Montana State University

MSU Extension: Montana Medical Care Savings Accounts can reduce Montana income taxes

November 8, 2012 -- MSU News Service

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MSU News Service
Tel: (406) 994-4571
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BOZEMAN - A Montana Medical Care Savings Account (MSA) can aid in paying for expenses not covered by a health insurance policy or a flexible spending account (FSA), and if opened by December 31 an MSA can also lower a participant's annual Montana income taxes.

Up to $3,000 of a deposit into an MSA, per taxpayer, is deductible from 2012 Montana adjusted gross income.

"This tax advantage does not apply to your federal income taxes and should not be confused with the Federal Health Savings Accounts (FHAs)," said Marsha Goetting, MSU Extension family economics specialist.

An MSU Extension MontGuide offers help in understanding who would benefit from a Montana medical care savings account. The publication (MontGuide 199817 HR) is free if picked up from a local MSU County Extension office or downloaded from MSU Extension at www.msuextension.org/publications/FamilyFinancialManagement/MT199817HR.pdf.

People should contact their financial institution to establish an MSA. A Montanan with taxable income over $16,400 could save about $207 in state income taxes by depositing the maximum $3,000 in a Montana MSA.

"It doesn't matter if you have already paid your 2012 medical bills either by check, credit or debit card," said Goetting. "You can add up those expenses and make a deposit by December 31 of this year and reimburse yourself from your Montana MSA as late as January 15, 2013."

MSA owners can reduce their Montana income by the total deposited, not the amount used for medical expenses during the tax year.

"Montana Medical Care Savings Accounts are not like flexible spending accounts where you use it or lose it," Goetting said. Remaining funds in an MSA are available for future medical expenses, but are not tax deductible, she added.

A husband and wife who each establish an individual MSA can receive a $6,000 deduction if they file a joint Montana income tax return. They will save about $414 on their state income taxes. Joint accounts for an MSA are not allowed. Only individual accounts are eligible for the Montana MSA deduction.

Goetting added that MSA amounts held in the name of a husband or wife can be used to pay the medical bills of either spouse or their dependent children.

Montana accepts any eligible expenses that are listed in the IRS 502 Publication "Medical and Dental Expenses," which is on the web at www.irs.gov/pub/irs-pdf/p502.pdf. Expenses not covered are medical-related bills that have been already covered by a supplemental, primary or self-insured plan.

Contact: Marsha Goetting (406) 994-5695, goetting@montana.edu.