This article touches on some of the highlights of the federal and state legislation. Congress passed three major bills with tax implications during the summer. A compromise between liberal and conservative Congressional leaders resulted in the passage of a watered down test program for MSAs. Under the Health Act. Contributions to the MSA are excludable from the income of an employee, and deductible by self-employed individuals.
Contributions are also exempt from social security taxes.
Earnings on the MSA account are exempt from tax. Distributions from the MSA are excludable from income, provided that the distribution is made to pay medical expenses, or because of death or disability. Under the test program, no more than 750,000 taxpayers may benefit from MSA deductions in any year. No new MSAs may be opened after the year 2000. The MSA provisions become effective on January 1, 1997.