A Montana Medical Care Savings Account (MSA) allows Montanans to save money for medical expenses and long-term health care and reduce their state income taxes at the same time. Contributions of up to $3000 annually can be deposited into savings or checking accounts or certificate of deposit. Spouses must establish separate MSAs but can use the funds to pay eligible medical care expenses for the taxpayer’s eligible dependents. If the money deposited in an MSA is not used during the year it was deposited, it remains in the account for expenses in future years earning interest that is free from Montana income taxation.
The money deposited in an MSA is not subject to Montana income taxation while in the account or if used for eligible medical expenses for the account holder or his or her dependents. The amount that is used to reduce income for state income tax purposes is the total deposited in the MSA during the tax year, not the amount withdrawn for eligible medical care expenses. Withdrawals can be made from the account up until January 15 for expenses from the prior tax year.
A MSA may be established with a financial or other approved institution (e.g., banks, savings banks, credit unions, mutual fund companies, etc). A MSA must be kept separate from all other accounts and there are required forms and documentation that need to be maintained. Most of the MSAs in Montana are self-administered, however, there are registered account administrators available.
A similar reduction in income is not allowed in income for federal tax purposes. An additional option to consider may be a Federal Health Care Savings Account (HAS) that can be used to reduce both state and federal income. There are eligibility requirements outlined in MontGuide “Health Savings Accounts” (MT200704HR).
MontGuide #199817HR, “Montana Medical Care Savings Accounts (MSAs)” includes additional information and excellent examples of situations you might have questions about. It can be downloaded for free at http://store.msuextension.org/ or call or stop by our office for a copy of this and many other MontGuides.
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Additional information is available by contacting Janell at the Chouteau County Extension Office at 622-3036, janellb@montana.edu or in the Chouteau County Courthouse at 1308 Franklin St in Fort Benton.
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