Montana residents can establish a Montana medical care savings account (MSA) to reduce the cost of saving for medical expenses and long-term health care.
The 2017 legislature passed a bill (House Bill 175) that changed the rules for Montana MSAs beginning with tax year 2018. The information provided on this page applies to deposits and withdrawals made in 2018. For information related to a prior tax year, please read the instructions for Montana Medical Savings Account (Form MSA) for the applicable tax year.
- For tax year 2018, you may exclude up to $3,500 of your contribution to an eligible Montana MSA ($7,000 for those married, filing jointly) in computing Montana state income tax.
- Withdrawals and Earnings
- Withdrawals of contributions and earnings from a Montana MSA are not taxable to you if you withdraw them to pay for eligible medical expenses.
Beginning January 1, 2018: Account holders will not be able to contribute more than they can deduct on their Montana income tax return.
Any contribution made before January 1, 2018 exceeding the total contributions deducted from previous tax years’ adjusted gross income may:
- Be deducted up to $3,500, or
- Withdrawn free of tax or penalties if withdrawn before January 15, 2019.
After January 15, 2019, account holders cannot deduct any excess principal remaining in the MSA and all unqualified withdrawals will be taxed as ordinary income, subject to penalties.
The exclusion is allowed for residents for:
- Contributions that you make to a Montana MSA owned by you.
- Contributions that your spouse makes to a Montana MSA owned by your spouse.
- Earnings on the account to the extent that, when distributed, they are used to pay for eligible medical expenses.
You can only claim the exclusion for the tax year the contribution is made.
Eligible Medical Expenses
You do not have to pay tax on money withdrawn from your Montana MSA if it is used for:
- Paying eligible medical expenses of the account holder or anyone he or she chooses
- Purchasing long-term care insurance or a long-term care annuity for the long-term care of the MSA account holder or anyone he or she chooses.
- Family leave expense
- Expenses paid to administer the account (bank fees, for example).
A list of eligible medical expenses for a Montana MSA is available in IRS Publication 502, “Medical and Dental Expenses.”
Family Leave Expense
Family leave expense is an expense, calculated monthly, of approximate wages lost while caring for parents, spouse, or children for the purposes allowed under the Family Medical Leave Act of 1993.
Money held in a Montana MSA may not be used to pay any medical expenses that have already been reimbursed under some other type of pre-tax health savings account or other insurance coverage, including an automobile insurance policy; workers’ compensation; or a self-insured plan.
A transfer of the entire balance of a Montana MSA to another account you designate as your new Montana MSA or to a Montana MSA of an immediate family member (parent, spouse or child) is exempt from tax.
Immediate family members of a deceased taxpayer may inherit funds from the decedent’s Montana MSA tax free if the funds are transferred to a Montana MSA held by the immediate family member.
Recapture Tax and Penalties
If you withdraw contributions and earnings for purposes other than to pay for eligible medical expenses, related contributions and earnings are reported as income on Schedule I – Montana Additions to Federal Adjusted Gross Income (Form 2, Schedule I).
If you move from Montana to another state or country, any unused funds in your Montana MSA are considered a nonqualified withdrawal and must be reported as income on your final Montana Income Tax Return on Form 2, Schedule I.
Unqualified withdrawals are subject to a 10% penalty.
You must attach Montana Medical Savings Account (Form MSA) to your individual income tax return.
This form provides information about your starting and ending balances, annual deposits, earnings and withdrawals.