43-1028. Medical savings accounts;
reports
A. For taxable years beginning from and after December 31, 1996, in computing
Arizona adjusted gross income:
1. An individual may subtract amounts contributed to a medical savings account as
provided by this section to the extent that the contributions are included in the
individual's federal adjusted gross income.
2. The individual's employer may subtract the amount of contributions made by the
employer to a medical savings account established on the individual's behalf to the
extent that the contributions are not deductible under the internal revenue code.
B. For purposes of this section, the medical savings account shall be established
and maintained as provided by section 220 of the internal revenue code, except that:
1. The limitations relating to the size of the employer under section
220(c)(1)(A)(iii) and 220(c)(4) do not apply.
2. The limitation relating to the number of taxpayers having medical savings
accounts under section 220(i) does not apply.
3. On the last business day of a calendar year an individual may withdraw money
from the individual's medical savings account for purposes other than paying qualified
medical expenses without incurring a withdrawal penalty. If an individual makes any
other withdrawal from a medical savings account for purposes other than paying qualified
medical expenses, as defined in section 220(d)(2) of the internal revenue code, and is
not subject to a federal penalty for the withdrawal, the individual shall pay a penalty,
equal to ten per cent of the amount of the withdrawal, to the department at the same time
as the individual files the income tax return under this title for the taxable year. The
penalty does not apply after the account holder reaches the age of fifty-nine and
one-half years. Money withdrawn pursuant to this paragraph is considered income for the
purposes of computing Arizona adjusted gross income. The department shall credit penalty
monies to the state general fund.
C. The trustee of a medical savings account shall make reports regarding the
account to the department and the individual with respect to contributions, income earned
during the taxable year, distributions and other matters as the department may require by
rule. The report shall be filed with the department at the time and in the manner
prescribed by the department and furnished to the individual in the manner prescribed by
the department on or before January 31 of the calendar year following the calendar year
to which the report relates.
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