Medical Care Savings Account Credit (code 22)

UC §59-10-1021 and Rule R865-9I-46

If you have a qualified Medical Care Savings Account (MSA), you may be entitled to a non-refundable tax credit on your TC-40, Utah Individual Income Tax Return. To qualify for the credit, the investment in the MSA cannot be deducted under Internal Revenue Code Section 220 on your federal return, form 1040. You must choose whether to deduct your MSA investment on your federal return, or claim the Utah credit. You cannot do both.

Contributions to a health savings account (HSA) or flexible spending account (FSA) do not qualify for this credit.

Utah's Medical Care Savings Account Act allows Utah residents with a qualified MSA to claim a non-refundable tax credit based on the greater of their contributions to the MSA during the tax year (up to $2,000), or the total qualified medical expenses paid during the tax year for the account holder, their spouse and their dependents.

Interest earned on an MSA account is tax-exempt.

Non-qualified withdrawals from an MSA are treated as taxable income for the year of the distribution to the extent the amount was previously deducted or used to claim a credit on the Utah return (see Additions to Income).

The medical savings account administrator will issue a Form TC-675M, Statement of Withholding for Utah Medical Savings Account, to each account holder. Do not attach this form to your Utah TC-40. Keep this form with your tax records.

How to Calculate your Utah MSA Credit

The Utah non-refundable MSA tax credit is equal to 5 percent of the greater of:

  • the amount contributed (up to $2,000) plus the earnings on the account for the tax year (total of lines 5 and 6 of form TC-675M), or
  • (2) the total amount of eligible medical expenses paid from the MSA account during the tax year (line 7 of form TC-675M).
Medical Care Savings Account Tax Credit Calculation
1. Amount contributed to MSA plan from line 5 of form TC-675M $
2. Maximum allowable contributions for year $ 2,000
3. Lesser of line 1 or line 2 $
4. Plan earnings from line 6 of form TC-675M $
5. Total contributions and earnings for year - add line 3 and line 4 $
6. Qualified medical distributions from line 7 of form TC-675M $
7. Greater of line 5 or line 6 $
8. Credit percentage – 5% .05
9. MSA credit - line 7 multiplied by line 8 $

Enter the amount from line 9 above on Utah TC-40A, Part 3, using code 22.

Any credit in excess of the tax due will not be refunded, and may not be carried back or carried forward.

When Husband and Wife Have Separate MSA Accounts

Where both the husband and wife have separate MSA accounts, the credit is calculated for each spouse separately and the separate credits are added together on their return.

Medical Care Savings Account Tax Credit Calculation
When Both Husband and Wife Have Accounts
Husband's MSA:  
1. Amount contributed to MSA plan from line 5 of husband's form TC-675M $
2. Maximum allowable contributions for year $ 2,000
3. Lesser of line 1 or line 2 $
4. Plan earnings from line 6 of husband's form TC-675M $
5. Husband's contributions and earnings for year - add line 3 and line 4 $
Wife's MSA:  
6. Amount contributed to MSA plan from line 5 of wife's form TC-675M $
7. Maximum allowable contributions for year $ 2,000
8. Lesser of line 6 or line 7 $
9. Plan earnings from line 6 of wife's form TC-675M $
10. Wife's contributions and earnings for year - add line 8 and line 9 $
Combined MSAs: $
11. Total contributions and earnings - add line 5 and line 10 $
12. Qualified medical distributions from line 7 of husband's form TC-675M $
13. Qualified medical distributions from line 7 of wife's form TC-675M $
14. Total qualified medical distributions - add line 12 and line 13 $
15. Greater of line 11 or line 14 $
16. Credit percentage - 5% .05
17. MSA credit - line 15 multiplied by line 16 $

Enter the amount from line 17 above on Utah TC-40A, Part 3, using code 22.

How to Set Up a Utah MSA

Employers may purchase qualified higher-deductible ($1,000 or more) self-insured ERISA health care plans for their employees and establish MSA accounts for them. If an employer does not provide a health plan, an individual also may purchase a qualified higher-deductible health plan from an account administrator and make state tax-exempt deposits into an MSA. Account holders may pay health insurance premiums, deductibles or other eligible medical costs with MSA funds. See UC Section 31A-32a-103 for more information.

An MSA must be handled by an account administrator (a depository institution, a trust company, an insurance company, a licensed third-party administrator, or an employer with a self-insured ERISA health care plan). These administrators may directly pay eligible medical expenses or reimburse the account holder.

There may be a penalty if the account holder withdraws money from the medical care savings account balance for non-medical reasons. If a non-medical withdrawal reduces the balance of the account to less than $4,000, Utah tax will be due on the withdrawal and a 10 percent penalty will be withheld. If the account balance is $4,000 or more after a non-medical withdrawal is made, only the withdrawal will be subject to Utah income tax. See UC Section 31A-32a-105 for more information.

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