- Health Savings Account (HSA) Deduction
- Human Organ Donation Deduction
- Medical Savings Account (Archer MSA) Deduction
- Self-Employed Health Insurance Deduction
- Nonresidents and Part-year Residents
- Where to Report on Original Tax Return; What to Enclose
- Documentation to Submit with Abatement/Amended Tax Return
- Massachusetts and Federal References
- Prior Year, History of Deduction
Health Savings Account (HSA) Deduction
Massachusetts adopts the federal deduction allowed to individuals for contributions to a Health Savings Account, subject to federal limitations which are adjusted annually for inflation. Health Savings Accounts (HSAs) are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. For calendar year 2014, the contribution limit is $3,300 for an individual plan or $6,550 for a family plan.
The Tax Relief and Health Care Act of 2006 (P.L. 109-432):
Massachusetts adopts the changes to this deduction including the following provisions:
- Rollovers from Flexible Savings Accounts and Health Reimbursement Accounts into HSAs as of September 21, 2006;
- One-time Rollovers from IRAs to HSAs effective for taxable years beginning after December 31, 2006;
- Repeal of Annual Plan Deductible Limitation on Health Savings Account Contributions
effective for taxable years beginning after December 31, 2006.
Individuals age 55 or Older:
The contribution limitations are increased for individuals age 55 or older (not covered by Medicare) by the end of the calendar year. The catch up contribution for 2014 remains at $1,000, and therefore the combined contribution limits for calendar year 2014, for an individual age 55 or older is $4,300 for an individual plan or $7,550 for a family plan.
Massachusetts adopts the federal treatment of the earnings in an HSA account; such earnings accrue on a tax-free basis, and qualified distributions from a HSA are excluded from gross income.
Effective January 1, 2005, Massachusetts adopts the federal treatment for the deduction for contributions to a Health Savings Account under the Internal Revenue Code, as amended and in effect on January 1, 1998. Any federal tax law changes to this exclusion will not be automatically adopted. Massachusetts will continue to follow the "Code" of January 1, 2005.
Chapter 68 of the Acts of 2011
Effective for tax years beginning on or after January 1, 2012, individuals who donate organs to other persons for human organ transplantation may claim an amount equal to the following expenses incurred and related to the organ donation: (i) travel expenses; (ii) lodging expenses; and (iii) lost wages not to exceed $10,000. “Human organ” means all or parts of human bone marrow, liver, pancreas, kidney, intestine or lung. Part-year and nonresidents are not eligible to claim this deduction.
Archer MSAs were created to help self-employed individuals and employees of certain small employers meet medical care costs for themselves as well as for their spouses and dependents.
Archer MSAs are tax-exempt trusts or custodial accounts to which tax-deductible contributions may be made by individuals with a high deductible health plan. In addition, employer contributions made on behalf of the employee are excludable from the employee's gross income.
The Tax Relief and Health Care Act of 2006 (P.L.109-432) - Archers MSAs Established between January 1, 2006 and December 31, 2007:
The Act extends the Archer MSA provisions for two years, through December 31, 2007, thereby allowing employers and employees to establish and contribute to new MSAs in 2006 and 2007.
Since DOR follows the Code as of January 1, 2005, and these provisions were enacted into the Code after January 1, 2005, DOR does not adopt the extension to establish and contribute to new MSAs.
Archer MSAs Established Prior to January 1, 2006:
Under the January 1, 2005 Code, the Archer MSA provisions contained a sunset date of December 31, 2005 that grandfathered in prior participants and provided that after December 31, 2005, contributions would be allowed by or on behalf of individuals who previously made (or had made on their behalf) Archer MSA contributions and employees who are employed by a participating employer.
Since DOR follows the provisions of the Code as of January 1, 2005, deductions are allowed for MSAs established prior to January 1, 2006, including any inflation adjustments to the limits and maximums for deductibles. Self-employed individuals and employees of small employers may be permitted to maintain medical savings accounts to pay medical expenses, provided that the accounts are used in conjunction with "High Deductible" health insurance.
MSAs Established Prior to January 1, 2006 – Massachusetts Treatment:
- Contributions aredeductible if made by an eligible individual;
- Conributions are excludable from income if made by an employer on behalf of an eligible individual; and
- If distributions are used to pay for qualified medical expenses of the employee, the employee's spouse, or any dependents of the employee are generally excluded from both the employee's federal and Massachusetts gross income.
|2013 Annual Contribution Limits||Self-only Coverage||Family Coverage|
|Minimum annual deductible||$2,150||$4,300|
|Maximum annual deductible||$3,200||$6,450|
|Maximum annual out-of-pocket expenses||$4,300||$7,850|
Self-Employed Health Insurance Deduction
Self-employed persons may deduct from gross income amounts paid during the taxable year for health insurance for themselves, their spouses, and dependents. The deduction is limited to the taxpayer's annual earned income derived from the trade or business for which the insurance plan was established.
2-Percent S Corporation shareholders may claim the deduction for health insurance premiums paid by the S Corporation on behalf of the shareholder, his or her spouse and dependents.
Subsidized Health Plans:
This deduction may not be taken during any calendar month that the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of the taxpayer.
Example for Subsidized Health Plans:
If a taxpayer was eligible to participate in a subsidized health plan maintained by his wife's employer from June 30 through December 31, then he cannot use amounts paid for health insurance coverage for June through December to figure this deduction.
For These Medical Related Deductions
No Tax Status and Limited Income Credit Calculation:
This deduction impacts the calculation of No Tax Status and the Limited Income Credit as it is treated as an adjustment to arrive at Massachusetts adjusted gross income on the Massachusetts AGI Worksheet and Schedule NTS-L-NR/PY.
- Federally, as an alternative to the self-employed health insurance deduction under IRC, § 162(l), a taxpayer may claim a credit under IRC § 35 equal to 65% of the amount paid for coverage of the taxpayer and qualifying family members under qualified health insurance beginning in the taxable year. Amounts taken into account for this credit may not be taken into account in determining any deduction allowed for either the self-employed insurance deduction or the medical and dental deduction. These deductions may still be available, despite the use of the credit, so long as the taxpayer does not receive a double benefit for any amounts reported.
- Massachusetts does not adopt the federal credit; the availability of the federal credit as an alternative to the federal self-employed health insurance deduction and/or the medical and dental deduction does not affect the taxpayer's eligibility for either deduction in Massachusetts. Taxpayers electing to claim the federal credit under I.R.C. §35 may add back the amount of such credit when computing either Massachusetts deduction.
Medical Savings Account Deduction
- The deduction is reported as an adjustment on U.S. Form 1040, Line 36 and must be entered on either Mass Form 1 or 1-NR/PY, Schedule Y, Line 6.
- Part-year residents determine the amount allowable by multiplying the amount reported on U.S. Form 1040, Line 36 by Form 1-NR/PY, Line 2, Part-Year Resident Ratio, since this deduction must be prorated based upon the number of days a Massachusetts resident.
- Nonresidents determine amount allowable by multiplying the amount reported on U.S. Form 1040, Line 36 by line Form 1-NR/PY, 14g, Deduction and Exemption Ratio, since this deduction must be prorated based upon the amount of taxpayer's Massachusetts gross income (derived from sources within Massachusetts) to Massachusetts gross income derived from all sources, as if the taxpayer were a full year Massachusetts resident.
Health Savings Account Deduction
- The amount reported on U.S. Form 1040, Line 25 must be entered on either Mass Form 1 or 1-NR/PY, Schedule Y, Line 8.
- Part-year residents must only include the amount of the deduction while a Massachusetts resident.
- Nonresidents determine amount allowable by multiplying the amount reported on U.S. Form 1040, Line 25 by line Form 1-NR/PY, 14g, Deduction and Exemption Ratio, since this deduction must be prorated based upon the amount of taxpayer's Massachusetts source income to his/her total income.
Human Organ Donation Deduction
- Amount of deduction must be entered on Mass Form 1, Schedule Y, Line 16.
Self-Employment Health Insurance Deduction
- For Massachusetts, 100% of the qualified insurance payments are deductible. The amount reported on U.S. Form 1040, Line 29 must be entered on either Mass Form 1 or 1-NR/PY, Schedule Y, Line 7.
- Nonresidents and part-year residents can take only those costs that relate to Massachusetts employment.
Medical Savings Account Deduction
- Copy of U.S. Form 8853 - Medical Savings Accounts and Long-Term Care Insurance Contracts.
Health Savings Account Deduction
- Copy of U.S. Form 1040, Line 25.
Self-Employment Health Insurance Deduction
- Copy of Form 1040 - U.S. Individual Income Tax Return (Page 1), or Form 1040X - Amended U.S. Individual Income Tax Return.
- M.G.L. Chapter 62, Sections 1(c) as amended by St. 2002, c. 96, ss. 1 and 7, c. 186, s.1, and c. 364, ss. 2, 21 and 24
- M.G.L. Chapter 62, Section 2(d)(1)
- TIR 11:6 Tax Changes Contained in the Fiscal Year 2012 Budget
- TIR 07-4: Issues Concerning the Tax Relief and Health Care Act of 2006
- TIR 05-16: The Effect of the Adoption of the Updated Internal Revenue Code on the Massachusetts Personal Income Tax (
- TIR 98-15: The Effect of the Adoption of the Updated Internal Revenue Code on the Massachusetts Personal Income Tax
- DD 99-5: 2-Percent S Corporation Shareholders Treatment of Fringe Benefits
- I.R.C. §§ 35(a); 62(a)(19);106(b)(1); 162(l)(A), (B); 213; 220(f)(1); 223; 401(c)(1)
- Rev. Proc. 2005-70
- Revenue Procedure 2007-36