U. 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. 5. 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 that 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