2023 Colorado Revised Statutes › Title 39 - TAXATION (§§ 39-1-101 — 39-37-301) › SPECIFIC TAXES (§§ 39-20-101 — 39-37-301) › INCOME TAX (§§ 39-22-101 — 39-22-5508) › Article 22 - Income Tax (§§ 39-22-101 — 39-22-5508) › Part 5 - SPECIAL RULES (§§ 39-22-501 — 39-22-570) › Section 39-22-504.7 - [Effective 8/7/2024] Medical savings accounts - establishment - contributions - distributions - restrictions - taxation - portability - repeal

(1)
(a)
Establishment of accounts.
On and after January 1, 1995, and prior to January 1, 2025, an employer may offer to establish medical savings accounts.
(b)
Prior to January 1, 2025, an employee on whose behalf a medical savings account has not been established by his or her employer may establish such an account on his or her own behalf.
(2)
(a)
Each year an employer may contribute to an employee's medical savings account an amount that does not exceed three thousand dollars.
(b)
If an employer establishes a medical savings account for an employee but contributes less than the maximum set forth in paragraph (a) of this subsection (2), the employee may contribute the difference in accordance with the provisions of paragraph (d) of this subsection (2).
(c)
An employee who establishes his or her own medical savings account may contribute to such account an amount that does not exceed the maximum set forth in paragraph (a) of this subsection (2). Any such contribution is to be made in accordance with the provisions of paragraph (d) of this subsection (2).
(d)
Employee contributions - pretax.
(I)
All employee contributions to medical savings accounts are made on a pretax basis, pursuant to section
39-22-104.6
. Such contributions are subject to the same limitations as employer contributions.
(II)
An employee shall elect to make contributions to his or her medical savings account by signing a written election. Such election is to be in the form prescribed by the executive director of the department of revenue and is to be signed prior to the date the employer withholds the first contribution.
(e)
Employer contributions - tax deduction.
Prior to January 1, 2025, employer contributions to employee medical savings accounts constitute a deduction from the employer's federal taxable income, pursuant to sections
39-22-104 (4)(h)
and
39-22-304 (3)(k)
.
(3)
Distributions.
(a)
An account holder shall submit documentation of eligible medical expenses paid during the tax year to the account administrator, and the account administrator shall reimburse the account holder for such expenses.
(b)
Moneys may be distributed from a medical savings account only for the purpose of:
(I)
Reimbursing the eligible medical expenses of the account holder or his or her spouse or dependent child;
(II)
Cashing out the balance in the account of a deceased account holder; or
(III)
(A)
Cashing out an account holder's prior years' balance.
(B)
An account holder may withdraw the balance in his or her account for any reason if such withdrawal occurs after the end of the year in which the moneys were contributed; however, such distributed moneys are subject to state income tax pursuant to subsection (6) of this section.
(4)
(Deleted by amendment, L. 94, p. 2841, § 8, effective January 1, 1995.)
(5)
Restrictions.
An account holder may not use account moneys to fund a policy that covers the deductible for a qualified higher deductible health plan, as defined in section
39-22-504.6
(3.5).
(6)
Taxation of account moneys.
(a)
Account moneys, including interest income, are not to be taxed as Colorado adjusted gross income if they are:
(I)
In an employee's medical savings account; or
(II)
Withdrawn to pay eligible medical expenses.
(b)
Account moneys are to be taxed as Colorado adjusted gross income when such moneys are withdrawn for purposes other than the payment of eligible medical expenses.
(c)
Upon the death of the account holder, the account principal, as well as any accumulated interest, is to be distributed to and taxed as part of the decedent's estate, as provided by law.
(7)
Portability.
An account holder is the owner of his or her medical savings account and may change the account administrator of such account upon leaving the employ of his or her employer.
(8)
Repeal.
This section is repealed, effective December 31, 2028.
Amended by 2024 Ch. 373,§ 10, eff. 8/7/2024.
L. 86: Entire section added, p. 1122, § 1, effective May 23. L. 94: Entire section amended, p. 2841, § 8, effective 1/1/1995.
2024 Ch. 373, was passed without a safety clause. See Colo. Const. art. V, § 1(3).
This section is set out more than once due to postponed, multiple, or conflicting amendments.
For other provisions concerning adjustments to federal taxable income, see § 39-22-104 .