LD 203
pg. 2
Page 1 of 2 An Act to Establish Medical Savings Accounts LD 203 Title Page
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LR 691
Item 1

 
M.__An amount, for each recipient of benefits under an
employee retirement plan, that is the lesser of:

 
(1)__Six thousand dollars reduced by the total amount
of social security benefits and railroad retirement
benefits paid by the United States, but not less than
$0; or

 
(2)__The aggregate of benefits received under employee
retirement plans and included in federal adjusted gross
income.__For purposes of this paragraph, "employee
retirement plan" means a state, federal or military
retirement plan or any other retirement benefit plan
established and maintained by an employer for the
benefit of its employees under Section 401(a), Section
403 or Section 457(b) of the Code.__"Employee
retirement plan" does not include an individual
retirement account under Section 408 of the Code, a
Roth IRA under Section 408A of the Code, a rollover
individual retirement account, a simplified employee
pension under Section 408(k) of the Code or an
ineligible deferred compensation plan under Section
457(f) of the Code;

 
Sec. 6. 36 MRSA §5122, sub-§2, ¶¶N and O are enacted to read:

 
N.__Interest or dividends on obligations or securities of
this State and its political subdivisions and authorities to
the extent included in federal adjusted gross income; and

 
O. Contributions or deposits to an individual medical
savings account established under chapter 914 subject to the
following limitations.

 
(1)__The taxpayer may subtract:

 
(a)__The amount of contributions made by the
taxpayer's employer during the taxable year to the
taxpayer's individual medical savings account to
the extent that the employer contributions are
included in the taxpayer's federal adjusted gross
income; and

 
(b)__The amount deposited by the taxpayer in the
account during the taxable year.

 
(2)__The taxpayer's employer may subtract the amount of
contributions made by the employer to an individual medical
savings account established on the taxpayer's

 
behalf to the extent that the contributions are not
deductible under the Code.

 
Sec. 7. 36 MRSA §5164, sub-§1, as amended by PL 1999, c. 708, §38, is
further amended to read:

 
1. Fiduciary adjustment defined. The fiduciary adjustment is
the net amount of the modifications described in section 5122,
including subsection 3 if the estate or trust is a beneficiary of
another estate or trust, which relates to items of income or
deduction of an estate or trust. Income taxes imposed by this
State or any other taxing jurisdiction and interest or expenses
incurred in the production of income exempt from tax under this
Part deducted in arriving at federal taxable income must be added
back to the fiduciary adjustment. Interest or expenses incurred
in the production of income taxable under this Part but exempt
from federal income tax must be subtracted from the fiduciary
adjustment.

 
Interest income earned on a trust that is established as an
individual medical savings account pursuant to chapter 914 is not
included as income if the interest income is received on
obligations of a state, territory or possession of the United
States or a political subdivision of a state, territory or
possession that is located outside of this State.__Interest
earned by a trust that is established as an individual medical
savings account may be subtracted from the adjusted gross income
to the extent that the income is included in the trust's Maine
gross income during the taxable year.

 
Sec. 8. 36 MRSA §5200-A, sub-§2, ¶J, as amended by PL 1999, c. 708,
§40, is further amended to read:

 
J. An amount equal to an income tax refund to the taxpayer
by this State or another state of the United States that is
included in that taxpayer's federal taxable income for the
taxable year under the Code, but only to the extent that:

 
(1) Maine net income is not reduced below zero; and

 
(2) The amount to be refunded from this State or
another state of the United States has not been
previously used as a modification pursuant to this
subsection.

 
If this modification amount results in Maine net income that is
less than zero for the taxable year, the negative modification
amount may be carried back or forward in the same manner as a net
operating loss deduction carry-back or carry-forward to a taxable
year that is within the allowable

 
federal period for a carry-back or carry-forward, subject to
the above limitations; and

 
Sec. 9. 36 MRSA §5200-A, sub-§2, ¶K, as enacted by PL 1999, c. 708,
§41, is amended to read:

 
K. Interest or dividends on obligations or securities of
this State and its political subdivisions and authorities to
the extent included in federal taxable income.; and

 
Sec. 10. 36 MRSA §5200-A, sub-§2, ¶L is enacted to read:

 
L.__The amount of contributions made by the taxpayer during
the taxable year to individual medical savings accounts
established on behalf of the taxpayer's employees pursuant
to chapter 914 to the extent that the contributions are not
deductible under the Code.

 
Sec. 11. 36 MRSA c. 914 is enacted to read:

 
CHAPTER 914

 
INDIVIDUAL MEDICAL SAVINGS ACCOUNT

 
§6601. Short title

 
This chapter may be known and cited as the "Individual Medical
Savings Account Act."

 
§6602.__Definitions

 
As used in this chapter, unless the context otherwise
indicates, the following terms have the following meanings.

 
1. Account administrator.__"Account administrator" means any
of the following entities:

 
A.__A financial institution authorized to do business in
this State as defined in Title 9-B, section 131, subsection
17-A;

 
B.__An insurance company authorized to do business in this
State pursuant to Title 24-A;

 
C.__A nonprofit hospital or medical service organization
authorized to do business in this State pursuant to Title
24; or

 
D.__An employer, if the employer has a self-insured health plan
that meets the requirements of the federal Employee

 
Retirement Income Security Act of 1974, 29 United States
Code, Sections 101 to 1461, as amended.

 
2.__Account holder.__"Account holder" means an individual on
whose behalf an individual medical savings account is
established.

 
3. Eligible medical expenses.__"Eligible medical expenses"
means expenses paid by or on behalf of an account holder for
medical care that are described in the Code, Section 213(d).
"Eligible medical expenses" includes health insurance premiums
and deductibles.

 
4.__Household.__"Household" means the taxpayer, the taxpayer's
spouse and any member of the taxpayer's household for whom the
taxpayer is entitled to claim an exemption as a dependent under
Part 8.

 
5.__Individual medical savings account.__"Individual medical
savings account" or "account" means a trust created or organized
to pay eligible medical expenses.

 
§6603.__Establishment and procedures

 
Individual medical savings accounts may be established subject
to the following procedures.

 
1.__Health insurance coverage.__Before establishing an
individual medical savings account, the prospective account
holder must obtain or have health insurance coverage.

 
2. Account establishment.__A resident may establish an
individual medical savings account for taxable years beginning
after December 31, 2001.__The account must be established as a
trust under the laws of this State and must be placed with an
account administrator.__At the time of establishment, the account
administrator shall notify the account holder of potential
federal income tax liability that may be associated with the
account.

 
3.__Payment of eligible medical expenses.__The account
administrator may use the funds in an account solely to pay
eligible medical expenses of the account holder and members of
the account holder's household that are not otherwise covered
under the account holder's existing medical coverage. Funds held
in an account may not be used to cover medical expenses of the
account holder or members of the account holder's household who
are otherwise covered, including, but not limited to, medical
expenses covered pursuant to an automobile insurance policy, a
workers' compensation insurance policy or a self-insured plan.__
If the account holder submits appropriate documentation to the

 
account administrator, the account administrator may reimburse
the account holder from account funds for eligible medical
expenses paid directly by the account holder during the taxable
year.

 
4.__Withdrawals for other purposes.__The account holder may
withdraw funds from the account for purposes other than those
expenses allowed under subsection 3 on the last business day of
the calendar year without incurring a withdrawal penalty.__If an
account holder withdraws funds at any other time, other than for
those purposes allowed under subsection 3, the account holder
must pay a penalty equal to 10% of the amount withdrawn.__The
penalty must be paid to the Bureau of Revenue Services at the
time the account holder files an income tax return under this
Title for the taxable year in which the funds were withdrawn.__
The State Tax Assessor shall credit all penalties received to the
General Fund.

 
5.__Employer accounts.__Upon agreement between an employer and
an employee, an employer may:

 
A.__Contribute to the employee's individual medical savings
account;

 
B.__Make or continue to make contributions to the employee's
medical coverage; or

 
C.__Contribute to both the employee's individual medical
savings account and the employee's medical coverage.

 
6.__No limit.__In each taxable year, there is no limit to the
total deposits that may be made to an account by or on behalf of
an account holder.

 
7.__Death of account holder.__Upon the death of an account
holder, the account administrator shall distribute the principal
and accumulated interest of the individual medical savings
account to the estate of the account holder.

 
8.__Tax consequences. Any amount deposited into an account
established under this chapter may be subtracted from taxable
income of the account holder during the same tax year.__Funds
withdrawn pursuant to subsection 4 must be considered income to
the account holder for the purpose of computing adjusted gross
income.

 
SUMMARY

 
This bill allows residents of the State to establish medical
savings accounts for payment of eligible medical expenses,
including the payment of health insurance premiums and
deductibles. Contributions to, interest earned on and qualified
withdrawals from medical savings accounts are exempt from Maine
state income tax.


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