
par. (7) as (6). Former par. (6) redesignated (5)(D).
    Subsec. (h). Pub. L. 95-600, Sec. 366(a), added subsec. (h).
    1976--Subsec. (d). Pub. L. 94-455, Sec. 505(a), substituted 
provisions relating to an exclusion of up to $5,200 a year for taxpayers 
retiring on disability prior to age 65; dollar-for-dollar phase out of 
exclusion for adjusted annual gross income (including disability income) 
in excess of $15,000; requirement that married couple must file joint 
return; defined ``permanent and total disability'' and ``joint return''; 
and inserted special rule for coordination with section 72 of this title 
for provisions relating to wage continuation plans.
    Subsec. (e)(2). Pub. L. 94-455, Sec. 1901(c)(2), struck out ``a 
territory'' after ``of a State''.
    1964--Subsec. (d). Pub. L. 88-272 substituted provisions stating 
that ``The preceding sentence shall not apply to amounts attributable to 
the first 30'' days if the amounts exceed 75 percent of regular weekly 
wages, and if they do not exceed said 75 percent, the first sentence of 
this subsection shall not apply to the extent the amounts exceed $75 
weekly and shall not apply to amounts attributable to the first 7 
calendar days unless the employee is hospitalized for injury or sickness 
for at least 1 day in such period, for provisions stating that said 
``preceding sentence'' did not apply in cases of sickness, to amounts 
attributable to the first 7 days unless the employee was hospitalized 
for sickness for at least 1 day during such period.
    1962--Subsec. (g). Pub. L. 87-792 added subsec. (g).


                    Effective Date of 1989 Amendment

    Amendment by Pub. L. 101-140 effective as if included in section 
1151 of Pub. L. 99-514, see section 203(c) of Pub. L. 101-140, set out 
as a note under section 79 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 1151(c)(2) of Pub. L. 99-514 applicable, with 
certain qualifications and exceptions, to years beginning after Dec. 31, 
1988, see section 1151(k) of Pub. L. 99-514, as amended, set out as a 
note under section 79 of this title.
    Amendment by section 1301(j)(9) of Pub. L. 99-514 applicable to 
bonds issued after Aug. 15, 1986, except as otherwise provided, see 
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective Date; 
Transitional Rules note under section 141 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 applicable to taxable years beginning 
after Dec. 31, 1984, see section 423(d) of Pub. L. 98-369, set out as a 
note under section 2 of this title.


                    Effective Date of 1983 Amendments

    Section 241(b) of Pub. L. 98-76 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to amounts 
received after December 31, 1983, in taxable years ending after such 
date.''
    Amendment by Pub. L. 98-21 applicable to taxable years beginning 
after Dec. 31, 1983, except that if an individual's annuity starting 
date was deferred under subsec. (d)(6) as in effect the day before Apr. 
20, 1983, such deferral shall end on the first day of such individual's 
first taxable year beginning after Dec. 31, 1983, see section 122(d) of 
Pub. L. 98-21 set out as a note under section 22 of this title.


                    Effective Date of 1982 Amendment

    Amendment by Pub. L. 97-248 applicable to taxable years beginning 
after Dec. 31, 1983, see section 202(c) of Pub. L. 97-248, set out as a 
note under section 213 of this title.


                    Effective Date of 1981 Amendment

    Amendment by Pub. L. 97-34 applicable to taxable years beginning 
after Dec. 31, 1981, see sections 103(d) and 115 of Pub. L. 97-34, set 
out as notes under sections 62 and 911, respectively, of this title.


                    Effective Date of 1980 Amendments

    Amendments by Pub. L. 96-605 and 96-613 applicable to years ending 
after Nov. 30, 1980, except in the case of a plan in existence on Nov. 
30, 1980, where amendments applicable to plan years beginning after Nov. 
30, 1980, see section 201(c) of Pub. L. 96-605 and section 5(c) of Pub. 
L. 96-613, set out as a note under section 414 of this title.
    Amendment by Pub. L. 96-222 effective, except as otherwise provided, 
as if it had been included in the provisions of the Revenue Act of 1978, 
Pub. L. 95-600, to which such amendment relates, see section 201 of Pub. 
L. 96-222, set out as a note under section 32 of this title.


                    Effective Date of 1978 Amendment

    Section 366(b) of Pub. L. 95-600, as amended by Pub. L. 96-222, 
title I, Sec. 103(a)(13)(D), Apr. 1, 1980, 94 Stat. 213, provided that: 
``The amendment made by this section [amending this section] shall apply 
to amounts reimbursed after December 31, 1979. For purposes of applying 
such amendment, there shall not be taken into account any amount 
reimbursed before January 1, 1980.''
    Section 701(c)(3) of Pub. L. 95-600, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(A) The amendments made by paragraphs (1) and (2)(A) [amending 
this section and provisions set out as a note under this section] shall 
take effect as if included in section 105(d) of the Internal Revenue 
Code of 1986 [formerly I.R.C. 1954] as such section was amended by 
section 505(a) of the Tax Reform Act of 1976.
    ``(B) The amendments made by paragraph (2)(B) [amending provisions 
set out as notes under this section] shall take effect as if included in 
section 301 of the Tax Reduction and Simplification Act of 1977 [Pub. L. 
95-30, title III, Sec. 301, May 23, 1977, 91 Stat. 152].''


                    Effective Date of 1976 Amendment

    Section 505(f) of Pub. L. 94-455, as added by Pub. L. 95-30, title 
III, Sec. 301(a), May 23, 1977, 91 Stat. 151, provided that: ``The 
amendment made by subsection (a) [amending this section] shall apply to 
taxable years beginning after December 31, 1976.''
    Amendment by section 1901(c)(2) of Pub. L. 94-455 applicable with 
respect to taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this 
title.


                    Effective Date of 1964 Amendment

    Section 205(b) of Pub. L. 88-272 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to amounts 
attributable to periods of absence commencing after December 31, 1963.''


                    Effective Date of 1962 Amendment

    Amendment by Pub. L. 87-792 applicable to taxable years beginning 
after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a note 
under section 22 of this title.


 Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99-514 for 
                            Fiscal Year 1990

    No monies appropriated by Pub. L. 101-136 to be used to implement or 
enforce section 1151 of Pub. L. 99-514 or the amendments made by such 
section, see section 528 of Pub. L. 101-136, set out as a note under 
section 89 of this title.


                         Revocation of Election

    Pub. L. 95-30, title III, Sec. 301(c), May 23, 1977, 91 Stat. 151, 
as amended by Pub. L. 95-600, title VII, Sec. 701(c)(2)(B), Nov. 6, 
1978, 92 Stat. 2900; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 
2095, provided that: ``Any election made under section 105(d)(6) of the 
Internal Revenue Code of 1986 [formerly I.R.C. 1954] or under section 
505(d) of the Tax Reform Act of 1976 [set out below] for a taxable year 
beginning in 1976 may be revoked (in such manner as may be prescribed by 
regulations) at any time before the expiration of the period for 
assessing a deficiency with respect to such taxable year (determined 
without regard to subsection (d) of this section) [set out below].''


                     Period for Assessing Deficiency

    Pub. L. 95-30, title III, Sec. 301(d), May 23, 1977, 91 Stat. 152, 
provided that: ``In the case of any revocation made under subsection (c) 
[set out above], the period for assessing a deficiency with respect to 
any taxable year affected by the revocation shall not expire before the 
date which is 1 year after the date of the making of the revocation, 
and, notwithstanding any law or rule of law, such deficiency, to the 
extent attributable to such revocation, may be assessed at any time 
during such 1-year period.''


           Effective Date of Changes in Exclusion for Sick Pay

    Pub. L. 95-30, title III, Sec. 301(e), May 23, 1977, 91 Stat. 152, 
as amended by Pub. L. 95-600, title VII, Sec. 701(c)(2)(B), Nov. 6, 
1978, 92 Stat. 2900; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 
2095, provided that: ``The amendments made by this section [enacting and 
amending provisions set out as notes under this section] shall take 
effect on October 4, 1976, but shall not apply--
        ``(1) with respect to any taxpayer who makes or has made an 
    election under section 105(d)(6) of the Internal Revenue Code of 
    1986 [formerly I.R.C. 1954] or under section 505(d) of the Tax 
    Reform Act of 1976 [set out below] (as such sections were in effect 
    before the enactment of this Act [May 23, 1977]) for a taxable year 
    beginning in 1976, if such election is not revoked under subsection 
    (c) of this section [set out above], and
        ``(2) with respect to any taxpayer (other than a taxpayer 
    described in paragraph (1)) who has an annuity starting date at the 
    beginning of a taxable year beginning in 1976 by reason of the 
    amendments made by section 505 of the Tax Reform Act of 1976 
    [amending this section and section 104 of this title and enacting 
    provisions set out as notes under this section] (as in effect before 
    the enactment of this Act [May 23, 1977]), unless such person elects 
    (in such manner as the Secretary of the Treasury or his delegate may 
    by regulations prescribe) to have such amendments apply.''


     Special Rule for Existing Permanent and Total Disability Cases

    Section 505(c) of Pub. L. 94-455, as amended by Pub. L. 95-30, title 
III, Sec. 301(b)(1), (2), May 23, 1977, 91 Stat. 151; Pub. L. 95-600, 
title VII, Sec. 701(c)(2)(A), Nov. 6, 1978, 92 Stat. 2900; Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``In the case 
of any individual who--
        ``(1) retired before January 1, 1977,
        ``(2) either retired on disability or was entitled to retire on 
    disability, and
        ``(3) on January 1, 1976, or January 1, 1977, was permanently 
    and totally disabled (within the meaning of section 105(d)(4) of the 
    Internal Revenue Code of 1986 [formerly I.R.C. 1954]),
such individual shall be deemed to have met the requirements of section 
105(d)(1)(B) of such Code (as amended by subsection (a) of this 
section).''


       Special Rule for Coordination With Section 72 of This Title

    Section 505(d) of Pub. L. 94-455, as amended by Pub. L. 95-30, title 
III, Sec. 301(b)(3)-(5), May 23, 1977, 91 Stat. 151; Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``In the case of 
an individual who--
        ``(1) retired on disability before January 1, 1977, and
        ``(2) on December 31, 1975, or December 31, 1976, was entitled 
    to exclude any amount with respect to such retirement disability 
    from gross income under section 105(d) of the Internal Revenue Code 
    of 1986 [formerly I.R.C. 1954],
for purposes of section 72 the annuity starting date shall not be deemed 
to occur before the beginning of the taxable year in which the taxpayer 
attains age 65, or before the beginning of an earlier taxable year for 
which the taxpayer makes an irrevocable election not to seek the 
benefits of such section 105(d) for such year and all subsequent 
years.''

                  Section Referred to in Other Sections

    This section is referred to in sections 22, 51A, 213, 861, 3401, 
6039D, 7701, 7871 of this title.
