006.05.307-26-51-436. MEDICAL SAVINGS ACCOUNTS
AR ADC 006.05.307-26-51-436Arkansas Administrative Code
Ark. Admin. Code 006.05.307-26-51-436
006.05.307-26-51-436. MEDICAL SAVINGS ACCOUNTS
1.26-51-436(5) Medical Savings Account (MSA) -- Defined
An MSA is a trust or custodial account that is created or organized in the United States exclusively for the purpose of paying the qualified medical expenses of an “account holder” (i.e., taxpayer) as well as the taxpayer's spouse and/or dependents. IRC Sec. 220(d)(1). The IRS has a MSA pilot program for employees of small businesses and self-employed persons. The accounts must be used in conjunction with “high deductible” health insurance. Participation is limited to the first 750,000 taxpayers utilizing MSAs each year for the tax years 1997 through 2000.
2.26-51-436(5) Medical Savings Account (MSA) -- Eligibility
In order to be eligible, a taxpayer must have insurance coverage only under a “high deductible” health plan. An “eligible individual” is more specifically defined at IRC Sec. 220(c)(1)(A). “High deductible health plan” is defined at IRC Sec. 220(c)(2)(A).
3.26-51-436(5) Medical Savings Account (MSA) - Deductibility from Income
The amount of MSA contributions made by a taxpayer should be broken down on a month- by-month basis. For any given month, the limitation on the deduction that can be taken for that particular month is set forth at IRC Sec. 220(b)(1)&(2). Other key points regarding deductibility of contributions include:
* The annual contribution limit is the sum of the limits determined separately for each month, based on the individual's status and health plan coverage as of the first day of the month;
* The deduction for MSA contributions cannot exceed the taxpayer's compensation. For employees, see IRC Sec. 220(b)(4)(A). For self-employed individuals, see IRC Sec. 220(b)(4)(B).
* No deduction is allowed to an individual if any other person is entitled to a personal exemption on account of the individual, whether or not the personal exemption is actually taken;
* Contributions to an MSA for a tax year can be made until the due date for filing the individual's tax return for the year (determined without regard to extensions). For example, with respect to Arkansas individual income tax returns, the deadline for contributions that a taxpayer wishes to deduct on his 1997 return would be May 15, 1998;
* MSA contributions are taken into account in arriving at AGI (i.e., they are taken above-the-line). As such, MSA contributions can be deducted even if the taxpayer does not itemize deductions.
4.26-51-436(5) Medical Savings Account (MSA) - Exclusion from Income
Employer contributions to an MSA on behalf of an eligible individual are excludable from gross income. The amount excludable from gross income cannot exceed the MSA deduction limit applicable to the individual. See Regulation 3.26-51-436(5); IRC Sec. 106(a)&(b). However, employer contributions to an MSA are not excludable from gross income if made at the election of the employee under a salary reduction arrangement under a cafeteria plan. Other key points regarding excludability of contributions include:
* Any employer contribution to an MSA (if otherwise allowable as a deduction) is allowed only for the tax year in which it is actually made;
* Every individual required to file an income tax return for the tax year must include on the return the aggregate amount contributed by employers to the MSAs of the individual or the individual's spouse for the tax year.
1.26-51-436(6) Medical Savings Account (MSA) -- Taxability of Account Earnings
MSA earnings are exempt from income taxation. However, if an MSA ceases to be an MSA, the account's subsequent earnings would be subject to taxation. IRC Sec. 220(e).
1.26-51-436(7) Medical Savings Account (MSA) - Taxability of Account Distributions
Distributions from an MSA that are used to pay the *qualified medical expenses of an individual or the individual's spouse or dependents are excludable from gross income. IRC Sec. 220(f)(1).
*“qualified medical expenses” are any expenses for medical care as defined under the rules relating to the itemized deduction for medical expenses. See IRC Sec. 220(d)(2)(A).
Subchapter M (§ 851 et seq.) of the Internal Revenue Code of 1986, as in effect on January 1, 1997 has been adopted for the purpose of computing Arkansas income tax liability with respect to regulated investment companies (RICs), real estate investment trusts (REITs) and financial asset securitization investment trusts (FASITs).
Current with amendments received through August 15, 2023. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.307-26-51-436, AR ADC 006.05.307-26-51-436
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