A N
A C T
RELATING TO MEDICAL
SAVINGS ACCOUNT
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Introduced By: Representatives Mumford, Fleury, Costantino, Savage, and Henseler |
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Date Introduced: January 23, 2002 |
It is enacted by
the General Assembly as follows:
SECTION 1. This act shall be known and may be cited as the "Scituate Medical Savings Account Act."
SECTION 2. Chapter 44-30 of the General Laws entitled "Personal Income Tax" is hereby amended by adding thereto the following section:
44-30-25.1. Modification relating to medical savings accounts. --
(a) As used in this section:
(1)
"Account administrator" means any of the following:
(A) A state
chartered bank, savings and loan association, credit union, or trust company authorized
to act as fiduciary in this state; or a national banking association or federal
savings and loan association or credit union authorized to act as fiduciary in
this state;
(B) An
insurance company authorized to do business in this state;
(2) "Account
holder" means a resident individual of the town of Scituate who
establishes a medical savings account.
(3)
"Deductible" means the total deductible for an employee or account
holder and all the dependents of that employee or account holder for a calendar
year.
(4)
"Dependent" means the spouse of the employee or account holder or a
child of the employee or account holder if the child is any of the following:
(A) Under
twenty-three (23) years of age and enrolled as a full-time student at an
accredited college or university or under nineteen (19) years of age;
(B) Legally entitled to the provision of proper or necessary subsistence, education, medical care, or other care necessary for his or her health, guidance or well-being and not otherwise emancipated, self-supporting, married, or a member of the Armed Forces of the United States; and
(C) Mentally or physically incapacitated to the extent that he
or she is not self-sufficient.
(5)
"Eligible medical expense" means an expense paid by the taxpayer for
medical care described in section 213(d) of the Internal Revenue Code.
(6)
"Employee" means an individual employed by the town of Scituate for
whose benefit or for the benefit of whose dependents a medical savings account
is established.
(7)
"Employer" means the town of Scituate.
(8)
"ERISA" means the Employee Retirement Income Security Act of 1974,
public law 93-406, 88 Stat. 829, as amended.
(9)
"Higher deductible" means an annual deductible in the applicable
amount (as adjusted) set forth in section 220(c)(2)(A) of the Internal Revenue
Code.
(10)
"Medical savings account" or "account" means (a) an account
established in this state pursuant to a medical savings account program to pay
the eligible medical expenses of an employee or account holder and the
dependents of the employee or account holder, or (b) an account as defined in
section 220(d) of the Internal Revenue Code.
(11)
"Medical savings account program" or "program" means one
(1) of the following programs:
(A)
A program established by an employer that previously provided a health coverage
policy, certificate or contract or self insured health plan that includes all
of the following:
(i)
The purchase by an employer of a qualified higher deductible health plan for
the benefit of an employee or an employee and his or her dependents; and
(ii)
The contribution on behalf of an employee into a medical savings account by his
or her employer of all or part of the higher deductible of the plan purchased
pursuant to the preceding subparagraph (A)(i). The employee may contribute into
the account in addition to a contribution by the employer all or part of the
difference between the employer's contribution and the amount of the higher deductible.
(B)
A program established by an employer that did not previously provide a health
coverage policy, certificate or contract or self insured health plan that
includes the following:
(i)
The purchase by an employer of a qualified higher deductible health plan for
the benefit of an employee or an employee and his or her dependents; and
(ii)
The contribution on behalf of an employee into a medical savings account by his
or her employer of all or part of the higher deductible of the plan purchased
pursuant to the preceding subparagraph (B)(i). The employee may contribute to
the account in addition to a contribution by the employer all or part of the
difference between the employer's contribution and the amount of the higher
deductible.
(C)
A program established by an account holder that includes all of the following:
(i)
The purchase by the account holder of a qualified higher deductible health plan
for the benefit of the account holder or the account holder and his or her
dependents; and
(ii)
A contribution by the account holder into a medical savings account of an
amount not more than the amount of the higher deductible.
(12) "Qualified higher deductible health plan" means
a health coverage policy, certificate, or contract or health plan that provides
for payments for covered benefits that exceed the higher deductible and that is
purchased or established by an account holder or by an employer for the benefit
of an account holder or employee for whom the account holder or employer makes
deposits into a medical savings account.
(b)(1) For tax years beginning after
December 31, 2002, both of the following apply:
(A)
An employer, except as otherwise provided by statute, contract, or a collective
bargaining agreement, may offer a medical savings account program to the
employer's employees and their dependents; and
(B)
A resident individual of the town of Scituate may establish a medical savings
account program for himself or herself and his or her dependents.
(2)
Before making any contributions, an employer that offers a medical savings
account program shall inform all employees in writing of the state and federal
tax status of contributions made pursuant to this section.
(3)
Upon agreement between an employer and an employee, an employee may have his or
her employer contribute either to the employee's medical savings account or
continue to make contributions under the employer's existing health insurance
policy program.
(c)(1)
An account administrator shall administer the medical savings account from
which the payment of claims is made and has a fiduciary duty (including the
duty to prudently invest uncommitted funds on deposit in medical savings
accounts) to the person for whose benefit the account administrator administers
an account.
(2)
Not more than thirty (30) days after an account administrator begins to
administer an account, the account administrator shall notify in writing each
employee and account holder on whose behalf the account administrator administers
an account of the date of the last business day of the account administrator's
business year.
(3) The employee or account holder shall
utilize the funds held in a medical savings account solely for the purpose of
paying the eligible medical expenses of the employee or account holder or his
or her dependents or to purchase a health coverage policy, certificate or
contract. Funds held in a medical savings account shall not be used to pay
medical expenses of the employee or account holder or his or her dependents
that are otherwise reimbursable, including, but not limited to, medical expenses
payable pursuant to an automobile insurance policy, worker's compensation
insurance policy or self insured plan, or another health coverage policy,
certificate or contract.
(4) The employee or account holder may submit documentation of
medical expenses paid by the employee or account holder in the tax year to the
account administrator, and the account administrator shall reimburse the
employee or account holder from the employee's or account holder's account for
eligible medical expenses. Provided, further, other methods for payment of
eligible medical expenses, including the use of a swipe card or checkbook,
shall also be allowed.
(5) If an employer makes contributions to a medical savings
account program on a periodic installment basis, the employer may advance to an
employee, interest free, the amount necessary to cover medical expenses
incurred that exceed the amount in the employee's medical savings account at the
time the expense is incurred if the employee agrees to repay the advance from
future installments or when he or she ceases to be an employee of the employer.
(d)(1) The portion of any contribution to a medical savings
account, to the extent it is deemed taxable income under the Internal Revenue
Code, shall be a modification decreasing federal adjusted gross income of the
participant for the purpose of determining his or her Rhode Island income tax
liability in the year of the contribution. Provided, however, the modification
shall not exceed an amount which would otherwise be allowed based on the
maximum contribution under section 220 of the Internal Revenue Code. Income,
including gains and losses, on a medical savings account shall be exempt from
taxation under this chapter.
(2) An employee or account holder may withdraw money from his
or her medical savings account for any purpose other than a purpose described
in subsection (c)(3) without incurring the penalty under subsection (3)(B) only
when the withdrawal is made on the last business day of the account
administrator's business year; provided, however, the money withdrawn on that
date shall not be eligible for the modification or the exemption provided under
subsection (d)(1) and the amount of any such withdrawal shall, to the extent
that any earlier contribution(s) or income was claimed as a modification
decreasing federal adjusted gross income for Rhode Island purposes shall be a
modification increasing federal adjusted gross income of the account holder or
employee for the purpose of determining his or her Rhode Island income tax
liability in the year of the withdrawal(s).
(3) Subject to subsection (d)(4), if an employee or account
holder withdraws money from a medical savings account (i) for any purpose other
than a purpose described in subsection (c)(3) at any time other than the last
business day of the account administrator, or (ii) in an amount that exceeds
any applicable limit for medical savings accounts pursuant to section 220 of
the Internal Revenue Code, the following shall apply:
(A) the money withdrawn shall not be eligible for the
modification or the exemption provided under subsection (d)(1) and the amount
of any such withdrawal shall, to the extent that any earlier contribution(s) or
income was claimed as a modification decreasing federal adjusted gross income
for Rhode Island purposes shall be a modification increasing federal adjusted
gross income of the account holder or employee for the purpose of determining
his or her Rhode Island income tax liability in the year of the withdrawal(s);
and
(B) the administrator shall withhold from the amount of the
withdrawal and on behalf of the account holder or employee, shall pay a penalty
to the Rhode Island Division of Taxation equal to ten percent (10%) of the
amount of the withdrawal.
(4)
The amount of a disbursement of any assets of a medical savings account
pursuant to a filing for protection under title 11 of the United States Code,
11 U.S.C. 101 to 1330 by an employee, account holder, or person for whose
benefit the account was established is not considered a withdrawal for purposes
of this section.
(5)
Upon the death of the account holder or employee, the account administrator shall
distribute the principal and accumulated interest of the medical savings
account to the estate of the account holder or employee.
(6)
If an employee is no longer employed by the town of Scituate and the employee,
not more than sixty (60) days after his or her final day of employment,
transfers the account to a new account administrator or requests in writing to
the town's account administrator that the account remain with that
administrator and that account administrator agrees to retain the account, the
money in the medical savings account may be utilized for the benefit of the
employee or the employee and his or her dependents subject to this section. Not
more than thirty (30) days after the expiration of the sixty (60) days, if an
account administrator has not accepted the former employee's account, the
employer shall mail a check to the former employee at the employee's last known
address equal to the amount in the account on that day. If an employee becomes
employed with a different employer that participates in a medical savings
account program, the employee may transfer his or her medical savings account
to that new employer's account administrator. If an account holder becomes an
employer that participates in the medical savings account program, the account
holder may transfer his or her account to the employer's account administrator.
(7) Amounts
in a medical savings account at the end of a year may be used to pay eligible
medical expenses in future years, and any such amounts shall not reduce the amount
that must be contributed by an employer.
(8) After an account holder or employee reaches fifty-nine and
one-half (59 1/2) years of age, withdrawals shall not be subject to the ten
percent (10%) penalty.
(9) An account holder whose account consists solely of his or
her own funds and no funds from an employer, shall be entitled to a tax credit
of two hundred dollars ($200) in each year the account holder makes the maximum
contribution to his or her account.
SECTION 3. Section 44-30-12 of the General Laws in chapter 44-30 entitled "Personal Income Tax" is hereby amended to read as follows:
44-30-12. Rhode Island income of a resident individual. -- (a) General. The Rhode Island income of a resident individual means his or her adjusted gross income for federal income tax purposes, with the modifications specified in this section.
(b) Modifications increasing federal adjusted gross income. There shall be added to federal adjusted gross income:
(1) Interest income on obligations of any state, or its political subdivisions, other than Rhode Island or its political subdivisions;
(2) Interest or dividend income on obligation or securities of any authority, commission, or instrumentality of the United States, but not of Rhode Island or its political subdivisions, to the extent exempted by the laws of the United States from federal income tax but not from state income taxes.
(3) The modification described in 44-30-25(g).
(4) The
modification described in 44-30-25.1(d)(3)(A).
(c)
Modifications reducing federal adjusted gross income. There shall be subtracted
from federal adjusted gross income (1) any interest income on obligations of
the United States and its possessions to the extent includible in gross income
for federal income tax purposes, and any interest or dividend income on
obligations, or securities of any authority, commission, or instrumentality of
the United States to the extent includible in gross income for federal income
tax purposes but exempt from state income taxes under the laws of the United
States; provided that the amount to be subtracted shall in any case be reduced
by any interest on indebtedness incurred or continued to purchase or carry
obligations or securities the income of which is exempt from Rhode Island
personal income tax, to the extent the interest has been deducted in
determining federal adjusted gross income or taxable income; (2) the
modification described in 44-30-25(f); (3) the modification described in
Section 44-30-1.1(C)(1).; and (4) the modification described in 44-30-25.1(d)(1).
(d) Modification for Rhode Island fiduciary adjustment. There shall be added to or subtracted from federal adjusted gross income (as the case may be) the taxpayer's share as beneficiary of an estate or trust, of the Rhode Island fiduciary adjustment determined under 44-30-17.
(e) Partners. The amounts of modifications required to be made under this section by a partner, which relate to items of income or deduction of a partnership, shall be determined under 44-30-15.
SECTION 4. This act shall take effect upon passage.