Rule 42.15.603 - MEDICAL CARE SAVINGS ACCOUNT - WITHDRAWALS, PENALTIES, AND TRANSFERS(1) The funds held in a Montana medical care savings account (MSA) may be withdrawn by the account holder free of tax at any time during the year if they are qualified withdrawals.(2) Except as provided in (7), qualified withdrawals include: (a) eligible medical expenses, as defined in 15-61-102, MCA, paid during that year; or(b) expenses incurred for administering the account.(3) An unqualified withdrawal must be: (a) included in the taxpayer's income tax return as ordinary income; and(b) is subject to a penalty equal to 10 percent of the amount of the withdrawal from the account. An unqualified withdrawal made on the last business day of the business year, as set forth in 15-61-203, MCA, is not subject to this penalty but shall be taxed as ordinary income as provided in (a).(4) Withdrawals that do not meet the following requirements and exceptions are deemed unqualified: (a) Withdrawals must be made by the account holder of a self-administered account, or on behalf of an account holder, by January 15 for the purpose of reimbursing eligible medical expenses paid during the previous year.(b) Each account holder must maintain documentation of eligible expenses for a minimum of three years from the date the account holder filed a Montana income tax return for the year the expenses were incurred.(c) In the case of requests made by account holders from account administrators for withdrawals to pay for eligible medical expenses, the expenses must be supported by an itemized statement of expenses that were either paid or charged by the account holder and the signature of the account holder attesting that these expenses are "eligible medical expenses." The burden of proving that a withdrawal from an MSA was made for an eligible expense is upon the account holder and not upon the account administrator.
(d) All payments made from an MSA must be made payable to the account holder, the eligible medical provider, the estate, or the legal guardian of the account holder, unless an agreement exists between the account holder and/or the account administrator and the payee to pay eligible medical expenses electronically.(5) An account holder who becomes a resident of another state is deemed to have made an unqualified withdrawal for the entire value of the balance contained in the account on the date the individual changed residency. The withdrawal is deemed to have been made on the last business day of the taxpayer's Montana residency, and is not subject to the 10 percent penalty provided in 15-61-206, MCA.(6) The direct transfer of funds from a Montana MSA of an account holder to another Montana MSA is deemed an unqualified withdrawal to the transferor and ordinary income to the transferee, to the extent it is includable in the transferee's federal gross income, except when the funds are directly transferred to: (a) another Montana MSA of the same account holder established to replace the initial one or with a different account administrator; or(b) a Montana MSA held by an immediate family member of the account holder, to the extent it is not includable in the transferee's federal gross income.(7) After the death of the account holder: (a) any distribution or withdrawal of funds from the Montana MSA is deemed an unqualified withdrawal unless: (i) the funds are distributed as an inherited account; or(ii) the withdrawals are made during the 365 days following the death of the account owner, either by the estate of the deceased on an existing account, or by any account holder of an inherited account to pay for eligible expenses incurred by the deceased;(b) inherited accounts are deductible from Montana adjusted gross income to the extent they are included in the federal adjusted gross income; and(c) the 10 percent penalty for unqualified withdrawals does not apply to any distribution of funds to the heirs of the deceased whether or not the funds received qualify as an inherited account.(8) Qualified withdrawals made with respect to a family leave expense, as defined in 15-61-102, MCA, are deemed to be in exchange of adequate consideration for loss of income and must be treated as ordinary income to the recipient, except when received by the account holder or the spouse of the account holder.(9) All medical records and expenses provided by an account holder to an account administrator are to be kept confidential by the account administrator unless the account holder gives authorization to disclose them to a third party.Mont. Admin. r. 42.15.603
NEW, 1996 MAR p. 1162, Eff. 4/26/96; AMD, 1998 MAR p. 1015, Eff. 4/17/98; AMD, 2004 MAR p. 1974, Eff. 8/20/04; AMD, 2010 MAR p. 1088, Eff. 4/30/10.); AMD, 2018 MAR p. 851, Eff. 4/28/2018AUTH: 15-1-201, 15-30-2620, MCA; IMP: 15-61-102, 15-61-202, 15-61-203, MCA