People who had medical expenses so far this year that weren’t covered by their health insurance policy, a flexible spending account (FSA) or a Federal Health Care Savings Account (HSA) can get expenses covered according to Marsha Goetting, Montana State University Extension Family Economic Specialists.
If individuals open a Montana Medical Care Savings Account (MSA) by Dec. 31 they can get those expenses covered. Also, if people deposit up to $3,500, (the maximum in 2018) they can reduce their Montana adjusted gross income by that amount, she said, “doing so will result in a tax savings of about $242 that is, if you have taxable income above $17,900”.
“This is really a good deal for Montanans,” she said. “In past years, only 1.4 percent of Montanans have taken advantage of this opportunity. When I ask why, many explain that they were told they were ineligible because they don’t have a high deductible health insurance policy. This is wrong. You do not have to be in a high deductible health insurance plan to be eligible for an MSA. And, unlike an HSA, you can be age 65 and over and still be eligible for an MSA. Others say they have never heard of a Montana MSA. Believe it or not these accounts have been around since 1997.”
This income tax advantage using a Montana MSA does not apply to federal income taxes and should not be confused with the Federal Health Savings Accounts (HSAs) or Federal Flexible Spending Plans (FSAs). If someone does not use any money deposited in their MSA during the year it was deposited, it remains in the account and earns interest that is free from Montana income taxation. The money in the MSA then can be used for eligible medical care expenses in future years.
“If you have already paid your 2018 medical bills either by check, cash, or credit/debit card, you could add up those eligible expenses, make a deposit by December 31 and reimburse yourself from the MSA account on the same day for eligible expenses paid January through December,” Goetting said. “The key word is paid. You can reimburse yourself for paid eligible medical expenses by the end of 2018. But if you haven’t yet paid those bills because your health insurance company hasn’t sorted out what it will pay and what you still owe, you still can reimburse yourself for those unpaid eligible expenses during 2019 when you pay them.”
The amount individuals can use to reduce their Montana income is the total deposited, not the amount used for medical expenses during the tax year. For example, if someone deposited $3,500 in a MSA but only used $500 for eligible medical expenses during 2018, they still get to reduce their income by $3,500. The remaining $3,000 is available for paying medical expenses in future years.
“You can use your MSA funds to pay medical expenses not only for yourself, but also your spouse, parents, dependents and anyone else. Thank your legislators for this provision passed in 2017,” she said.
An MSA can also be used as a legacy. Some Montanans have put money in their MSAs every year, but not used it because they are saving the funds for long term care expenses. Others plan to use their MSA as a legacy for their children and grandchildren. People can place a payable on death (POD) designation on their MSA, identifying who they want to receive the money after their death.
“Your spouse, parents and kids can then use the money for their own eligible medical expenses without Montana income tax consequences,” she said.
During this season of giving, parents and grandparents may want to gift money to their adult children and adult grandchildren for an MSA. Whatever amount is gifted and deposited in an MSA can be taken off the adult children and grandchildren’s income. The adult grandkids get the tax break, but not the grandparents. An MSU Extension MontGuide is available with more information online at: MSUextension.org.