If you have a qualified Medical Care Savings Account (MSA), you may be entitled to a tax credit on your TC-40, Utah Individual Income Tax Return, for an investment made in the MSA account during the taxable year. To qualify for the credit calculation, the investment in the MSA cannot be deducted on your federal form 1040. You must choose whether to deduct your MSA investment on your federal return, or claim the Utah credit. You cannot do both.
Utah's Medical Care Savings Account Act allows Utah residents to make deposits to their MSA. An MSA account holder may invest up to $2,000 a year or an amount equal to the eligible medical expenses paid out during that tax year, whichever is greater. Interest earned by funds in an MSA is tax-exempt.
The medical savings account administrator will issue a Form TC-675M, Statement of Withholding for Utah Medical Savings Account, to each account holder. Do not attach this form to your Utah TC-40. Keep this form with your tax records.
The Utah nonrefundable tax credit for investment in an MSA account is equal to 5 percent of the qualified investment in the MSA. The qualified investment is the total of the amounts from line 5 and line 6 of your TC-675M.
Note: Any MSA credit in excess of the tax liability for the year may not be carried back or carried forward.
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.
