HB1692 (As Introduced) - 1997 Regular Session

MISSISSIPPI LEGISLATURE

1997 Regular Session

To: Insurance; Ways and Means

By: Representative Stevens

House Bill 1692

AN ACT TO REENACT SECTIONS 71-9-1 THROUGH 71-9-9, MISSISSIPPI CODE OF 1972, WHICH PROVIDE FOR THE MEDICAL SAVINGS ACCOUNT ACT; AMEND SECTION 27-7-15, MISSISSIPPI CODE OF 1972, TO EXEMPT CERTAIN DEPOSITS IN A MEDICAL SAVINGS ACCOUNT FROM "GROSS INCOME"; TO AMEND SECTION 7, CHAPTER 468, LAWS OF 1994, TO REMOVE THE REPEALER ON THE MEDICAL SAVINGS ACCOUNT ACT; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Section 71-9-1, Mississippi Code of 1972, is reenacted as follows:

71-9-1. This chapter shall be known and may be cited as the "Medical Savings Account Act."

SECTION 2. Section 71-9-3, Mississippi Code of 1972, is reenacted as follows:

71-9-3. As used in this chapter:

(a) "Account administrator" means a state chartered bank, savings and loan association, credit union or trust company authorized to act as a fiduciary and under the supervision of the

Department of Banking and Consumer Finance or the Department of Savings Associations, as appropriate; a national bank, national lending association or federal savings and loan association or credit union authorized to act as a fiduciary in this state; an insurer licensed and admitted to do business in this state; a third party administrator licensed by the Mississippi Commissioner of Insurance; or an employer, if the employer has a self-insured health plan meeting federal ERISA requirements.

(b) "Account holder" means a resident individual or an employee for whose benefit a medical savings account is established.

(i) Legally entitled to the provision of proper or necessary subsistence, education, medical care, or other care necessary for his or her health, guidance or well-being and not otherwise emancipated, self-supporting, married or a member of the Armed Forces of the United States; or

(ii) Mentally or physically incapacitated to the extent that he or she is not self-sufficient.

(d) "Domicile" means a place where an individual has his or her true, fixed and permanent home and principal establishment, to which, whenever absent, he or she intends to return.

(e) "Eligible medical expense" means an expense paid by a taxpayer for medical care described in Section 213(d) of the Internal Revenue Code.

(f) "Higher deductible" means a deductible of not less than One Thousand Two Hundred Fifty Dollars ($1,250.00) but not more than Two Thousand Five Hundred Dollars ($2,500.00) for individual health coverage, and not less than One Thousand Seven Hundred Fifty Dollars ($1,750.00) but not more than Three Thousand Five Hundred Dollars ($3,500.00) for health coverage provided to an individual and his or her dependents, in tax year 1994. Such deductible limits thereafter shall be adjusted annually for increases in the cost of living, as measured by the medical costs component of the Consumer Price Index.

(g) "Medical savings account" means an account established to pay eligible medical expense of the account holder and his or her dependents.

(h) "Medical savings account program" means a program that includes all of the following:

(i) The purchase by an employer of a qualified higher deductible health plan for the benefit of an employee and his or her dependents or the purchase by a resident individual of a qualified higher deductible health plan for his or her benefit or for the benefit of his or her dependents, or both;

(ii) The payment on behalf of an employee into a medical savings account by his or her employer or payment into a medical savings account by a resident individual on his or her behalf of at least sixty-six and two-thirds percent (66-2/3%) of the premium reduction realized by the purchase of a qualified higher deductible health plan; and

(iii) An account administrator to administer the medical savings account and the reimbursement of eligible medical expenses therefrom.

(i) "Qualified higher deductible health plan" means an accident and health insurance policy, certificate or contract that provides for payment of covered expenses that exceed the higher deductible and that is purchased by:

(i) An employer for the benefit of an employee; or

(ii) A resident individual for his or her benefit.

(j) "Resident individual" means an individual who has a domicile in this state.

SECTION 3. Section 71-9-5, Mississippi Code of 1972, is reenacted as follows:

71-9-5. (1) Each employer shall be permitted to offer voluntarily the following programs:

(a) Continued coverage under the employer's existing health coverage policy, certificate or contract; or

(b) Participation in a medical savings account program.

(2) An employer that previously did not provide an accident and health insurance policy, certificate or contract for his or her employees may establish a medical savings account program. In this case, the premium reduction referred to in Section 71-9-3 of this chapter shall be based on the cost of similar coverage with a Five Hundred Dollar ($500.00) deductible.

(3) A resident individual may establish a medical savings account for the benefit of himself or herself and his or her dependents. Contributions to a medical savings account established by a resident individual for a tax year shall not exceed the allowable deductible for a qualified higher deductible health plan.

(4) Except as otherwise provided by law, the principal contributed and the interest earned on a medical savings account shall be excluded from the taxable gross income of the account holder under Section 27-7-15.

SECTION 4. Section 71-9-7, Mississippi Code of 1972, is reenacted as follows:

71-9-7. (1) Except as otherwise provided in Section 71-9-9 of this chapter, an account administrator shall use the funds held in a medical savings account solely for the purpose of paying eligible medical expenses of the account holder, or his or her dependent, or to pay for an accident and health insurance policy, certificate or contract if the account holder would not otherwise have accident and health insurance coverage.

(2) The account holder may submit documentation for eligible medical expenses paid by the account holder during a tax year to the account administrator, and the account administrator shall reimburse the account holder for the eligible medical expenses out of the medical savings account.

(3) Upon the death of the account holder, the account administrator shall distribute the principal and accumulated interest of the medical savings account to the estate of the account holder, unless the account holder has designated a beneficiary in writing to the account administrator, in which case the accountant administrator shall make such distribution to the designated beneficiary.

SECTION 5. Section 71-9-9, Mississippi Code of 1972, is reenacted as follows:

71-9-9. Unencumbered funds that have accumulated in a medical savings account that are in excess of the higher deductible may be withdrawn by the account holder for purposes other than paying eligible medical expense or procuring health coverage. Money withdrawn pursuant to this section shall be considered gross income as provided in Section 27-7-17, Mississippi Code of 1972.

SECTION 6. Section 27-7-15, Mississippi Code of 1972, is amended as follows:

[Until January 1, 1998, this section shall read as follows:] 27-7-15. (1) For the purposes of this article, except as otherwise provided, the term "gross income" means and includes the income of a taxpayer derived from salaries, wages, fees or compensation for service, of whatever kind and in whatever form paid, including income from governmental agencies and subdivisions thereof; or from professions, vocations, trades, businesses, commerce or sales, or renting or dealing in property, or reacquired property; also from annuities, interest, rents, dividends, securities, insurance premiums, reinsurance premiums, considerations for supplemental insurance contracts, or the transaction of any business carried on for gain or profit, or gains, or profits, and income derived from any source whatever and in whatever form paid. The amount of all such items of income shall be included in the gross income for the taxable year in which received by the taxpayer. The amount by which an eligible employee's salary is reduced pursuant to a salary reduction agreement authorized under Section 25-17-5 shall be excluded from the term "gross income" within the meaning of this article.

(2) In determining gross income for the purpose of this section, the following, under regulations prescribed by the commissioner, shall be applicable:

(a) Dealers in property. Federal rules, regulations and revenue procedures shall be followed with respect to installment sales.

(b) Casual sales of property. Federal rules, regulations and revenue procedures shall be followed with respect to installment sales.

(i) The term "installment sale" means a disposition of property where at least one (1) payment is to be received after the close of the taxable year in which the disposition occurs.

(ii) The term "installment method" means a method under which the income recognized for any taxable year from the disposition is that proportion of the payments received in that year which the gross profit (realized or to be realized when payment is completed) bears to the total contract price.

(c) Reserves of insurance companies. In the case of insurance companies, any amounts in excess of the legally required reserves shall be included as gross income.

(d) Affiliated companies or persons. As regards sales, exchanges or payments for services from one to another of affiliated companies or persons or under other circumstances where the relation between the buyer and seller is such that gross proceeds from the sale or the value of the exchange or the payment for services are not indicative of the true value of the subject matter of the sale, exchange, or payment for services, the commissioner shall prescribe uniform and equitable rules for determining the true value of the gross income, gross sales, exchanges, or payment for services, or require consolidated returns of affiliates.

(e) Alimony and separate maintenance payments. The federal rules, regulations and revenue procedures in determining the deductibility and taxability of alimony payments shall be followed in this state.

(f) Reimbursement for expenses of moving. There shall be included in gross income (as compensation for services) any amount received or accrued, directly or indirectly, by an individual as a payment for or reimbursement of expenses of moving from one residence to another residence which is attributable to employment or self-employment.

(3) In the case of taxpayers other than residents, gross income includes gross income from sources within this state.

(4) The words "gross income" do not include the following items of income which shall be exempt from taxation under this article:

(a) The proceeds of life insurance policies and contracts paid upon the death of the insured. However, the income from the proceeds of such policies or contracts shall be included in the gross income.

(b) The amount received by the insured as a return of premium or premiums paid by him under life insurance policies, endowment, or annuity contracts, either during the term or at maturity or upon surrender of the contract.

(c) The value of property acquired by gift, bequest, devise or descent, but the income from such property shall be included in the gross income.

(d) Interest upon the obligations of the United States or its possessions, or securities issued under the provisions of the Federal Farm Loan Act of July 17, 1916, or bonds issued by the War Finance Corporation, or obligations of the State of Mississippi or political subdivisions thereof.

(e) The amounts received through accident or health insurance as compensation for personal injuries or sickness, plus the amount of any damages received for such injuries or such sickness or injuries, or through the War Risk Insurance Act, or any law for the benefit or relief of injured or disabled members of the military or naval forces of the United States.

(f) Income received by any religious denomination or by any institution or trust for moral or mental improvements, religious, Bible, tract, charitable, benevolent, fraternal, missionary, hospital, infirmary, educational, scientific, literary, library, patriotic, historical, or cemetery purposes or for two (2) or more of such purposes, if such income be used exclusively for carrying out one or more of such purposes.

(g) Income received by a domestic corporation which is "taxable in another state" as this term is defined in this article, derived from business activity conducted outside this state. Domestic corporations taxable both within and without the state shall determine Mississippi income on the same basis as provided for foreign corporations under the provisions of this article.

(h) In case of insurance companies, there shall be excluded from gross income such portion of actual premiums received from an individual policyholder as is paid back or credited to or treated as an abatement of premiums of such policyholder within the taxable year.

(i) Income from dividends that has already borne a tax as dividend income under the provisions of this article, when such dividends may be specifically identified in the possession of the recipient.

(j) Amounts paid by the United States to a person as added compensation for hazardous duty pay as a member of the Armed Forces of the United States in a combat zone designated by Executive Order of the President of the United States.

(k) Amounts received as retirement allowances, pensions, annuities, or optional retirement allowances paid under the Federal Social Security Act, the Railroad Retirement Act, the Federal Civil Service Retirement Act, or any other retirement system of the United States Government, retirement allowances paid under the Mississippi Public Employees' Retirement System, Mississippi Highway Safety Patrol Retirement System or any other retirement system of the State of Mississippi or any political subdivision thereof. The exemption allowed under this paragraph (k) shall be available to the spouse or other beneficiary at the death of the primary retiree.

(l) Amounts received as retirement allowances, pensions, annuities, or optional retirement allowances paid by any public or governmental retirement system not designated in subsection (k) or any private retirement system or plan of which the recipient was a member at any time during the period of his employment. The exemption allowed under this paragraph (l) shall be available to the spouse or other beneficiary at the death of the primary retiree.

(m) Compensation not to exceed the aggregate sum of Five Thousand Dollars ($5,000.00) for any taxable year received by a member of the National Guard or Reserve Forces of the United States as payment for inactive duty training, active duty training and state active duty.

(n) Compensation received for active service as a member below the grade of commissioned officer and so much of the compensation as does not exceed the aggregate sum of Five Hundred Dollars ($500.00) per month received for active service as a commissioned officer in the Armed Forces of the United States for any month during any part of which such members of the Armed Forces (i) served in a combat zone as designated by Executive Order of the President of the United States; or (ii) was hospitalized as a result of wounds, disease or injury incurred while serving in such combat zone.

(o) The proceeds received from federal and state forestry incentives programs.

(p) The amount representing the difference between the increase of gross income derived from sales for export outside the United States as compared to the preceding tax year wherein gross income from export sales was highest, and the net increase in expenses attributable to such increased exports. In the absence of direct accounting the ratio of net profits to total sales may be applied to the increase in export sales. This item (p) shall only apply to businesses located in this state engaging in the international export of Mississippi goods and services. Such goods or services shall have at least fifty percent (50%) of value added at a location in Mississippi.

(q) Amounts paid by the federal government for the construction of soil conservation systems on highly erodible land as required by a conservation plan adopted pursuant to Public Law 101-624, Title XIV (16 USC 3801 through 3813).

(r) The amount deposited in a medical savings account, and any interest accrued thereon, that is a part of a medical savings account program as specified in the Medical Savings Account Act under Sections 71-9-1 through 71-9-9; provided, however, that any amount withdrawn from such account for purposes other than paying eligible medical expense or to procure health coverage, shall be included in gross income.

(5) Prisoners of war, missing in action - taxable status.

(a) Members of the Armed Forces. Gross income does not include compensation received for active service as a member of the Armed Forces of the United States for any month during any part of which such member is in a missing status, as defined in paragraph (d) of this subsection, during the Vietnam Conflict as a result of such conflict.

(b) Civilian employees. Gross income does not include compensation received for active service as an employee for any month during any part of which such employee is in a missing status during the Vietnam Conflict as a result of such conflict.

(c) Period of conflict. For the purpose of this subsection, the Vietnam Conflict began February 28, 1961, and ends on the date designated by the President by Executive Order as the date of the termination of combatant activities in Vietnam. For the purpose of this subsection, an individual is in a missing status as a result of the Vietnam Conflict if immediately before such status began he was performing service in Vietnam or was performing service in Southeast Asia in direct support of military operations in Vietnam. "Southeast Asia" as used in this paragraph is defined to include Cambodia, Laos, Thailand and waters adjacent thereto.

(d) "Missing status" means the status of an employee or member of the Armed Forces who is in active service and is officially carried or determined to be absent in a status of (i) missing; (ii) missing in action; (iii) interned in a foreign country; (iv) captured, beleaguered or besieged by a hostile force; or (v) detained in a foreign country against his will; but does not include the status of an employee or member of the Armed Forces for a period during which he is officially determined to be absent from his post of duty without authority.

(e) "Active service" means active federal service by an employee or member of the Armed Forces of the United States in an active duty status.

(f) "Employee" means one who is a citizen or national of the United States or an alien admitted to the United States for permanent residence and is a resident of the State of Mississippi and is employed in or under a federal executive agency or department of the Armed Forces.

(g) "Compensation" means (i) basic pay; (ii) special pay; (iii) incentive pay; (iv) basic allowance for quarters; (v) basic allowance for subsistence; and (vi) station per diem allowances for not more than ninety (90) days.

(h) If refund or credit of any overpayment of tax for any taxable year resulting from the application of subsection (5) of this section is prevented by the operation of any law or rule of law, such refund or credit of such overpayment of tax may, nevertheless, be made or allowed if claim therefor is filed with the State Tax Commission within three (3) years after the date of the enactment of this subsection.

(i) The provisions of this subsection shall be effective for taxable years ending on or after February 28, 1961.

(6) A shareholder of an S corporation, as defined in Section 27-8-3(1)(g), shall take into account the income, loss, deduction or credit of the S corporation only to the extent provided in Section 27-8-7(2).

[From and after January 1, 1998, this section shall read as follows:]

27-7-15. (1) For the purposes of this article, except as otherwise provided, the term "gross income" means and includes the income of a taxpayer derived from salaries, wages, fees or compensation for service, of whatever kind and in whatever form paid, including income from governmental agencies and subdivisions thereof; or from professions, vocations, trades, businesses, commerce or sales, or renting or dealing in property, or reacquired property; also from annuities, interest, rents, dividends, securities, insurance premiums, reinsurance premiums, considerations for supplemental insurance contracts, or the transaction of any business carried on for gain or profit, or gains, or profits, and income derived from any source whatever and in whatever form paid. The amount of all such items of income shall be included in the gross income for the taxable year in which received by the taxpayer. The amount by which an eligible employee's salary is reduced pursuant to a salary reduction agreement authorized under Section 25-17-5 shall be excluded from the term "gross income" within the meaning of this article.