TAXPAYER SERVICE DIVISION FYI – For Your Information

Medical Savings Accounts

GENERAL INFORMATION amounts withheld to an account adminis- trator. The withheld amounts are subject Any Colorado employer, other than the to federal and Colorado tax withholding. If federal government, may offer to estab- the employee establishes a medical lish medical savings accounts for its savings account, the employee is respon- employees. [§39-22-504.7, C.R.S.] This sible for making the deposits with the medical savings account is established by account administrator. Colorado law and differs from the Archer medical savings account established by federal law. DEFINITIONS A “medical savings account” is an account An employee may establish a medical established to pay the eligible medical savings account independently from an expenses of an account holder, the ac- employer if the employer has not estab- count holder’s spouse and dependent lished such an account for the employee. children, if any. Self-employed persons may not establish medical savings accounts. “Eligible medical expenses” are those expenses deductible for federal income tax The maximum amount that may be purposes. Examples of these are: doctor contributed to a medical savings account bills, hospital bills, prescriptions, and is $3,000 a year. The contribution may be travel expenses for medical care. made by the employer, by the employee, or by a combination of the two. Any An “account holder” is an employee on amounts contributed to a medical savings whose behalf a medical savings account is account and any interest earned are established. Colorado tax free to the employee as long as such funds remain in the account. A “dependent child” is any person who Colorado Department SUBTRACTION FROM INCOME a) is under the age of 21; of Revenue b) is legally entitled to or the subject of a Taxpayer Service Division To the extent not otherwise claimed as a 1375 Sherman St. court order for the provision of proper Denver, Colorado 80261 deduction in arriving at federal taxable or necessary subsistence, education, Forms and other services: income, amounts contributed may be medical care, or any other care neces- (303) 238-FAST (3278) claimed by the employee as a subtraction Assistance: sary for his or her health guidance or (303) 238-SERV (7378) in determining Colorado taxable income well-being, and who is not otherwise on federal income. If the employer self-supporting, married or a member www.taxcolordo.com establishes the medical savings account of the U.S. armed forces; or for the employee, the employer shall c) cannot be self-supporting because of withhold the agreed to amounts from the employee’s wages and submit the mental or physical disability. PAGE 1 OF 2 [§39-22-504.6, C.R.S.] INCOME 29 (10/06) MEDICAL SAVINGS ACCOUNT An employee who decides to have a Medical ADMINISTRATOR Savings Account must sign an “Employee The medical savings account administra- Election: Medical Savings Account” (DR 0810). tor must be one of the following: The form must be signed before the employer [§39-22-504.6, C.R.S.] withholds the first contribution to the insur- ance plan. a) a state chartered bank, savings and loan association, credit union, or trust Amounts withdrawn from a medical company authorized to act as a fidu- savings account for purposes other than ciary and under the supervision of the paying eligible medical expenses become financial institutions bureau of the taxable income to the account holder or to United States Department of Com- his estate as of the date such funds are merce; withdrawn and must be added to federal taxable income on Form 104 (Individual) b) a national banking association, federal or Form 105 (Fiduciary). [§39-22-504.7(6), savings and loan association, or credit C.R.S.] union authorized to act as a fiduciary in Colorado; FURTHER INFORMATION c) an insurance company; or For more information on related topics, d) the employer maintaining a self- consult the following DOR publications: insured health plan meeting the requirements of the federal “employee • FYI Income 30 “Catastrophic Health retirement income security act,” as Insurance” amended. FYIs, commonly used forms and The account holder may change the additional tax information are available account administrator upon leaving the on the Web at www.taxcolorado.com employment where the medical savings For additional Colorado tax information account was originally established. visit the "Tax Information Index" which [§39-22-504.7 (7), C.R.S.] covers a variety of topics including links to forms, publications, regulations, USE OF THE MEDICAL SAVINGS statutes and general questions and ACCOUNT answers. The "Tax Information Index" is Moneys may be distributed from a medi- located at www.taxcolorado.com cal savings account only for the purpose of FYIs provide general information concerning a) reimbursing the eligible medical a variety of Colorado tax topics in simple and expenses of the account holder, spouse straightforward language. Although the or dependent child; FYIs represent a good faith effort to provide accurate and complete tax information, the b) cashing out the balance in the account information is not binding on the Colorado of a deceased account holder; or Department of Revenue, nor does it replace, c) cashing out an account holder’s prior alter or supersede Colorado law and regula- year balance for whatever purpose. tions. The Executive Director, who by An account holder must submit documen- statute is the only person having authority tation of eligible medical expenses paid to bind the Department, has not formally during the tax year to the account admin- reviewed and/or approved these FYIs. istrator. The account administrator shall reimburse the account holder for such expenses. [§39-22-504.7 (3), C.R.S.]

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