86 Ill. Adm. Code 100.2580
Medical Care Savings Accounts (IITA Sections 203(a)(2)(D-5), 203(a)(2)(S) and 203(a)(2)(T))
Section 100
Section 100.2580 Medical
Care Savings Accounts (IITA Sections 203(a)(2)(D-5), 203(a)(2)(S) and
203(a)(2)(T))
a) For the purposes of this Section, "Act" means the
Medical Care Savings Account Act [820 ILCS 152], repealed January 1, 2000, or
the Medical Care Savings Account Act of 2000 [820 ILCS 153], which re-enacted
the provisions of the repealed Act.
b)
"Medical care savings account" or
"account" means an account established in this State pursuant to a
medical care savings account program to pay the eligible medical expenses of an
employee and his or her dependents.
(Section 5 of the Act) An employer,
except as otherwise provided by statute, contract, or a collective bargaining
agreement, may offer a medical care savings account program to the employer's
employees.
c) A
medical care savings account program must include the following:
1)
The purchase by an employer of a qualified higher
deductible health plan for the benefit of an employee and his or her
dependents.
(Section 5 of the Act)
2)
The contribution on behalf of an employee into a medical
care savings account by his or her employer of all or part of the premium
differential realized by the employer based on the purchase of a qualified
higher deductible health plan for the benefit of the employee. An employer
that did not previously provide a health coverage policy, certificate, or
contract for his or her employees may contribute all or part of the deductible
of the plan purchased pursuant to
subsection (c)(1).
For 1994, a contribution
under this Section may not exceed $6,000 for 2 taxpayers filing a joint return,
if each taxpayer has a medical care savings account but neither is covered by
the other's health coverage, or $3,000 in all other cases. These maximum
amounts shall be adjusted annually by the Department of Revenue to reflect
increases in the consumer price index for the United States as defined and
officially reported by the United States Department of Labor.
(Section 5
of the Act)
A) The Department will announce adjustments in the maximum
amounts, as well as in the minimum higher deductible, by annual publication of
a Notice of Public Information in the Illinois Register.
B) The Consumer Price Index (CPI) annual average for all urban
consumers was 144.5 for calendar year 1993 and 148.2 for calendar year 1994.
Therefore, the thresholds established under the Act were adjusted upward by 2%
for 1995. Hence, for 1995, the minimum higher deductible is $1026, the maximum
higher deductible is $3078, the maximum contribution for 2 taxpayers filing a
joint return is $6156 and the maximum contribution for all others is $3078.
C) For the years 1994 through 2006, the thresholds are as follows:
Year
Minimum Higher Deductible
Maximum Higher Deductible
Maximum Contribution For Two
Maximum Contribution All Others
1994
$1,000
$3,000
$6,000
$3,000
1995
$1,026
$3,078
$6,156
$3,078
1996
$1,055
$3,164
$6,238
$3,164
1997
$1,086
$3,256
$6,512
$3,256
1998
$1,111
$3,331
$6,662
$3,331
1999
$1,129
$3,384
$6,768
$3,384
2000
$1,154
$3,458
$6,917
$3,458
2001
$1,193
$3,576
$7,152
$3,576
2002
$1,226
$3,676
$7,352
$3,676
2003
$1,246
$3,735
$7,470
$3,735
2004
$1,275
$3,821
$7,642
$3,821
2005
$1,309
$3,924
$7,848
$3,924
2006
$1,354
$4,057
$8,114
$4,057
3)
An account administrator to administer the medical care
savings account from which payment of claims is made. Not more than 30 days
after an account administrator begins to administer an account, the
administrator shall notify in writing each employee on whose behalf the
administrator administers an account of the date of the last business day of
the administrator's business year.
(Section 5 of the Act)
d) Section
5 of the Act contains a number of definitions:
1)
"Account administrator" means any of the
following:
A)
A national or state chartered bank, a federal or State
chartered savings and loan association, a federal or State chartered savings
bank, or a federal or State chartered credit union.
B)
A
trust company authorized to act as a fiduciary.
C)
An insurance company authorized to do business in this State
under the Illinois Insurance Code or a health maintenance organization
authorized to do business in this State under the Health Maintenance
Organization Act.
D)
A dealer, salesperson, or investment adviser registered
under the Illinois Securities Law of 1953.
E)
An administrator as defined in Section 511.101 of the
Illinois Insurance Code who is licensed under Article XXXI¼ of that Code.
F)
A certified public accountant registered under the Illinois
Public Accounting Act.
G)
An
attorney licensed to practice in this State.
H)
An employer, if the employer has a self-insured health plan
under the federal Employee Retirement Income Security Act of 1974 (ERISA).
I)
An employer that participates in the medical care savings
account program.
2)
"Deductible" means the total deductible for an
employee and all the dependents of that employee for a calendar year.
3)
"Dependent" means the spouse of the employee or a
child of the employee if the child is any of the following:
A)
under 19 years of age, or under 23 years of age and enrolled
as a full-time student at an accredited college or university,
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, or
C)
mentally or physically incapacitated to the extent that he
or she is not self-sufficient.
4)
"Domicile" means a place where an individual has
his or her true, fixed, and permanent home and principal establishment, to
which, whenever absent, he or she intends to return. Domicile continues until
another permanent home or principal establishment is established.
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 the individual for whose benefit
or for the benefit of whose dependents a medical care savings account is
established. Employee includes a self-employed individual.
7)
"Higher deductible" means a deductible of not
less than $1,000 and not more than $3,000 for 1994. This minimum and maximum
shall be adjusted annually by the Department of Revenue to reflect increases in
the consumer price index for the United States as defined and officially
reported by the United States Department of Labor.
8)
"Qualified higher deductible health plan" means a
health coverage policy, certificate, or contract that provides for payments for
covered benefits that exceed the higher deductible and that is purchased by an
employer for the benefit of an employee for whom the employer makes deposits
into a medical care savings account.
e)
Before making any contribution to an account, an employer
that offers a medical care savings account program shall inform all its
employees in writing of the federal tax status of contributions made.
(Section 10(b) of the Act) The contributions made pursuant to the Medical Care
Savings Account Act will be taxable federally unless and to the extent the
medical care savings account qualifies as a tax-favored medical savings account
under section 220 of the Internal Revenue Code (26 USC 220).
f) Use
of Account Moneys
1)
The account administrator shall utilize the moneys held in
a medical care savings account solely for the purpose of paying the medical
expenses of the employee or his or her dependents or to purchase a health
coverage policy, certificate, or contract if the employee does not otherwise
have health insurance coverage. Moneys held in a medical care savings account
may not be used to cover medical expenses of the employee or his or her
dependents that are otherwise covered, including but not limited to medical
expenses covered pursuant to an automobile insurance policy, worker's
compensation insurance policy or self-insured plan, or another health coverage
policy, certificate, or contract.
(Section 15(a) of the Act)
2)
The employee may submit documentation of medical expenses
paid by the employee in the tax year to the account administrator, and the
account administrator shall reimburse the employee from the employee's account
for eligible medical expenses.
(Section 15(b) of the Act)
3)
If an employer makes contributions to a medical care
savings account program on a periodic installment basis, the employer may
advance to an employee, interest free, an amount necessary to cover medical
expenses incurred that exceed the amount in the employee's medical care savings
account when 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.
(Section 15(c) of the Act)
4)
Upon the death of the employee, the account administrator
shall distribute the principal and accumulated interest of the medical care
savings account to the estate of the employee.
(Section 20(d) of the Act)
g) Illinois
Income Tax Consequences
1) Except as provided in subsection (f)(2), principal contributed
to and interest earned on a medical care savings account and money reimbursed
to an employee for eligible medical expenses are exempt from taxation under the
Illinois Income Tax Act and shall be a modification decreasing federal adjusted
gross income in arriving at Illinois taxable income of the employee for the
taxable year.
2)
Notwithstanding
subsection (f)(3),
and subject to
subsection (f)(4),
an employee may withdraw money from his or her medical
care savings account for any purpose other than a purpose described in
subsection (f)(1)
only on the last business day of the account administrator's
business year. Money withdrawn pursuant to this
subsection (g)(2)
shall
be a modification increasing federal adjusted gross income in arriving at
Illinois taxable income of the employee in the taxable year of the withdrawals.
(Section 20(a) of the Act)
3)
If the employee withdraws money for any purpose other than
a purpose described in
subsection (f)(1)
at any other time, all of the
following apply:
A)
The amount of the withdrawal shall be a modification
increasing federal adjusted gross income in arriving at Illinois taxable income
of the employee in the taxable year of the withdrawal.
B)
The administrator shall withhold and on behalf of the
employee shall pay a penalty to the Department equal to 10% of the amount of
the withdrawal.
(Section 20(a)(2) of the Act) The administrator must remit
the penalty to the Department along with a copy of Form IL-601 "Medical
Care Savings Account Penalty Payment."
C) Interest earned on the account during the taxable year in which
a withdrawal under this subsection is made shall be a modification increasing
federal adjusted gross income in arriving at Illinois taxable income of the
employee.
4)
The amount of a disbursement of any assets of a medical
care savings account pursuant to a filing for protection under Title 11 of the
United States Code, 11 USC 101 to 1330, by an employee or person for whose
benefit the account was established is not considered a withdrawal for purposes
of this Section. The amount of a disbursement is not subject to taxation under
the Illinois Income Tax Act, and
subsection (g)(3)
does not apply.
(Section 20(c) of the Act)
5) In the event that all of the following occur:
A)
an employee is no longer employed by an employer that
participates in a medical care savings account program,
B)
the employee, not more than 60 days after his or her final
day of employment, transfers the account to a new account administrator or
requests in writing to the former employer's account administrator that the
account remain with that administrator, and
C)
that account administrator agrees to retain the account,
then the money in the medical care savings account may be utilized for the
benefit of the employee or his or her dependents subject to this Act, remains
exempt from taxation, and shall be a modification decreasing federal adjusted
gross income in arriving at Illinois taxable income of the employee or his or
her dependents for the taxable year. Not more than 30 days after the
expiration of the 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, for an amount equal to the
amount in the account on that day, and that amount is subject to taxation
pursuant
to subsection (g)(3)(A),
and shall be a modification increasing
federal adjusted gross income in arriving at Illinois taxable income of the
employee but is not subject to the penalty
under subsection (g)(3)(B).
If
an employee becomes employed with a different employer that participates in a
medical care savings account program, the employee may transfer his or her
medical care savings account to that new employer's account administrator.
(Section 20(e) of the Act)
h) The
Act shall expire on 1/1/2010. As a result of repeal of the Act, for taxable
years beginning on and after January 1, 2010:
1) The
subtraction modification provided for in subsection (g)(1) of this Section and
IITA Section 203(a)(2)(S) and (T) for principal contributed to and interest earned
on a medical care savings account shall not apply;
2) The
subtraction modification provided for in subsection (g)(1) of this Section and
Section 10(c) of the Act for money reimbursed to an employee for eligible
medical expenses shall not apply;
3) The
addition modification provided for in subsection (g)(2) of this Section and
Section 20(a) of the Act for money withdrawn from a medical care savings
account for any purpose other than a purpose described in subsection (f)(1) of
this Section shall not apply;
4) The
addition modification provided for in subsection (g)(3) of this Section and
IITA Section 203(a)(2)(D-5) for the amount of a withdrawal for any purpose
other than a purpose described in subsection (f)(1) of this Section and for
interest earned on the account during the taxable year of the withdrawal shall
not apply;
5) The
penalty provided for in subsection (g)(3) of this Section and Section 20(c) of
the Act equal to 10% of the amount of a withdrawal for any purpose other than a
purpose described in subsection (f)(1) of this Section shall not apply.