A. For taxable years beginning after December 31, 1995, an individual who is a resident of this state or an employer shall be allowed to deposit contributions to a medical savings account. The amount of deposit for the first taxable year subsequent to the effective date of this act shall not exceed:
1. Two Thousand Dollars ($2,000.00) for the account holder;
2. Two Thousand Dollars ($2,000.00) for the spouse of the account holder; and
3. One Thousand Dollars ($1,000.00) for each dependent child of the account holder.
B. The maximum allowable amount of deposit for subsequent years shall be increased annually by a percentage equal to the previous year's increase in the national Consumer Price Index (CPI).
C. Contributions made to and interest earned on a medical savings account shall be exempt from taxation as adjusted gross income in this state as provided for in Section 2358 of Title 68 of the Oklahoma Statutes.
D. Upon agreement between an employer and employee, an employee may either have the employer contribute to the employee's medical savings account under a medical savings account program or continue to make contributions under the employee's existing health insurance policy or program, subject to the restrictions in paragraph 1 of subsection E of this section. For purposes of the Medical Savings Account Act, an employer shall include a participating employer as defined in the Oklahoma State Employees Benefits Act.
E. The medical savings account shall be established as a trust under the laws of this state and placed with a trustee.
1. The trustee shall utilize the funds held in a medical savings account solely for the purpose of paying the eligible medical expenses of the account holder or the dependents of the account holder or to purchase a health benefit plan, certification, or contract if the account holder does not otherwise have health insurance coverage. Funds held in a medical savings account shall not be used to cover medical expenses of the account holder or dependents of the account holder that are otherwise covered by other means, including but not limited to medical expenses covered pursuant to an automobile insurance policy, a workers' compensation insurance policy or self-insured plan, or another health coverage policy, certificate, or contract.
2. The account holder may submit prior to the end of the tax year documentation of medical expenses paid by the account holder during that tax year to the trustee and the trustee shall reimburse the account holder for eligible medical expenses from the medical savings account.
3. Any funds remaining in a medical savings account at the end of the tax year after all medical expenses have been paid unless withdrawn as provided for in this section shall remain in the account and may be used by the account holder for payment of future medical expenses.
F. An account holder may withdraw money from the medical savings account of the account holder for any purpose other than a purpose listed in paragraph 1 of subsection E of this section, only on the last business day of the trustee's business year. If money is withdrawn on that date, pursuant to this subsection, it shall be considered income for income tax purposes and shall not be eligible for the exemption provided in Section 2358 of Title 68 of the Oklahoma Statutes.
G. If the account holder withdraws money for any purpose, other than a purpose described in paragraph 1 of subsection E of this section, at any time other than on the last business day of the trustee's business year, all of the following shall apply:
1. The amount of the withdrawal shall be considered income for income tax purposes and shall not be eligible for the tax exemption provided in Section 2358 of Title 68 of the Oklahoma Statutes;
2. The trustee shall withhold and shall pay on behalf of the account holder a penalty to the Oklahoma Tax Commission equal to ten percent (10%) of the amount of the withdrawal; and
3. All interest earned on the account during the tax year in which a withdrawal occurs shall be considered income for income tax purposes.
H. Upon the death of the account holder, the account principal, as well as any interest accumulated thereon, shall be distributed to the estate of the account holder and shall be taxed as part of the estate.
I. If an employee is no longer employed by an employer that participates in a medical savings account program and the employee, not more than sixty (60) days after the final day of employment, transfers the account to a new trustee or requests in writing to the trustee of the former employer that the account remain with that trustee and that trustee agrees to retain the account, the money in the medical savings account may be utilized for the benefit of the account holder or the dependents of the account holder subject to this act, and the money shall remain exempt from taxation pursuant to Section 2358 of Title 68 of the Oklahoma Statutes. Not more than thirty (30) days after the expiration of the sixty-day transfer period, if the account holder has not transferred the account or the trustee has not accepted the account of the former employee, the employer shall mail a check to the last-known address of the former employee in an amount equal to the amount in the account on the date the check is mailed. The amount shall be taxed and subject to penalty as provided for in subsection G of this section. If an employee becomes employed with a different employer that participates in a medical savings account program before the expiration of the sixty-day transfer period, the employee may transfer the medical savings account to the trustee of the new employer without penalty.
Added by Laws 1995, c. 249, § 3, eff. Nov. 1, 1995. Amended by Laws 1996, c. 183, § 2, eff. July 1, 1996.