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Medical savings account will save money at tax time |
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Thursday, 20 December 2007 |
By Adele Stenson, MSU Extension
At the risk of putting a damper on your holiday spirit by bringing up taxes, I’d like to share some information that could save you money on your Montana income taxes, and put you on the road to saving some money for future medical expenses.
If you paid medical expenses in 2007 that weren’t covered by your health insurance policy or a health care flexible spending account, you can still open a Montana Medical Care Savings Account by Dec. 31 to cover those expenses.
Up to $3,000 of your deposits in the account, per taxpayer, are deductible from your 2007 Montana adjusted gross income.
“This tax advantage does not apply to your federal income taxes and should not be confused with the Federal Health Savings Plans,” cautions Marsha Goetting, Montana State University Extension family economics specialist.
People should contact their financial institution, such as a bank or credit union, to establish the account, Goetting said.
A Montanan with taxable income over $14,900 could save about $207 in state taxes by depositing the maximum $3,000 in a Montana MSA.
“It doesn’t matter if you have already paid your 2007 medical bills,” Goetting said. “You can add them up and reimburse yourself from your Montana MSA as late as Dec. 31 of this year.” You save state income taxes on the total amount deposited in the MSA. For example, if you deposited $3,000 in your MSA but only used $100 during the year, you still get to reduce your income for Montana tax purposes by the $3,000 deposited.
A husband and wife who each establish an individual MSA can receive a total $6,000 deduction when filing a joint Montana income tax return. That saves them about $414 on their state income taxes. Even though they file taxes together they cannot have a joint MSA. Only individual accounts are eligible for the Montana MSA deduction.
Amounts held in a husband or wife’s Montana MSA can be used to pay the medical bills of either spouse or their dependent children, Goetting said.
For example if only $500 is withdrawn from one parent is MSA for eligible medical expenses for a child during 2007, the entire allowable amount deposited into each MSA up to a total of $6,000 is deductible on their joint Montana tax return. The remainder is carried over in the MSA without penalty and may be used in future years to pay eligible medical expenses.
“Montana Medical Care Savings Accounts are not like flexible spending accounts where you ‘use it or lose it,’” Goetting said.
Eligible expenses include medical insurance premiums, long-term care insurance, dental care (including orthodontists), eyeglasses or contacts, or prescription drugs that are paid during the year.
Not covered are medical-related bills that have been already covered by a supplemental, primary or self-insured plan. Basically Montana accepts as eligible expenses any that are listed in the IRS 502 Publication, “Medical and Dental Expenses,” which is on the Web at http://www.irs.gov/pub/irs-pdf/p502.pdf.
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