Idaho Medical Savings Account

An Idaho Medical Savings Account (MSA) allows you to save for medical expenses and long-term care costs while reducing the amount of Idaho individual income tax that you owe.

Contributions to a federal MSA or health savings account (HSA) don’t qualify for this Idaho deduction. 

Qualifying accounts and expenses

For your account to qualify as an MSA, the financial institution must include the words “Medical Savings Account” or the letters “MSA” on your statement as well as in the name, title, description, or designation of the account.

This account is used only to pay eligible medical, vision, and dental expenses (as defined by the Internal Revenue Code), along with health insurance and supplemental Medicare premiums and long-term care expenses.

In addition, transportation to and from a medical appointment is an eligible expense. The amount can be based either on your actual cost (e.g. gas, oil, parking) or on the optional standard medical mileage rate set by the Internal Revenue Service.

Withdrawals for ineligible expenses

You must pay tax on any funds you withdraw from the MSA to pay for something other than an eligible medical expense.

Also, if you’re less than 59 1/2 years old, funds withdrawn to pay for something other than eligible medical expenses are subject to a 10% penalty.

Financial benefits

Contributions to an Idaho MSA can be deducted from your adjusted gross income when you file an Idaho income tax return. A single person can contribute up to $10,000 each calendar year and a married couple filing jointly can contribute up to $20,000.

Interest earned on this account is also deductible.

These deductions are only entered on your Idaho individual income tax return, not your federal (IRS) tax return.

Using your MSA

Your funds must be in the MSA before you pay the expense.

Insurance reimbursement

If you take money from your MSA to pay a medical bill but are then reimbursed by your insurance company for that expense, you must deposit the reimbursement into your MSA within 60 days of the date you received the reimbursement.

If you don’t redeposit this amount, it must be included in taxable income and you may be subject to a penalty. If you redeposit the funds into the MSA, since it’s a reimbursement, it’s not included in your contribution dollar limit.

Working with your financial institution

Your financial institution is only required to send a statement showing the amount of interest the account earned, as it does for any other account. The account holder is responsible for keeping accurate records of contributions, distributions, and rollovers.

If you choose, you can move your MSA from one financial institution to another as long as you reinvest the money from the old MSA in a new MSA for the benefit of the same account holder within 60 days of the withdrawal.

Death of the account holder

If the beneficiary is a surviving spouse, the account will continue to qualify as an MSA and can be used by the spouse. If the beneficiary isn’t a surviving spouse, the account no longer qualifies as an MSA.

The beneficiary (including an estate) must include in income the amount in the MSA — less any of the decedent’s medical expenses paid by the beneficiary within one year of the death.

Tax deduction information

If you pay health insurance premiums from your MSA, you can’t also claim the Idaho deduction for health insurance premiums for those contributions.

If your health insurance premiums are deducted from your wages on a pre-tax basis, you can’t withdraw those premiums from your MSA to reimburse yourself. Review your W-2 form information or check with your payroll office if you’re unsure if your insurance premium deductions are pre-tax.

You can claim on your Schedule A the qualifying expenses you’ve paid from your MSA, both for your federal and Idaho tax return filings.

Laws and rules