ASSEMBLY, No. 671

 

STATE OF NEW JERSEY

 

Introduced Pending Technical Review by Legislative Counsel

 

PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION

 

 

By Assemblymen BAGGER and ROMA

 

 

An Act concerning medical savings accounts, amending N.J.S.54A:5-1 and N.J.S.54A:9-6 and supplementing Title 54A of the New Jersey Statutes.

 

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

    1. (New section) As used in this act:

    "Account holder" means the individual on whose behalf a medical savings account is opened.

    "Director" means the Director of the Division of Taxation.

    "Eligible expense" means any qualified medical expense of an account holder or the account holder's qualified dependents and includes the expense of purchasing a health benefits plan and paying any deductible or copayment on that plan for the first year of the plan for a qualified dependent who has lost eligibility to receive health benefits from the account holder's employer. "Eligible expense" includes disbursements from a medical savings account pursuant to a filing for protection by an account holder under Title 11 of the United States Code, 11 U.S.C.§101 et seq. and shall not be included in the account holder's gross income for the year of disbursement in determining taxes due under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. "Eligible expense" does not include the payment of a medical expense that has been or will be, otherwise paid, including, but not limited to, medical expenses paid or reimbursed under a policy of motor vehicle insurance, worker's compensation insurance or plans, or an employer-funded health benefits plan.

    "Health benefits plan" means a hospital and medical expense insurance policy, hospital, medical or health service corporation contract, or health maintenance organization subscriber contract, which policy or contract is delivered or issued for delivery in this State.

    "Insurer" means any person authorized by the laws of this State to transact the business of accident and health insurance in New Jersey.

    "Medical savings account" or "account" means a custodial account or trust created in this State to pay for the eligible expenses of an account holder or the account holder's qualified dependents.

    "Qualified dependent" means the spouse of an account holder or the child of an account holder when the child is: (1) under 19 years of age at the close of the taxable year, or under 23 years of age at the close of the taxable year and a full-time student at an accredited college or university; (2) not self-sufficient due to mental or physical incapacitation; or (3) legally entitled to the provisions of proper or necessary subsistence, education, medical care, or other care necessary for the dependent's guidance, or well-being and is not otherwise emancipated, self-supporting, married or a member of the armed forces of the United States.

 

    2. (New section) a. An employer may open a medical savings account on behalf of any employee to pay the employee's eligible expenses and the eligible expenses of the employee's qualified dependents.

    b. (1) An initial deposit of $1,000 shall be required to open a medical savings account.

    (2) An employer may deposit additional monies into the account up to a maximum of $3,000 in any taxable year.

    (3) An employee who is the account holder of a medical savings account may deposit money into the account up to an amount equaling the difference between the employer's deposits to the account during the taxable year and the employer's maximum allowable deposit.

    c. Each employer that opens a medical savings account for an employee shall inform the employee, in writing, at the time the medical savings account is opened, of the federal and State tax status of deposits made to the account.

    d. The owners of interest in a medical savings account are the account holder and the account holder's qualified dependents. Such interest is nonforfeitable.

    e. An account holder may withdraw funds from the account holder's medical savings account at any time. Withdrawals for expenses other than eligible expenses shall be subject to penalties pursuant to subsection m. of N.J.S.54A:9-6.

    f. Funds withdrawn from a medical savings account shall not be used to pay eligible expenses that have been, or will be, otherwise paid, including, but not limited to, medical expenses paid or reimbursed under a policy of motor vehicle insurance, by workers' compensation insurance or plans, or by an employer-funded health benefits plan.

    g. If an employer makes deposits to an employee's medical savings account on a periodic installment basis, the employer may advance to the employee, interest free, an amount needed to cover the employee's eligible expenses when such expenses exceed the amount then available in the employee's medical savings account, if the employee agrees to repay the advance from future installments or upon the termination of the employee's employment.

    h. The assets of the medical savings account shall not be commingled with other property except in a common trust fund or common investment fund.

 

    3. (New section) a. An employer shall designate an administrator for the medical savings account at the time the account is opened.

    b. A medical savings account shall be administered by one of the following:

    (1) a federally or State chartered bank, savings and loan association, savings bank or credit union;

    (2) a trust company authorized to act as a fiduciary;

    (3) an insurer;

    (4) a third-party administrator;

    (5) a certified public accountant;

    (6) an employer that administers an employee benefit plan subject to regulation under the federal "Employee Retirement Income Security Act of 1974," 29 U.S.C.§1001 et seq., or that maintains medical savings accounts for its employees; or

    (7) such other person that demonstrates to the satisfaction of the director that the manner in which the account will be managed will be consistent with the requirements of this section.

    c. Each administrator shall send to the account holder, at least annually, a statement setting forth the balance remaining in the account holder's medical savings account and detailing the activity in the account since the last statement was issued.

    d. When an account holder documents the payment of an eligible expense to the administrator of the account holder's medical savings account, the administrator shall reimburse the account holder from the account for that expense if sufficient funds are available. The reimbursement shall be made within 30 days of the administrator's receipt of the documentation. The administrator shall keep a record of the amounts disbursed from the medical savings account for documented eligible expenses and of the dates on which the expenses were incurred. This record shall be made available to any accident and health insurer or other third-party payer providing a health benefits plan to the account holder, for use in determining whether the account holder has met the deductible or other obligation required for the receipt of benefits from the insurer or third-party payer.

 

    4. (New section) a. If an account holder later ceases to be employed by the employer who has opened the medical savings account, the account holder may, within 60 days of the final date of employment with that employer, request in writing that the administrator of the account continue to administer the account. If the administrator agrees to continue to administer the medical savings account, the account shall continue.

    b. If the account holder becomes employed by a new employer that opens a new medical savings account on his behalf, the account holder may transfer any funds remaining in a prior account to the medical savings account opened by his new employer. Such a transfer is not a withdrawal.

    c. If the administrator does not agree to retain the medical savings account, or if the account holder requests that the medical savings account be closed, the administrator shall close the medical savings account and mail a check for the account balance as of that date to the account holder. Such a withdrawal is not an eligible expense.

 

    5. (New section) There shall be allowed as a deduction: a. amounts deposited in a medical savings account established pursuant to section 2 of this act; and b. all interest, dividends or gain earned by a medical savings account.

 

    6. N.J.S.54A:5-1 is amended to read as follows:

    54A:5-1. New Jersey Gross Income Defined. New Jersey gross income shall consist of the following categories of income:

    a. Salaries, wages, tips, fees, commissions, bonuses, and other remuneration received for services rendered whether in cash or in property , including all withdrawals from a medical savings account that are not for eligible expenses as defined in section 1 of P.L. , c. (C. )(pending in the Legislature as this bill).

    b. Net profits from business. The net income from the operation of a business, profession or other activity after provision for all costs and expenses incurred in the conduct thereof, determined either on a cash or accrual basis in accordance with the method of accounting allowed for federal income tax purposes but without deduction of the amount of:

    (1) taxes based on income;

    (2) a civil, civil administrative, or criminal penalty or fine, including a penalty or fine under an administrative consent order, assessed and collected for a violation of a State or federal environmental law, an administrative consent order, or an environmental ordinance or resolution of a local governmental entity, and any interest earned on the penalty or fine, and any economic benefits having accrued to the violator as a result of a violation, which benefits are assessed and recovered in a civil, civil administrative, or criminal action, or pursuant to an administrative consent order. The provisions of this paragraph shall not apply to a penalty or fine assessed or collected for a violation of a State or federal environmental law, or local environmental ordinance or resolution, if the penalty or fine was for a violation that resulted from fire, riot, sabotage, flood, storm event, natural cause, or other act of God beyond the reasonable control of the violator, or caused by an act or omission of a person who was outside the reasonable control of the violator; and

    (3) treble damages paid to the Department of Environmental Protection and Energy pursuant to subsection a. of section 7 of P.L.1976, c.141 (C.58:10-23.11f) for costs incurred by the department in removing, or arranging for the removal of, an unauthorized discharge upon the failure of the discharger to comply with a directive from the department to remove, or arrange for the removal of, a discharge.

    c. Net gains or income from disposition of property. Net gains or net income, less net losses, derived from the sale, exchange or other disposition of property, including real or personal, whether tangible or intangible as determined in accordance with the method of accounting allowed for federal income tax purposes. For the purpose of determining gain or loss, the basis of property shall be the adjusted basis used for federal income tax purposes, except as expressly provided for under this act, but without a deduction for penalties, fines, or economic benefits excepted pursuant to paragraph (2), or for treble damages excepted pursuant to paragraph (3) of subsection b. of this section.

    A taxpayer's net gain or loss on the sale, exchange or other disposition of a share of an S corporation shall be calculated by increasing the adjusted basis of the share by an amount equal to the shareholder's net losses and deductions in respect of the share allowed and deducted from income for federal income tax purposes, not including any personal net operating loss deductions, to the extent that such net losses were not offset by the taxpayer's pro rata share of S corporation income otherwise subject to taxation pursuant to subsection p. of this section in respect of another S corporation, subject to rules of priority and assignment determined by the director.

    For the tax year 1976, any taxpayer with a tax liability under this subsection, or under the "Tax on Capital Gains and Other Unearned Income Act," P.L.1975, c.172 (C.54:8B-1 et seq.), shall not be subject to payment of an amount greater than the amount he would have paid if either return had covered all capital transactions during the full tax year 1976; provided, however, that the rate which shall apply to any capital gain shall be that in effect on the date of the transaction. To the extent that any loss is used to offset any gain under P.L.1975, c.172, it shall not be used to offset any gain under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. et seq.

    The term "net gains or income" shall not include gains or income derived from obligations which are referred to in clause (1) or (2) of N.J.S.54A:6-14 of this act or from securities which evidence ownership in a qualified investment fund as defined in section 2 of P.L.1987, c.310 (C.54A:6-14.1). The term "net gains or net income" shall not include gains or income from transactions to the extent to which nonrecognition is allowed for federal income tax purposes. The term "sale, exchange or other disposition" shall not include the exchange of stock or securities in a corporation a party to a reorganization in pursuance of a plan of reorganization, solely for stock or securities in such corporation or in another corporation a party to the reorganization and the transfer of property to a corporation by one or more persons solely in exchange for stock or securities in such corporation if immediately after the exchange such person or persons are in control of the corporation. For purposes of this clause, stock or securities issued for services shall not be considered as issued in return for property.

    For purposes of this clause, the term "reorganization" means:

    (i) A statutory merger or consolidation;

    (ii) The acquisition by one corporation, in exchange solely for all or part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation) of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition);

    (iii) The acquisition by one corporation, in exchange solely for all or part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, shall be disregarded;

    (iv) A transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor, or one or more of its shareholders (including persons who were shareholders immediately before the transfer), or any combination thereof, is in control of the corporation to which the assets are transferred;

    (v) A recapitalization;

    (vi) A mere change in identity, form, or place of organization however effected; or

    (vii) The acquisition by one corporation, in exchange for stock of a corporation (referred to in this subclause as "controlling corporation") which is in control of the acquiring corporation, of substantially all of the properties of another corporation which in the transaction is merged into the acquiring corporation shall not disqualify a transaction under subclause (i) if such transaction would have qualified under subclause (i) if the merger had been into the controlling corporation, and no stock of the acquiring corporation is used in the transaction;

    (viii) A transaction otherwise qualifying under subclause (i) shall not be disqualified by reason of the fact that stock of a corporation (referred to in this subclause as the "controlling corporation") which before the merger was in control of the merged corporation is used in the transaction, if after the transaction, the corporation surviving the merger holds substantially all of its properties and of the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction); and in the transaction, former shareholders of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation.

    For purposes of this clause, the term "control" means the ownership of stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation.

    For purposes of this clause, the term "a party to a reorganization" includes a corporation resulting from a reorganization, and both corporations, in the case of a reorganization resulting from the acquisition by one corporation of stock or properties of another. In the case of a reorganization qualifying under subclause (i) by reason of subclause (vii) the term "a party to a reorganization" includes the controlling corporation referred to in such subclause (vii).

    Notwithstanding any provisions hereof, upon every such exchange or conversion, the taxpayer's basis for the stock or securities received shall be the same as the taxpayer's actual or attributed basis for the stock, securities or property surrendered in exchange therefor.

    d. Net gains or net income derived from or in the form of rents, royalties, patents, and copyrights.

    e. Interest, except interest referred to in clause (1) or (2) of N.J.S.54A:6-14, or distributions paid by a qualified investment fund as defined in section 2 of P.L.1987, c.310 (C.54A:6-14.1), to the extent provided in that section .

    f. Dividends. "Dividends" means any distribution in cash or property made by a corporation, association or business trust that is not an S corporation, (1) out of accumulated earnings and profits, or (2) out of earnings and profits of the year in which such dividend is paid and any distribution in cash or property made by an S corporation, as specifically determined pursuant to section 16 of P.L.1993, c.173 (C.54A:5-14).

    The term "dividends" shall not include distributions paid by a qualified investment fund as defined in section 2 of P.L.1987, c.310 (C.54A:6-14.1), to the extent provided in that section.

    g. Gambling winnings.

    h. Net gains or income derived through estates or trusts.

    i. Income in respect of a decedent.

    j. Amounts distributed or withdrawn from an employee trust attributable to contributions to the trust which were excluded from gross income under the provisions of chapter 6 of Title 54A of the New Jersey Statutes and pensions and annuities except to the extent of exclusions in N.J.S.54A:6-10 hereunder, notwithstanding the provisions of N.J.S.18A:66-51, P.L.1973, c.140, s.41 (C.43:6A-41), P.L.1954, c.84, s.53 (C.43:15A-53), P.L.1944, c.255, s.17 (C.43:16A-17), P.L.1965, c.89, s.45 (C.53:5A-45), R.S.43:10-14, P.L.1943, c.160, s.22 (C.43:10-18.22), P.L.1948, c.310, s.22 (C.43:10-18.71), P.L.1954, c.218, s.32 (C.43:13-22.34), P.L.1964, c.275, s.11 (C.43:13-22.60), R.S.43:10-57, P.L.1938, c.330, s.13 (C.43:10-105), R.S.43:13-44, and P.L.1943, c.189, s.5 (C.43:13-37.5).

    k. Distributive share of partnership income.

    l. Amounts received as prizes and awards, except as provided in N.J.S.54A:6-8 and N.J.S.54A:6-11 hereunder.

    m. Rental value of a residence furnished by an employer or a rental allowance paid by an employer to provide a home.

    n. Alimony and separate maintenance payments to the extent that such payments are required to be made under a decree of divorce or separate maintenance but not including payments for support of minor children.

    o. Income, gain or profit derived from acts or omissions defined as crimes or offenses under the laws of this State or any other jurisdiction.

    p. Net pro rata share of S corporation income.

(cf: P.L.1993, c.173, s.9)

 

    7. N.J.S.54A:9-6 is amended to read as follows:

    54A:9-6. Additions to tax and civil penalties. (a) Failure to file tax return. In case of failure to file a tax return under this act on or before the prescribed date (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return such amount as is required under the State Tax Uniform Procedure Law, R.S.54:48-1 et seq. For this purpose, the amount of tax required to be shown on the return shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed upon the return.

    (b) Deficiency due to negligence.If any part of a deficiency is due to negligence or intentional disregard of this act or rules or regulations hereunder (but without intent to defraud), there shall be added to the tax an amount equal to 10% of the deficiency.

    (c) Failure to file declaration or underpayment of estimated tax. If any taxpayer fails to file a declaration of estimated tax or fails to pay all or any part of an installment of estimated tax, he shall be deemed to have made an underpayment of estimated tax. There shall be added to the tax for the taxable year an amount at the rate as is required under the State Tax Uniform Procedure Law, R.S.54:48-1 et seq., upon the amount of the underpayment for the period of the underpayment but not beyond the 15th day of the fourth month following the close of the taxable year. The amount of underpayment shall be the excess of the amount of the installment which would be required to be paid if the estimated tax were equal to 80% of the tax (two-thirds of the tax for farmers referred to in subsection (e) of section 54A:8-4) shown on the return for the taxable year (or if no return was filed, of the tax for such year) over the amount, if any, of the installment paid on or before the last day prescribed for such payment. No underpayment shall be deemed to exist with respect to a declaration or installment otherwise due on or after the taxpayer's death.

    (d) Exception to addition for underpayment of estimated tax. The addition to tax under subsection (c) with respect to any underpayment of any installment shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds whichever of the following is the lesser--

    (1) The amount which would have been required to be paid on or before such date if the estimated tax were whichever of the following is the least--

    (A) The tax shown on the return of the individual for the preceding taxable year, if a return showing a liability for tax was filed by the individual for the preceding taxable year and such preceding year was a taxable year of 12 months, or

    (B) An amount equal to the tax computed, at the rates applicable to the taxable year, on the basis of the taxpayer's status with respect to his personal exemptions for the taxable year, but otherwise on the basis of the facts shown on his return for, and the law applicable to, the preceding taxable year, or

    (C) An amount equal to 80% of the tax for the taxable year (two-thirds of the tax for farmers referred to in subsection (e) of section 54A:8-4) computed by placing on an annualized basis the income for the months in the taxable year ending before the month in which the installment is required to be paid. For purposes of this subparagraph, the income shall be placed on an annualized basis by--

      (i) Multiplying by 12 (or, in the case of a taxable year of less than 12 months, the number of months in the taxable year) the income for the months in the taxable year ending before the month in which the installment is required to be paid,

      (ii) Dividing the resulting amount by the number of months in the taxable year ending before the month in which such installment date falls, and

      (iii) Deducting from such amount the deductions for personal exemptions allowable for the taxable year (such personal exemptions being determined as of the last date prescribed for payment of the installment); or

    (2) An amount equal to 90% of the tax computed, at the rates applicable to the taxable year, on the basis of the actual income for the months in the taxable year ending before the month in which the installment is required to be paid.

    (e) Deficiency due to fraud. If any part of a deficiency is due to fraud, there shall be added to the tax an amount equal to 50% of the deficiency. This amount shall be in lieu of any other addition to tax imposed by subsection (a) or (b).

    (f) Nonwillful failure to pay withholding tax. If any employer, without intent to evade or defeat any tax imposed by this act or the payment thereof, shall fail to make a return and pay a tax withheld by him at the time required by or under the provisions of section 54A:7-4, such employer shall be liable for such tax and shall pay the same together with interest thereon and the addition to tax provided in subsection (a), and such interest and addition to tax shall not be charged to or collected from the employee by the employer. The director shall have the same rights and powers for the collection of such tax, interest and addition to tax against such employer as are now prescribed by this act for the collection of tax against an individual taxpayer.

    (g) Willful failure to collect and pay over tax. Any person required to collect, truthfully account for, and pay over the tax imposed by this act who willfully fails to collect such tax or truthfully account for and pay over such tax or willfully attempts in any manner to evade or defeat the tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No addition to tax under subsection (b) or (c) shall be imposed for any offense to which this subsection applies.

    (h) Failure to file certain information returns. In case of each failure to file a statement of a payment to another person, required under authority of subsection (c) of section 54A:8-6 (relating to information at source, including the duplicate statement of tax withheld on wages) on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the director and in the same manner as tax, be paid by the person so failing to file the statement, a penalty of $2.00 for each statement not so filed, but the total amount imposed on the delinquent person for all such failures during any calendar year shall not exceed $2,000.00.

    (i) Additional penalty. Any person who with fraudulent intent shall fail to pay, or to deduct or withhold and pay, any tax, or to make, render, sign or certify any return or declaration of estimated tax or to supply any information within the time required by or under this act, shall be liable to penalty of not more than $5,000.00, in addition to any other amounts required under this act, to be imposed, assessed and collected by the director. The director shall have the power, in his discretion, to waive, reduce or compromise any penalty under this subsection.

    (j) Additions treated as tax. The additions to tax and penalties provided by this section shall be paid upon notice and demand and shall be assessed, collected and paid in the same manner as taxes and any reference in this act to income tax or tax imposed by this act, shall be deemed also to refer to the additions to tax and penalties provided by this section. For purposes of section 54A:9-2, this subsection shall not apply to:

    (1) Any addition to tax under subsection (a) except as to that portion attributable to a deficiency;

    (2) Any addition to tax under subsection (e); and

    (3) Any additional penalty under subsection (i).

    (k) Determination of deficiency.For purposes of subsections (b) and (c), the amount shown as the tax by the taxpayer upon his return shall be taken into account in determining the amount of the deficiency only if such return was filed on or before the last day prescribed for the filing of such return, determined with regard to any extension of time for such filing.

    (l) Person defined. For purposes of subsections (f), (g), (h) and (i), the term person or employer includes an individual, corporation or partnership or an officer or employee of any corporation (including a dissolved corporation) or a member or employee of any partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

    m. There shall be added to the tax due for a taxable year a penalty for the early withdrawal of amounts from a medical savings account for purposes that are not eligible expenses as defined in section 1 of P.L. , c. (C. )(pending in the Legislature as this bill). The penalty shall be equal to 10% of the amount of withdrawals from the account that exceeds the amount of withdrawals for eligible expenses for the taxable year but that does not exceed the amount deposited in the account and is allowed as a deduction pursuant to subsection a. of section 5 of P.L. , c. (C. ) in the taxable year. No penalty shall be assessed for a withdrawal pursuant to subsection c. of section 4 of that act.

(cf: P.L.1987, c.76, s.59)

 

    8. This act shall take effect immediately and sections 5 through 7 shall apply to deductions for taxable years beginning on or after January 1 next following enactment.

 

 

STATEMENT

 

    This bill establishes certain standards for medical savings accounts opened by employers and permits employees who are account holders of medical savings accounts to deduct from gross income the amount deposited in such an account and any interest, dividends or gain earned thereon under certain circumstances.

    Under the provisions of the bill, a minimum deposit of $1,000 is required to establish a medical savings account, and no more than $3,000 may be deposited in any tax year.

    An employer opening a medical savings account is required to designate an administrator for the account, when it is opened. Administrators that may be designated include:

    (1) federally or State chartered banks, savings and loan associations, savings banks or credit unions;

    (2) trust companies authorized to act as a fiduciaries;

    (3) insurers authorized by the State to transact the business of accident and health insurance in New Jersey; 

    (4) a third-party administrator;

    (5) a certified public accountant;

    (6) an employer that administers an employee benefit plan subject to regulation under the federal "Employee Retirement Income Security Act of 1974," 29 U.S.C.§1001 et seq., or that maintains medical savings accounts for its employees; or

    (7) such other person that demonstrates to the satisfaction of the director that the manner in which the account will be managed will be consistent with the requirements of this section.

    The bill requires an employer to notify employees at the time a medical savings account is opened of the federal and State tax status of deposits made to the account.

    The bill provides that funds withdrawn from a medical savings account that are used to pay eligible expenses are not subject to State income tax, however, funds withdrawn from the account to pay expenses, other than eligible expenses, would generally not be deductible from gross income and therefore would be subject to income tax and may, additionally, be subject to a penalty.

    Under the provisions of the bill, an employee leaving the employ of an employer who has opened a medical savings account for the employee would have the option to: (1) retain the account, upon the approval of the account administrator; (2) transfer the account to another employer, if the new employer opens a medical savings account on his behalf; or (3) close the account and have the funds forwarded to him. If the account is closed, the funds would be included in the employee's gross income, but would not be subject to any penalty.

 

 

 

Establishes certain standards for medical savings accounts and allows for a deduction from gross income for income deposited in or received as interest, dividends or gain on such accounts under certain circumstances.