2013 Arizona Revised Statutes
Title 43 - Taxation of Income
§ 43-1028 Medical savings accounts; reports

43-1028. Medical savings accounts; reports

A. For taxable years beginning from and after December 31, 1996, in computing Arizona adjusted gross income:

1. An individual may subtract amounts contributed to a medical savings account as provided by this section to the extent that the contributions are included in the individual's federal adjusted gross income.

2. The individual's employer may subtract the amount of contributions made by the employer to a medical savings account established on the individual's behalf to the extent that the contributions are not deductible under the internal revenue code.

B. For purposes of this section, the medical savings account shall be established and maintained as provided by section 220 of the internal revenue code, except that:

1. The limitations relating to the size of the employer under section 220(c)(1)(A)(iii) and 220(c)(4) do not apply.

2. The limitation relating to the number of taxpayers having medical savings accounts under section 220(i) does not apply.

3. On the last business day of a calendar year an individual may withdraw money from the individual's medical savings account for purposes other than paying qualified medical expenses without incurring a withdrawal penalty. If an individual makes any other withdrawal from a medical savings account for purposes other than paying qualified medical expenses, as defined in section 220(d)(2) of the internal revenue code, and is not subject to a federal penalty for the withdrawal, the individual shall pay a penalty, equal to ten per cent of the amount of the withdrawal, to the department at the same time as the individual files the income tax return under this title for the taxable year. The penalty does not apply after the account holder reaches the age of fifty-nine and one-half years. Money withdrawn pursuant to this paragraph is considered income for the purposes of computing Arizona adjusted gross income. The department shall credit penalty monies to the state general fund.

C. The trustee of a medical savings account shall make reports regarding the account to the department and the individual with respect to contributions, income earned during the taxable year, distributions and other matters as the department may require by rule. The report shall be filed with the department at the time and in the manner prescribed by the department and furnished to the individual in the manner prescribed by the department on or before January 31 of the calendar year following the calendar year to which the report relates.