The Key Word is 'Paid'

Opening a Montana medical care savings account by Dec. 31 to help with medical expenses not covered by a health insurance policy or flexible spending account can help individuals save on taxes, according to Marsha Goetting, a family economics specialist with Montana State University Extension.

“Up to $3,000 of a deposit into the account, per taxpayer, is deductible from an individual’s 2016 Montana adjusted gross income, thus reducing taxes,” Goetting said.

“This tax advantage does not apply to your federal income taxes, however, and should not be confused with the Federal Health Savings Accounts (HSAs) or Federal Flexible Spending Plans (FSAs),” she said.

To establish a medical care savings account, individuals should contact their financial institution, such as a bank, savings bank or credit union, Goetting said. She added that a Montanan with taxable income over $17,400 could save about $207 in state income taxes by depositing the maximum $3,000 in a Montana medical care savings account.

“It doesn’t matter if you have already paid your 2016 medical bills either by check, credit or debit card,” said Goetting. “You can add up those eligible expenses, make a deposit by Dec. 31 of this year and reimburse yourself from your Montana MSA as late as Jan. 15, 2017.”

The key word is “paid,” Goetting said.

“You can reimburse yourself for paid eligible medical expenses as late as Jan. 15, 2017. 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 2016 expenses after Jan. 15, 2017.”

The amount available to reduce an individual’s Montana income is the total deposited, not the amount used for medical expenses during the tax year, Goetting noted.

“For example, if you deposited $3,000 in an MSA but only used $100 for eligible medical expenses during 2016, you still get to reduce your income for Montana income tax purposes by $3,000. The remaining $2,900 is available for paying medical expenses in future years.”

Medical care savings account amounts held in the name of a husband or wife can be used to pay the medical bills of either spouse or their dependent children, Goetting said.

“For example, if a husband had $6,000 in medical expenses during 2016, $3,000 from his own MSA and $3,000 from his wife’s MSA could be used for his bills,” Goetting said.

Eligible expenses include medical and dental 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.

An MSU Extension MontGuide can help individuals decide if they would benefit from a Montana medical care savings account. The publication (MontGuide 199817 HR) is free if picked up from a local MSU County Extension office. Or, it can be downloaded for free from the Web at http://msuextension.org/publications/FamilyFinancialManagement/MT199817HR.pdf.