The MSA’s Tax Implications

MSAs offer some tax advantages, and have some special requirements at income tax reporting time.

MSA Tax Advantages

MSA funds are not taxed…

  • When deposited into the account

  • When remaining in the account (applies to new deposits and to gains/rollovers from previous years)

  • When used to pay for Qualified Medical Expenses (QMEs); this applies to both new deposit funds and any gains/rollover funds from previous years

We call this the MSA Triple Tax Advantage.

Income Tax Filing Requirements

An income tax return must be filed for the year in which MSA funds were used for any reason and in any amount. This usage is called a “distribution.” The filing must occur even if the member is not otherwise required to file a return, and must include IRS Forms 1040 and 8853.

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