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S.B. 107 Enrolled

    

MEDICAL SAVINGS ACCOUNT AMENDMENTS

    
1997 GENERAL SESSION

    
STATE OF UTAH

    
Sponsor: George Mantes

    AN ACT RELATING TO REVENUE AND TAXATION; CLARIFYING THE STATE INCOME
    TAX CONSEQUENCES OF A WITHDRAWAL FROM OR CONTRIBUTION TO A
    MEDICAL CARE SAVINGS ACCOUNT; AND PROVIDING RETROSPECTIVE
    OPERATION.
    This act affects sections of Utah Code Annotated 1953 as follows:
    AMENDS:
         59-10-114, as last amended by Chapter 4, Laws of Utah 1996, Second Special Session
    Be it enacted by the Legislature of the state of Utah:
        Section 1. Section 59-10-114 is amended to read:
         59-10-114. Additions to and subtractions from federal taxable income of an
     individual.
        (1) There shall be added to federal taxable income of a resident or nonresident individual:
        (a) the amount of any income tax imposed by this or any predecessor Utah individual
    income tax law and the amount of any income tax imposed by the laws of another state, the
    District of Columbia, or a possession of the United States, to the extent deducted from federal
    adjusted gross income, as defined by Section 62, Internal Revenue Code, in determining federal
    taxable income;
        (b) a lump sum distribution allowable as a deduction under Section 402(e)(3), Internal
    Revenue Code, to the extent deductible under Section 62(a)(8), Internal Revenue Code, in
    determining federal adjusted gross income;
        (c) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
    Code;
        (d) [to the extent not included in federal taxable income, if a] a withdrawal from a medical
    care savings account and any penalty imposed in the taxable year if:
        (i) the taxpayer did not deduct or include the amounts on his federal tax return pursuant


    to Section 220, Internal Revenue Code; and
        (ii) the withdrawal [from a medical care savings account] is subject to Subsections
    31A-32-105(1) and (2)[, the amount of money withdrawn by the taxpayer in the tax year from the
    medical care savings account, and any penalty imposed in the tax year]; and
        (e) the amount refunded to a participant under Title 53B, Chapter 8a, Higher Education
    Savings Incentive Program, in the year in which the amount is refunded.
        (2) There shall be subtracted from federal taxable income of a resident or nonresident
    individual:
        (a) the interest or dividends on obligations or securities of the United States and its
    possessions or of any authority, commission, or instrumentality of the United States, to the extent
    includable in gross income for federal income tax purposes but exempt from state income taxes
    under the laws of the United States, but the amount subtracted under this subsection shall be reduced
    by any interest on indebtedness incurred or continued to purchase or carry the obligations or
    securities described in this subsection, and by any expenses incurred in the production of interest or
    dividend income described in this subsection to the extent that such expenses, including amortizable
    bond premiums, are deductible in determining federal taxable income;
        (b) 1/2 of the net amount of any income tax paid or payable to the United States after all
    allowable credits, as reported on the United States individual income tax return of the taxpayer for
    the same taxable year;
        (c) the amount of adoption expenses which, for purposes of this subsection, means any actual
    medical and hospital expenses of the mother of the adopted child which are incident to the child's
    birth and any welfare agency, child placement service, legal, and other fees or costs relating to the
    adoption;
        (d) amounts received by taxpayers under age 65 as retirement income which, for purposes
    of this section, means pensions and annuities, paid from an annuity contract purchased by an
    employer under a plan which meets the requirements of Section 404 (a)(2), Internal Revenue Code,
    or purchased by an employee under a plan which meets the requirements of Section 408, Internal
    Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District

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    of Columbia, to the employee involved or the surviving spouse;
        (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500 personal
    retirement exemption;
        (f) 75% of the amount of the personal exemption, as defined and calculated in the Internal
    Revenue Code, for each dependent child with a disability and adult with a disability who is claimed
    as a dependent on a taxpayer's return;
        (g) any amount included in federal taxable income that was received pursuant to any federal
    law enacted in 1988 to provide reparation payments, as damages for human suffering, to United
    States citizens and resident aliens of Japanese ancestry who were interned during World War II;
        (h) subject to the limitations of Subsection (3)(e), 60% of the amounts paid by the taxpayer
    during the taxable year for health care insurance, as defined in Title 31A, Chapter 1, Insurance Code,
    for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents to the extent the amounts paid
    for health insurance were not deductible under Sections 125, 162, or 213, Internal Revenue Code,
    in determining federal taxable income;
        (i) except as otherwise provided in this subsection, the amount of a contribution made in the
    tax year on behalf of the taxpayer to a medical care savings account and interest earned on a
    contribution to a medical care savings account established pursuant to Title 31A, Chapter 32,
    Medical Care Savings Account Act, to the extent the contribution is accepted by the account
    administrator as provided in the Medical Care Savings Account Act, and [to the extent the
    contribution amount is included in federal taxable income] if the taxpayer did not deduct or include
    amounts on his federal tax return pursuant to Section 220, Internal Revenue Code. A contribution
    deductible under this subsection may not exceed either of the following:
        (i) the maximum contribution allowed under the Medical Care Savings Account Act for the
    tax year multiplied by two for taxpayers who file a joint return, if neither spouse is covered by health
    care insurance as defined in Section 31A-1-301 or self-funded plan that covers the other spouse, and
    each spouse has a medical care savings account; or
        (ii) the maximum contribution allowed under the Medical Care Savings Account Act for the
    tax year for taxpayers:

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        (A) who do not file a joint return; or
        (B) who file a joint return, but do not qualify under Subsection (2)(i)(i); and
        (j) the amount included in federal taxable income that was derived from money paid by the
    taxpayer to the program fund and investment income earned on those payments under Title 53B,
    Chapter 8a, Higher Education Savings Incentive Program.
        (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for
    taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800,
    except that:
        (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
    over $32,000, the amount of the retirement income exemption that may be subtracted shall be
    reduced by 50 cents;
        (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income earned
    over $16,000, the amount of the retirement income exemption that may be subtracted shall be
    reduced by 50 cents; and
        (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000, the
    amount of the retirement income exemption that may be subtracted shall be reduced by 50 cents.
        (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption shall
    be further reduced according to the following schedule:
        (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
    over $32,000, the amount of the personal retirement exemption shall be reduced by 50 cents;
        (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income earned
    over $16,000, the amount of the personal retirement exemption shall be reduced by 50 cents; and
        (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000, the
    amount of the personal retirement exemption shall be reduced by 50 cents.
        (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be calculated by
    adding to federal adjusted gross income any interest income not otherwise included in federal
    adjusted gross income.
        (d) For purposes of determining ownership of items of retirement income common law

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    doctrine will be applied in all cases even though some items may have originated from service or
    investments in a community property state. Amounts received by the spouse of a living retiree
    because of the retiree's having been employed in a community property state are not deductible as
    retirement income of such spouse.
        (e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
    insurance as defined in Title 31A, Chapter 1, Insurance Code, is not allowed:
        (i) for an amount that is reimbursed or funded in whole or in part by the federal government,
    the state, or an agency or instrumentality of the federal government or the state; and
        (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in
    whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
        Section 2. Retrospective operation.
        This act has retrospective operation for taxable years beginning on or after January 1, 1997.

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