; and (D) by inserting after paragraph (1) the following new paragraph: (2) Small business health accounts In the case of an employee who is an eligible individual (as defined in section 224(c)(2)), amounts contributed by such employee's employer to any small business health account (as defined in section 224(d)) of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section 224(b) (determined without regard to this subsection) which is applicable to such employee for such taxable year. . (5) Subparagraph (A) of 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 small business health account (as defined in section 224(d)) . (6) Subsection (d) of section 408 of such Code is amended by adding at the end the following new paragraph: (10) Distribution for small business health account funding (A) In general In the case of an individual who is an eligible individual (as defined in section 224(c)(2)) 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 SBHA funding distribution to the extent such distribution is otherwise includible in gross income. (B) Qualified SBHA funding distribution For purposes of this paragraph, the term qualified SBHA 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 small business health account of the individual in a direct trustee-to-trustee transfer. (C) Limitations (i) Maximum dollar limitation The amount excluded from gross income by subparagraph (A) shall not exceed the applicable annual limitation under section 224(b) at the time of the qualified SBHA funding distribution.