Those who plan to take advantage of Utah Medical Care Savings Account (MSA) tax benefits must choose between claiming the state or the federal deduction.
The state authorized tax benefits related to MSA programs in 1995 to help businesses and individuals pay for health care. Congress has created a similar federal tax benefit. However, because any benefit claimed on the federal return also reduces taxable income on the Utah return, Utah taxpayers may not claim a separate deduction on both returns.
Utah's Medical Care Savings Account Act allows Utah residents to make state tax-exempt deposits to MSAs. An MSA account holder may exclude from state taxable income up to $2,000 a year, or an amount equal to the eligible medical expenses paid out in that tax year, whichever is greater. Interest earned by funds in an MSA is also state tax-exempt.
The medical savings account administration will issue a Statement of Withholding for Utah Medical Savings Account, Form TC-675M, to each account holder.
Employers may purchase qualified higher-deductible ($1,000 or more) self-insured ERISA health care plans for their employees and establish MSA accounts for them. If an employer does not provide a health plan, an individual also may purchase a qualified higher-deductible health plan from an account administrator and make state tax-exempt deposits into an MSA. Account holders may pay health insurance premiums, deductibles or other eligible medical costs with MSA funds.
All MSAs must be handled by an account administrator (a depository institution, an insurance company, a licensed third-party administrator, or an employer with a self-insured ERISA health care plan). These administrators may directly pay eligible medical expenses or reimburse the account holder. There may be a penalty if the account holder withdraws money from the medical care savings account balance for non-medical reasons.
If a non-medical withdrawal reduces the balance of the account to less than $4,000, Utah tax will be due on the withdrawal and a 10 percent penalty will be withheld. If the account balance is $4,000 or more after a non-medical withdrawal is made, only the withdrawal will be subject to Utah income tax.
