As long as savings account funds that are part of an MSA plan are spent on allowed medical expenses, such spending by an individual or family remains free of taxation. Spending from an MSA not made on health care is subject to taxation. Under certain circumstances, unqualified spending is also subject to an additional financial penalty. The savings account must be linked with a high-deductible health insurance policy. These plans are available to the self-employed and, if offered by the employer, to workers in businesses with fifty or fewer employees.
Savings account deposits and interest earned are free of federal income taxation.
Qualified spending from an account is also free of taxation. Nonmedical spending from MSAs is subject to both federal income taxation and an additional 15 percent tax penalty. Every year the Medicare program will determine the dollar amount it will make available as payment for one year of a beneficiary's program benefits, similar to the way per capita payments to managed care organizations are determined. A Medicare beneficiary wishing to acquire an MSA plan will first choose a high-deductible health care insurance policy, from the private market, to link with the savings account. At a minimum, all MSA plan insurance policies must cover the standard Medicare Part A and B benefits.