2005 Idaho Code - 63-3022K — MEDICAL SAVINGS ACCOUNT

                                  TITLE  63
                             REVENUE AND TAXATION
                                  CHAPTER 30
                                  INCOME TAX
    63-3022K.  MEDICAL SAVINGS ACCOUNT. (1) For taxable years commencing on
and after January 1, 1995, annual contributions to a medical savings account
not exceeding two thousand dollars ($2,000) for the account holder and
interest earned on a medical savings account shall be deducted from taxable
income by the account holder, if such amount has not been previously deducted
or excluded in arriving at taxable income. For married individuals the maximum
deduction shall be computed separately for each individual. Contributions to
the account shall not exceed the amount deductible under this section.
    (2)  For the purpose of this section, the following terms have the
following meanings unless the context clearly denotes otherwise:
    (a)  "Account holder" means an individual, in the case of married
    individuals each spouse, including a self-employed person, on whose behalf
    the medical savings account is established.
    (b)  "Dependent" means a person for whom a deduction is permitted under
    section 151(b) or (c) of the Internal Revenue Code if a deduction for the
    person is claimed for that person on the account holder's Idaho income tax
    return.
    (c)  "Dependent child" means a child or grandchild of the account holder
    who is not a dependent if the account holder actually pays the eligible
    medical expenses of the child or grandchild and the child or grandchild is
    any of the following:
         (i)   Under nineteen (19) years of age, or enrolled as a full-time
         student at an accredited college or university.
         (ii)  Legally entitled to the provision of proper or necessary
         subsistence, education, medical care or other care necessary for his
         or her health, guidance or well-being and not otherwise emancipated,
         self-supporting, married or a member of the armed forces of the
         United States.
         (iii) Mentally or physically incapacitated to the extent that he or
         she is not self-sufficient.
    (d)  "Depository" means a state or national bank, savings and loan
    association, credit union or trust company authorized to act as a
    fiduciary or an insurance administrator or insurance company authorized to
    do business in this state, a broker or investment advisor regulated by the
    department of finance, a broker or insurance agent regulated by the
    department of insurance or a health maintenance organization, fraternal
    benefit society, hospital and professional service corporation as defined
    in section 41-3403, Idaho Code, or nonprofit mutual insurer regulated
    under title 41, Idaho Code.
    (e)  "Eligible medical expense" means an expense paid by the taxpayer for
    medical care described in section 213(d) of the Internal Revenue Code, and
    long-term care expenses of the account holder and the spouse, dependents
    and dependent children of the account holder.
    (f)  "Long-term care expenses" means expenses incurred in providing
    custodial care in a nursing facility as defined in section 39-1301, Idaho
    Code, and for insurance premiums relating to long-term care insurance
    under chapter 46, title 41, Idaho Code.
    (g)  "Medical savings account" means an account established with a
    depository to pay the eligible medical expenses of the account holder and
    the dependents and dependent children of the account holder. Medical
    savings accounts shall carry the name of the account holder, a designated
    beneficiary or beneficiaries of the account holder and shall be designated
    by the depository as a "medical savings account."
    (3)  Upon agreement between an employer and employee, an employer may
establish and contribute to the employee's medical savings account or
contribute to an employee's existing medical savings account. The total
combined annual contributions by an employer and the account holder shall not
exceed two thousand dollars ($2,000) for the account holder. Employer
contributions to an employee's medical savings account shall be owned by the
employee.
    (4)  Funds held in a medical savings account may be withdrawn by the
account holder at any time. Withdrawals for the purpose of paying eligible
medical expenses shall not be subject to the tax imposed in this chapter. The
burden of proving that a withdrawal from a medical savings account was made
for an eligible medical expense is upon the account holder and not upon the
depository or the employer of the account holder. Other withdrawals shall be
subject to the following restrictions and penalties:
    (a)  There shall be a distribution penalty for withdrawal of funds by the
    account holder for purposes other than the payment of eligible medical
    expenses. The penalty shall be ten percent (10%) of the amount of
    withdrawal from the account and, in addition, the amount withdrawn shall
    be subject to the tax imposed in this chapter. The direct transfer of
    funds from a medical savings account to a medical savings account at a
    different depository shall not be considered a withdrawal for purposes of
    this section. Charges relating to the administration and maintenance of
    the account by the depository are not withdrawals for purposes of this
    section.
    (b)  After an account holder reaches fifty-nine and one-half (59 1/2)
    years of age, withdrawals may be made for eligible medical expenses or for
    any other reason without penalty, but subject to the tax imposed by this
    section.
    (c)  Upon the death of an account holder, the account principal, as well
    as any interest accumulated thereon, shall be distributed without penalty
    to the designated beneficiary or beneficiaries.
    (d)  Funds withdrawn which are later reimbursed shall be taxable unless
    redeposited into the account within sixty (60) days of the reimbursement.
    Deposits of reimbursed eligible medical expenses shall not be included in
    calculating the amount deductible.
    (e)  Funds deposited in a medical savings account which are deposited in
    error or unintentionally and which are withdrawn within thirty (30) days
    of being deposited shall be treated as if the amounts had not been
    deposited in the medical savings account. Funds withdrawn from a medical
    savings account which are withdrawn in error or unintentionally  and which
    are redeposited within thirty (30) days of being withdrawn shall be
    treated as if the amounts had not been withdrawn from the medical savings
    account.
    (f)  Funds withdrawn which are, not later than the sixtieth day after the
    day of the withdrawal, deposited into another medical savings account for
    the benefit of the same account holder are not a withdrawal for purposes
    of this section and shall not be included in calculating the amount
    deductible.
    (5)  Reporting. Depositories, in the case of medical savings accounts,
shall provide to the state tax commission, in the routine fashion used for all
interest-bearing accounts, the same information that is provided for any
interest-bearing bank account. So as to minimize the burden of reporting, the
information shall be provided in the format in which information is provided
for any interest-bearing bank account to the state tax commission. There shall
be no other reporting requirements. Account holders shall provide on any state
income tax form in which they take a deduction for a medical savings account
the account number of their medical savings account and the depository at
which the account is held.
    (6)  Any medical care savings account established pursuant to chapter 53,
title 41, Idaho Code, as enacted by chapter 186, laws of 1994, may be
continued pursuant to the provisions of this section and all duties,
privileges and liabilities imposed in this section upon account holders of
medical care savings accounts and the beneficiaries of those accounts shall
apply to account holders of medical care savings accounts and their
beneficiaries established pursuant to chapter 53, title 41, Idaho Code, as
enacted by chapter 186, laws of 1994, as if the medical care savings account
were a medical savings account established pursuant to this section.
    (7)  (a) If the account holder's surviving spouse acquires the account
    holder's interest in a medical savings account by reason of being the
    designated beneficiary of such account at the death of the account holder,
    the medical savings account shall be treated as if the spouse were the
    account holder.
    (b)  If, by reason of the death of the account holder, any person acquires
    the account holder's interest in a medical savings account in a case to
    which subparagraph (7)(a) of this section does not apply:
         (i)   Such account shall cease to be a medical savings account as of
         the date of death; and
         (ii)  An amount equal to the fair market value of the assets in such
         account on such date shall be includable, if such person is not the
         estate of such holder, in such person's Idaho taxable income for the
         taxable year which includes such date, or if such person is the
         estate of such holder, in such holder's Idaho taxable income for the
         last taxable year of such holder.
    (c)  The amount includable in Idaho taxable income under subparagraph (b)
    of this subsection (7) by any person, other than the estate, shall be
    reduced by the amount of qualified medical expenses which were incurred by
    the decedent before the date of the decedent's death and paid by such
    person within one (1) year after such date.