Revised January 1, 2008

Home – Summary of Codes – Deductions from Income

Summary of Codes for the TC-40 Return –
Deductions from Income

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Tax Year
2007	2006	2005	2004	Description	Code
X	X	X	X	Interest from U.S. Government Obligations	71
X	X	X	X	Medical Savings Account (MSA)	72
X	X	X	X	Utah Educational Savings Plan (UESP)	73
X	X	X	X	Health Care Insurance Premiums	74
X	X	X	X	Long-Term Care Insurance Premiums	75
X	X	X	X	Adoption Expenses	76
X	X	X	X	Native American Income (including nation/tribe codes)	77
X	X	X	X	Railroad Retirement	78
X	X	X	X	Equitable Adjustments (other)	79
X	X	X	X	Gains on Capital Transactions	81
X	X	X	X	Nonresident Active Duty Military Pay	82
–	–	X	X	National Guard and Reserves Military Pay	83
X	X	–	–	State Tax Refund Distributed to Beneficiary of Trust	85

Interest from U.S. Government Obligations (code 71)

UC§59-10-114(2)(a)

Interest earned on U.S. Government obligations issued by an agency or instrumentality of the United States is exempt from state income tax. U.S. Government obligations include:

Treasury bills,
Treasury notes, and
E, EE, H, HH and I bonds.

Income NOT exempt from Utah state income tax includes:

Interest or dividends from Federal National Mortgage Association (FNMA) and Government National Mortgage Association (GNMA); and
Interest on refunds from the IRS or any federal agency.

For further questions about taxability of interest income, you may use the following test developed by the U.S. Supreme Court in Smith vs. Davis, 323 U.S. 111 (1944) to determine if the instrument qualifies as a U.S. Government obligation. The instrument must:

Be a written document,
Bear interest,
Contain a binding promise by the U.S. Government to pay a specific sum on a specific date, and
Have congressional authorization to pledge the full faith and credit of the United States in support of the promise to pay.

Only interest or dividend income from U.S. Government obligations included in your federal adjusted gross income is exempt from Utah income tax. Before entering an amount, subtract any related expenses claimed as deductions on your federal return, such as interest expense on money borrowed to purchase bonds or securities, or ordinary and necessary expenses paid or incurred in connection with producing exempt income.

Keep all records, forms and worksheets to support this deduction.

Medical Savings Account (MSA) (code 72)

UC§59-10-114(2)(h)

Utah residents only may qualify for this deduction.

If you claimed MSA amounts on federal form 1040, you CANNOT claim MSA amounts on your Utah return. The Utah resident account holder of an MSA should receive a form TC-675M, Statement of Withholding for Utah Medical Savings Account, from the account administrator. Include the sum of lines 5 and 6 from form TC-675M. Keep form TC-675M with your records.

Utah Educational Savings Plan (UESP) (code 73)

UC§59-10-114(2)(i)

Each Utah individual is entitled to an income tax deduction of up to the amount shown below per qualified beneficiary for contributions made to a UESP account during the tax year. On a married filing joint return the deduction may be doubled. Contributions are reported in box 1 of form TC-675H, Statement of Contributions and Disbursements for the Utah Educational Savings Plan.

2007	$1,620
2006	$1,560
2005	$1,510
2004	$1,470

Keep form TC-675H with your records. Contact UESP at (801) 321-7188 or 1-800-418-2551, or visit www.uesp.org for more information.

Health Care Insurance Premiums (code 74)

UC§59-10-114(2)(g)

Note: Premiums itemized or otherwise deducted in determining federal taxable income cannot be deducted on the Utah income tax return.

A taxpayer may deduct the premiums paid by the taxpayer for health care insurance including Medicare during the taxable year for the taxpayer, spouse and dependents. Qualifying taxpayers are subject to the following requirements and limitations.

Requirements

To qualify, the taxpayer or taxpayer's spouse must not be eligible to participate in a plan offered and funded (fully or partially) by an employer or former employer. A retiree, who may participate in a plan offered and funded (fully or partially) by a previous employer, cannot take this deduction. Employees who elect not to participate in a plan offered and funded by an employer or former employer cannot claim a deduction. Pre-tax deductions from wages through employer-sponsored programs, such as a cafeteria or flex plan, cannot be claimed as a deduction.

Limitations

Qualified taxpayers who meet the requirements above may have their deduction limited by:

Premiums fully or partially reimbursed or funded by the federal, state or any agency or instrumentality of the federal or state government, excluding Medicare.
Premiums paid for health insurance previously deducted on the federal return under any of the following sections of the Internal Revenue Code:
1. Section 125 – cafeteria plans. Generally, this is an employer plan covering all employees and the employees may choose among two or more benefits consisting of cash and qualified benefits.
2. Section 162 – trade or business expenses. This is the deduction for self-employed individuals of up to 100 percent of premiums paid, but not exceeding the taxpayer's net business income.
3. Section 213 – medical, dental, etc., expenses. These are itemized expenses deducted on federal Schedule A to the extent they exceed 7.5 percent of the taxpayer's federal adjusted gross income.

Detailed instructions and examples for Health Care Insurance Premiums may be found by clicking here.

Long-Term Care Insurance Premiums (code 75)

UC§59-10-114(2)(j)

You may only deduct amounts paid during the tax year for long-term care insurance policies to the extent the amounts paid for premiums were not deducted from your federal income.

Long-term care insurance policy means any insurance policy designed to provide coverage:

For not less than 12 consecutive months; and
For medically necessary services provided in a setting other than an acute care unit of a hospital.

A long-term care insurance policy includes group and individual annuities and life insurance policies or riders that provide or supplement long-term care insurance. It also includes a policy or rider that provides for payment of benefits based upon cognitive impairment or the loss of functional capacity.

Long-term care insurance does NOT include any insurance policy offered primarily to provide:

Basic Medicare supplement coverage,
Basic hospital expense coverage,
Basic medical-surgical expense coverage,
Hospital confinement indemnity coverage,
Major medical expense coverage,
Disability income or related asset-protection coverage,
Accident only coverage,
Specified disease or specified accident coverage, or
Limited benefit health coverage.

Adoption Expenses (code 76)

UC§59-10-114(2)(c)

Utah allows individuals to subtract qualifying adoption expenses in ONE of three ways:

The year in which the expenses are paid or incurred;
The year in which the adoption is finalized; or
The year in which the taxpayer may claim the federal adoption credit.

Qualified adoption expenses may be deducted, even if the adoption process is terminated.

This deduction applies to the actual qualified adoption expenses of the birth mother, the legal guardian of the birth mother (or another acting on behalf of the birth mother), or the adoptive parents. Expenses include:

Any medical and hospital expenses of the birth mother of the adopted child incidental to the child's birth;
Living expenses of the birth mother if paid by the adoptive parents as part of their adoption expenses;
Actual travel costs incurred exclusively for the purpose of completing adoption arrangements; and
Any welfare agency, child placement service, legal and other fees or costs relating to the adoption.

Keep all records, forms and worksheets to support your deduction.

Native American Income (code 77)

UC§59-10-114(2)(k) and (p)

An enrolled member of a Native American tribe in Utah who lives and works on the reservation on which he/she is an enrolled member is exempt from Utah income tax on the reservation income. An enrolled member of the Ute tribe who works on the Uintah and Ouray Reservation and lives on land removed from that reservation under Hagen vs. Utah (510 U.S. 399 (1994)) is exempt from Utah income tax on income earned on the reservation.

On TC-40S, Part 2, using code 77, enter the exempt income included in your federal adjusted gross income. Enter your enrollment/census number and a Native/Tribe Code from the list below in the box designating to which nation/tribe you belong.

Native American Nation/Tribe	Code
Confederated Tribes of the Goshute Reservation	1
Navajo Nation Reservation	2
Paiute Indian Tribe of Utah Reservation	3
Skull Valley Bank of Goshute Indians	4
Ute Indian Tribe	5
Other tribe	6

Railroad Retirement (code 78)

UC§59-10-114(2)(o)

Federal law does not allow states to tax railroad retirement or disability income received from the Railroad Retirement Board on form RRB-1099. States are also prohibited from taxing unemployment and sickness benefits. If a railroad retirement pension from this form is deducted on the Utah return as part of the retirement income deduction (TC-40B), do not deduct the amounts again as an other deduction on TC-40S.

Railroad retirement pensions are deductible on the Utah return only to the extent they are taxable on the federal return. If you received pension payments, disability income or unemployment payments under the Railroad Retirement Act and are required to report all or part of the amount received as income on lines 16b and/or 20b on federal form 1040, or lines 12b and/or 14b of federal form 1040A, you may deduct that amount from Utah income. If amounts derived from sources other than railroad retirement are included on lines 16b and/or 20b of federal form 1040, or lines 12b and/or 14b of federal form 1040A, only deduct the railroad retirement amounts reported on these lines.

Equitable Adjustments (other) (code 79)

UC§59-10-115(1)

Enter any qualified equitable adjustment needed to prevent receiving a double tax benefit or suffering a double tax detriment. Attach a schedule or explanation of any equitable adjustments claimed.

Gains on Capital Transactions (code 81)

UC§59-10-114

A qualified taxpayer may deduct the short-term and long-term capital gain on a transaction if:

The gain occurs on or after January 1, 2003;
At least 70% of the proceeds of the capital gain transaction are used to purchase qualifying stock in a Utah small business corporation within 12 months from when the gain was recognized; and
The individual did not have an ownership interest in the Utah small business corporation that issued the qualifying stock.

For more information and a detailed definition of a Utah Small Business Corporation, click here or refer to UC §59-10-103(1)(c).

Nonresident Active Duty Military Pay (code 82)

UC§59-10-116

Active duty military service pay received by a nonresident is not taxable on the Utah return. The amount of active duty military pay included in federal adjusted gross income should be deducted on TC-40S, Part 2, using code 82. Also, see instructions for line 30 on TC-40C and Pub 57.

National Guard and Reserves Military Pay (code 83)

Note: This deduction applies only to 2005 Utah returns.

Members of the Army Reserve, Naval Reserve, Air Force Reserve, Marine Corps Reserve or Coast Guard Reserve assigned to a unit located in Utah, or members of the Utah Army National Guard or the Utah Air National Guard may deduct the first $2,200 of their military pay included in their 2005 federal adjusted gross income. For a member of the reserves, the deduction is limited to the first $2,200 earned while assigned to a unit in Utah. The deduction is entered on Schedule S, Part 2, using code 83.

For more information, see Pub 57.

State Tax Refund Distributed to Beneficiary of Trust (code 85)

UC§59-10-114(2)(n)

A taxpayer may deduct any state tax refund distributed to a beneficiary of a resident trust to the extent the state tax was included in computing federal income of the resident trust for the year.

Summary of Codes for the TC-40 Return – Deductions from Income