S.B. 107

1

MEDICAL SAVINGS ACCOUNT AMENDMENTS
2 1997 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: George Mantes
5 AN ACT RELATING TO REVENUE AND TAXATION; CLARIFYING THE STATE INCOME
6 TAX CONSEQUENCES OF A WITHDRAWAL FROM OR CONTRIBUTION TO A
7 MEDICAL CARE SAVINGS ACCOUNT; AND PROVIDING RETROSPECTIVE
8 OPERATION.
9 This act affects sections of Utah Code Annotated 1953 as follows:
10 AMENDS:
11 59-10-114, as last amended by Chapter 4, Laws of Utah 1996, Second Special Session
12 Be it enacted by the Legislature of the state of Utah:
13 Section 1. Section 59-10-114 is amended to read:
14 59-10-114. Additions to and subtractions from federal taxable income of an
15 individual.
16 (1) There shall be added to federal taxable income of a resident or nonresident individual:
17 (a) the amount of any income tax imposed by this or any predecessor Utah individual
18 income tax law and the amount of any income tax imposed by the laws of another state, the
19 District of Columbia, or a possession of the United States, to the extent deducted from federal
20 adjusted gross income, as defined by Section 62, Internal Revenue Code, in determining federal
21 taxable income;
22 (b) a lump sum distribution allowable as a deduction under Section 402(e)(3), Internal
23 Revenue Code, to the extent deductible under Section 62(a)(8), Internal Revenue Code, in
24 determining federal adjusted gross income;
25 (c) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
26 Code;
27 (d) [to the extent not included in federal taxable income, if a] a withdrawal from a medical

1 care savings account and any penalty imposed in the taxable year if:
2 (i) the taxpayer did not deduct or include the amounts on his federal tax return pursuant
3 to Section 220, Internal Revenue Code; and
4 (ii) the withdrawal [from a medical care savings account] is subject to Subsections
5 31A-32-105(1) and (2)[, the amount of money withdrawn by the taxpayer in the tax year from the
6 medical care savings account, and any penalty imposed in the tax year]; and
7 (e) the amount refunded to a participant under Title 53B, Chapter 8a, Higher Education
8 Savings Incentive Program, in the year in which the amount is refunded.
9 (2) There shall be subtracted from federal taxable income of a resident or nonresident
10 individual:
11 (a) the interest or dividends on obligations or securities of the United States and its
12 possessions or of any authority, commission, or instrumentality of the United States, to the extent
13 includable in gross income for federal income tax purposes but exempt from state income taxes
14 under the laws of the United States, but the amount subtracted under this subsection shall be
15 reduced by any interest on indebtedness incurred or continued to purchase or carry the obligations
16 or securities described in this subsection, and by any expenses incurred in the production of
17 interest or dividend income described in this subsection to the extent that such expenses, including
18 amortizable bond premiums, are deductible in determining federal taxable income;
19 (b) 1/2 of the net amount of any income tax paid or payable to the United States after all
20 allowable credits, as reported on the United States individual income tax return of the taxpayer for
21 the same taxable year;
22 (c) the amount of adoption expenses which, for purposes of this subsection, means any
23 actual medical and hospital expenses of the mother of the adopted child which are incident to the
24 child's birth and any welfare agency, child placement service, legal, and other fees or costs relating
25 to the adoption;
26 (d) amounts received by taxpayers under age 65 as retirement income which, for purposes
27 of this section, means pensions and annuities, paid from an annuity contract purchased by an
28 employer under a plan which meets the requirements of Section 404 (a)(2), Internal Revenue Code,
29 or purchased by an employee under a plan which meets the requirements of Section 408, Internal
30 Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District
31 of Columbia, to the employee involved or the surviving spouse;

- 2 -

1 (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500 personal
2 retirement exemption;
3 (f) 75% of the amount of the personal exemption, as defined and calculated in the Internal
4 Revenue Code, for each dependent child with a disability and adult with a disability who is
5 claimed as a dependent on a taxpayer's return;
6 (g) any amount included in federal taxable income that was received pursuant to any
7 federal law enacted in 1988 to provide reparation payments, as damages for human suffering, to
8 United States citizens and resident aliens of Japanese ancestry who were interned during World
9 War II;
10 (h) subject to the limitations of Subsection (3)(e), 60% of the amounts paid by the taxpayer
11 during the taxable year for health care insurance, as defined in Title 31A, Chapter 1, Insurance
12 Code, for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents to the extent the
13 amounts paid for health insurance were not deductible under Sections 125, 162, or 213, Internal
14 Revenue Code, in determining federal taxable income;
15 (i) except as otherwise provided in this subsection, the amount of a contribution made in
16 the tax year on behalf of the taxpayer to a medical care savings account and interest earned on a
17 contribution to a medical care savings account established pursuant to Title 31A, Chapter 32,
18 Medical Care Savings Account Act, to the extent the contribution is accepted by the account
19 administrator as provided in the Medical Care Savings Account Act, and [to the extent the
20 contribution amount is included in federal taxable income] if the taxpayer did not deduct or include
21 amounts on his federal tax return pursuant to Section 220, Internal Revenue Code. A contribution
22 deductible under this subsection may not exceed either of the following:
23 (i) the maximum contribution allowed under the Medical Care Savings Account Act for
24 the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is covered by
25 health care insurance as defined in Section 31A-1-301 or self-funded plan that covers the other
26 spouse, and each spouse has a medical care savings account; or
27 (ii) the maximum contribution allowed under the Medical Care Savings Account Act for
28 the tax year for taxpayers:
29 (A) who do not file a joint return; or
30 (B) who file a joint return, but do not qualify under Subsection (2)(i)(i); and
31 (j) the amount included in federal taxable income that was derived from money paid by

- 3 -

1 the taxpayer to the program fund and investment income earned on those payments under Title
2 53B, Chapter 8a, Higher Education Savings Incentive Program.
3 (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for
4 taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800,
5 except that:
6 (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
7 over $32,000, the amount of the retirement income exemption that may be subtracted shall be
8 reduced by 50 cents;
9 (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
10 earned over $16,000, the amount of the retirement income exemption that may be subtracted shall
11 be reduced by 50 cents; and
12 (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
13 the amount of the retirement income exemption that may be subtracted shall be reduced by 50
14 cents.
15 (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption
16 shall be further reduced according to the following schedule:
17 (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
18 over $32,000, the amount of the personal retirement exemption shall be reduced by 50 cents;
19 (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
20 earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50
21 cents; and
22 (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
23 the amount of the personal retirement exemption shall be reduced by 50 cents.
24 (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be calculated
25 by adding to federal adjusted gross income any interest income not otherwise included in federal
26 adjusted gross income.
27 (d) For purposes of determining ownership of items of retirement income common law
28 doctrine will be applied in all cases even though some items may have originated from service or
29 investments in a community property state. Amounts received by the spouse of a living retiree
30 because of the retiree's having been employed in a community property state are not deductible
31 as retirement income of such spouse.

- 4 -

1 (e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
2 insurance as defined in Title 31A, Chapter 1, Insurance Code, is not allowed:
3 (i) for an amount that is reimbursed or funded in whole or in part by the federal
4 government, the state, or an agency or instrumentality of the federal government or the state; and
5 (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in
6 whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
7 Section 2. Retrospective operation.
8 This act has retrospective operation for taxable years beginning on or after January 1, 1997.




Legislative Review Note
as of 12-17-96 12:32 PM

A limited legal review of this bill raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel

- 5 -