96-016

Response January 26, 1996

Request

January 3, 1996

Dear XXXXX:

For use in the XXXXX, we would appreciate your help with the following matter. Your state, and several others, have enacted laws allowing medical savings accounts to be set up to pay for medical expenses of employees and their dependents. Amounts contributed to these accounts are often exempt from state income tax or they may be allowed as a deduction for state income tax purposes. There is no federal law on medical savings accounts.

Are contributions to these accounts subject to state income tax withholding in your state?

Thank you in advance for your help with this matter.

Very truly yours,

XXXXX

January 26, 1996

XXXXX

RE: Advisory Opinion Withholding tax on payments made to medical savings account.

Dear XXXXX

We have received your request for a determination as to whether payments made to a

medical savings account are subject to income tax withholding. Employee contributions to a

medical savings account are subject to withholding as part of the employee's gross income.

Please let us know if you have other questions.

For the Commission,

Alice Shearer

Commissioner