COMMITTEE SUBSTITUTE
FOR
H. B. 2056
(By Delegates J. Martin, Petersen, Michael and Nesbitt)
(Originating in the House Committee on Finance)
[February 28, 1995]
A BILL to amend and reenact section twelve, article twenty-one,
chapter eleven of the code of West Virginia, one thousand
nine hundred thirty-one, as amended; to amend and reenact
section six, article twenty-four of said chapter; to amend
article fifteen, chapter thirty-three of said code by adding
thereto a new section, designated section twenty; and to
amend article sixteen of said chapter by adding thereto a
new section, designated section fifteen, all relating to
medical savings accounts; excluding individual, employee and
employer deposits to medical savings accounts from adjusted
gross income for purposes of personal income tax and from
taxable income for purposes of corporation net income tax;
permitting establishment of individual medical savings
accounts to serve as self-insurance for the payment of
medical expenses; authorizing combined plans to defray
medical expenses included within deductible provisions of an
individual or group insurance plan and therefore not payable
under that plan; definitions; ownership of accounts; contributions; trustees; restricting withdrawals from
medical savings accounts for purposes other than payment of
medical expenses; requiring insurance commissioner to issue
regulations for plan standards; authorizing tax commissioner
to provide penalties for early withdrawal by legislative
rule.
Be it enacted by the Legislature of West Virginia:
That section fifteen, article twenty-one, chapter eleven of
the code of West Virginia, one thousand nine hundred thirty-one,
as amended, be amended and reenacted; that section six, article
twenty-four of said chapter be amended and reenacted; that
article fifteen, chapter thirty-three of said code be amended by
adding thereto a new section, designated section twenty; and that
article sixteen of said chapter be amended by adding thereto a
new section, designated section fifteen, all to read as follows:
CHAPTER 11. TAXATION.
ARTICLE 21. PERSONAL INCOME TAX.
§11-21-12. West Virginia adjusted gross income of resident
individual.
(a) General. -- The West Virginia adjusted gross income of
a resident individual means his federal adjusted gross income as
defined in the laws of the United States for the taxable year
with the modifications specified in this section.
(b) Modifications increasing federal adjusted gross income.
-- There shall be added to federal adjusted gross income unless
already included therein the following items:
(1) Interest income on obligations of any state other than this state or of a political subdivision of any other state
unless created by compact or agreement to which this state is a
party;
(2) Interest or dividend income on obligations or securities
of any authority, commission or instrumentality of the United
States, which the laws of the United States exempt from federal
income tax but not from state income taxes;
(3) Income taxes imposed by this state or any other taxing
jurisdiction, to the extent deductible in determining federal
adjusted gross income and not credited against federal income
tax: Provided, That this modification shall not be made for
taxable years beginning after the thirty-first day of December,
one thousand nine hundred eighty-six;
(4) Interest on indebtedness incurred or continued to
purchase or carry obligations or securities the income from which
is exempt from tax under this article, to the extent deductible
in determining federal adjusted gross income;
(5) Interest on a depository institution tax-exempt savings
certificate which is allowed as an exclusion from federal gross
income under Section 128 of the Internal Revenue Code, for the
federal taxable year;
(6) The amount allowed as a deduction from federal gross
income under Section 221 of the Internal Revenue Code by married
couples who file a joint federal return for the federal taxable
year: Provided, That this modification shall not be made for
taxable years beginning after the thirty-first day of December,
one thousand nine hundred eighty-six;
(7) The deferral value of certain income that is not
recognized for federal tax purposes, which value shall be an
amount equal to a percentage of the amount allowed as a deduction
in determining federal adjusted gross income pursuant to the
accelerated cost recovery system under Section 168 of the
Internal Revenue Code for the federal taxable year, with the
percentage of the federal deduction to be added as follows with
respect to the following recovery property: Three-year property
-- no modification; five-year property -- ten percent; ten-year
property -- fifteen percent; fifteen-year public utility property
-- twenty-five percent; and fifteen-year real property -- thirty-
five percent: Provided, That this modification shall not apply
to any person whose federal deduction is determined by the use of
the straight line method: Provided, however, That this
modification shall not be made for taxable years beginning after
the thirty-first day of December, one thousand nine hundred
eighty-six; and
(8) The amount of a lump sum distribution for which the
taxpayer has elected under Section 402(e) of the Internal Revenue
Code of 1986, as amended, to be separately taxed for federal
income tax purposes.
(c) Modifications reducing federal adjusted gross income. --
There shall be subtracted from federal adjusted gross income to
the extent included therein:
(1) Interest income on obligations of the United States and
its possessions to the extent includible in gross income for
federal income tax purposes;
(2) Interest or dividend income on obligations or securities
of any authority, commission or instrumentality of the United
States or of the state of West Virginia to the extent includible
in gross income for federal income tax purposes but exempt from
state income taxes under the laws of the United States or of the
state of West Virginia, including federal interest or dividends
paid to shareholders of a regulated investment company, under
Section 852 of the Internal Revenue Code for taxable years ending
after the thirtieth day of June, one thousand nine hundred
eighty-seven;
(3) Any gain from the sale or other disposition of property
having a higher fair market value on the first day of January,
one thousand nine hundred sixty-one, than the adjusted basis at
said date for federal income tax purposes: Provided, That the
amount of this adjustment is limited to that portion of any gain
which does not exceed the difference between the fair market
value and the adjusted basis: Provided, however, That if the
gain is considered a long-term capital gain for federal income
tax purposes, the modification shall be limited to forty percent
of the portion of the gain: Provided further, That this
modification shall not be made for taxable years beginning after
the thirty-first day of December, one thousand nine hundred
eighty-six;
(4) The amount of any refund or credit for overpayment of
income taxes imposed by this state, or any other taxing
jurisdiction, to the extent properly included in gross income for
federal income tax purposes;
(5) Annuities, retirement allowances, returns of
contributions and any other benefit received under the West
Virginia public employees retirement system, the West Virginia
state teachers retirement system and all forms of military
retirement, including regular armed forces, reserves and national
guard, including any survivorship annuities derived therefrom, to
the extent includible in gross income for federal income tax
purposes: Provided, That notwithstanding any provisions in this
code to the contrary this modification shall be limited to the
first two thousand dollars of benefits received under the West
Virginia public employees retirement system, the West Virginia
state teachers retirement system and all forms of military
retirement including regular armed forces, reserves and national
guard, including any survivorship annuities derived therefrom, to
the extent includible in gross income for federal income tax
purposes for taxable years beginning after the thirty-first day
of December, one thousand nine hundred eighty-six; and the first
two thousand dollars of benefits received under any federal
retirement system to which Title 4 U.S.C. §111 applies:
Provided, however, That the total modification under this
paragraph shall not exceed two thousand dollars per person
receiving retirement benefits and this limitation shall apply to
all returns or amended returns filed after the last day of
December, one thousand nine hundred eighty-eight;
(6) Retirement income received in the form of pensions and
annuities after the thirty-first day of December, one thousand
nine hundred seventy-nine, under any West Virginia police, West Virginia firemen's retirement system or the West Virginia
department of public safety death, disability and retirement
fund, including any survivorship annuities derived therefrom, to
the extent includible in gross income for federal income tax
purposes;
(7) Federal adjusted gross income in the amount of eight
thousand dollars received from any source after the thirty-first
day of December, one thousand nine hundred eighty-six, by any
person who has attained the age of sixty-five on or before the
last day of the taxable year, or by any person certified by
proper authority as permanently and totally disabled, regardless
of age, on or before the last day of the taxable year, to the
extent includible in federal adjusted gross income for federal
tax purposes: Provided, That if a person has a medical
certification from a prior year and he is still permanently and
totally disabled, a copy of the original certificate is
acceptable as proof of disability. A copy of the form filed for
the federal disability income tax exclusion is acceptable:
Provided, however, That:
(i) Where the total modification under subdivisions (1),
(2), (5) and (6) of this subsection is eight thousand dollars per
person or more, no deduction shall be allowed under this
subdivision; and
(ii) Where the total modification under subdivisions (1),
(2), (5) and (6) of this subsection is less than eight thousand
dollars per person, the total modification allowed under this
subdivision for all gross income received by that person shall be limited to the difference between eight thousand dollars and the
sum of modifications under subdivisions;
(8) Federal adjusted gross income in the amount of eight
thousand dollars received from any source after the thirty-first
day of December, one thousand nine hundred eighty-six, by the
surviving spouse of any person who had attained the age of sixty-
five or who had been certified as permanently and totally
disabled, to the extent includible in federal adjusted gross
income for federal tax purposes: Provided, That:
(i) Where the total modification under subdivisions (1),
(2), (5), (6) and (7) of this subsection is eight thousand
dollars or more, no deduction shall be allowed under this
subdivision; and
(ii) Where the total modification under subdivisions (1),
(2), (5), (6) and (7) of this subsection is less than eight
thousand dollars per person, the total modification allowed under
this subdivision for all gross income received by that person
shall be limited to the difference between eight thousand dollars
and the sum of the subdivisions;
(9) Any pay or allowances received, after the thirty-first
day of December, one thousand nine hundred seventy-nine, by West
Virginia residents who have not attained the age of sixty-five,
as compensation for active service in the armed forces of the
United States: Provided, That the deduction shall be limited to
an amount not to exceed four thousand dollars: Provided,
however, That this modification shall not be made for taxable
years beginning after the thirty-first day of December, one thousand nine hundred eighty-six;
(10) Gross income to the extent included in federal adjusted
gross income under Section 86 of the Internal Revenue Code for
federal income tax purposes: Provided, That this modification
shall not be made for taxable years beginning after the thirty-
first day of December, one thousand nine hundred eighty-six;
(11) The amount of any lottery prize awarded by the West
Virginia state lottery commission, to the extent properly
included in gross income for federal income tax purposes:
Provided, That for taxable years beginning after the thirty first
day of December, one thousand nine hundred ninety-two, this
modification shall not be made for lottery prizes awarded by the
West Virginia state lottery commission;
(12) Individual, employee and employer contributions and
interest accruing to medical savings accounts off set by
withdrawals for purposes other than payment of medical expenses
or retirement on or after age fifty-five established pursuant to
section twenty, article fifteen or section fifteen, article
sixteen, chapter thirty-three of this code, to the extent
includible in federal adjusted gross income for federal tax
purposes:
Provided,
That the amount subtracted pursuant to this
subsection for any one taxable year may not exceed two thousand
dollars; and
(12)(13) Any other income which this state is prohibited from
taxing under the laws of the United States.
(d) Modification for West Virginia fiduciary adjustment. --
There shall be added to or subtracted from federal adjusted gross income, as the case may be, the taxpayer's share, as beneficiary
of an estate or trust, of the West Virginia fiduciary adjustment
determined under section nineteen of this article.
(e) Partners and S corporation shareholders. -- The amounts
of modifications required to be made under this section by a
partner or an S corporation shareholder, which relate to items of
income, gain, loss or deduction of a partnership or an S
corporation, shall be determined under section seventeen of this
article.
(f) Husband and wife. -- If husband and wife determine their
federal income tax on a joint return but determine their West
Virginia income taxes separately, they shall determine their West
Virginia adjusted gross incomes separately as if their federal
adjusted gross incomes had been determined separately.
ARTICLE 24. CORPORATION NET INCOME TAX.
§11-24-6. Adjustments in determining West Virginia taxable
income.
(a) General. -- In determining West Virginia taxable income
of a corporation, its taxable income as defined for federal
income tax purposes shall be adjusted and determined before the
apportionment provided by section seven of this article, by the
items specified in this section.
(b) Adjustments increasing federal taxable income. -- There
shall be added to federal taxable income, unless already included
in the computation of federal taxable income, the following
items:
(1) Interest or dividends on obligations or securities of any state or of a political subdivision or authority thereof;
(2) Interest or dividends (less related expenses to the
extent not deducted in determining federal taxable income) on
obligations or securities of any authority, commission or
instrumentality of the United States which the laws of the United
States exempt from federal income tax but not from state income
taxes;
(3) Income taxes and other taxes, including franchise and
excise taxes, which are based on, measured by, or computed with
reference to net income, imposed by this state or any other
taxing jurisdiction, to the extent deducted in determining
federal taxable income;
(4) The amount of unrelated business taxable income as
defined by Section 512 of the Internal Revenue Code of 1986, as
amended, of a corporation which by reason of its purposes is
generally exempt from federal income taxes; and
(5) The amount of any net operating loss deduction taken for
federal income tax purposes under Section 172 of the Internal
Revenue Code of 1986, as amended.
(c) Adjustments decreasing federal taxable income. -- There
shall be subtracted from federal taxable income to the extent
included therein:
(1) Any gain from the sale or other disposition of property
having a higher fair market value on the first day of July, one
thousand nine hundred sixty-seven, than the adjusted basis at
said date for federal income tax purposes: Provided, That the
amount of this adjustment is limited to that portion of any gain which does not exceed the difference between the fair market
value and the adjusted basis;
(2) The amount of any refund or credit for overpayment of
income taxes and other taxes, including franchise and excise
taxes, which are based on, measured by, or computed with
reference to net income, imposed by this state or any other
taxing jurisdiction, to the extent properly included in gross
income for federal income tax purposes;
(3) The amount added to federal taxable income due to the
elimination of the reserve method for computation of the bad debt
deduction;
(4) The full amount of interest expense actually disallowed
in determining federal taxable income which was incurred or
continued to purchase or carry obligations or securities of any
state or of any political subdivision thereof;
(5) The amount required to be added to federal taxable
income as a dividend received from a foreign (non-United States)
corporation under Section 78 of the Internal Revenue Code of
1986, as amended, by a corporation electing to take the foreign
tax credit for federal income tax purposes;
(6) The amount of salary expenses disallowed as a deduction
for federal income tax purposes due to claiming the federal jobs
credit under Section 51 of the Internal Revenue Code of 1986, as
amended;
(7) The amount included in federal adjusted gross income by
the operation of Section 951 of the Internal Revenue Code of
1986, as amended; and
(8) Employer contributions to medical savings accounts
established pursuant to section fifteen, article sixteen, chapter
thirty-three of this code to the extent included in federal
adjusted gross income for federal income tax purposes less any
portion of employer contributions withdrawn for purposes other
than payment of medical expenses:
Provided,
That the amount
subtracted pursuant to this subsection for any one taxable year
may not exceed the maximum amount that would have been deductible
from the corporation's federal adjusted gross income for federal
income tax purposes if the aggregate amount of the corporation's
contributions to individual medical savings accounts established
under section fifteen, article sixteen, chapter thirty-three of
this code had been contributed to a qualified plan as defined
under the Employee Retirement Income Security Act of 1974, as
amended; and
(8)(9) Any amount included in federal adjusted gross income which
is foreign source income. Foreign source income includes:
(A) Interest and dividends, other than those derived from
sources within the United States;
(B) Rents, royalties, license and technical fees from
property located or services performed without the United States
or from any interest in the property, including rents, royalties
or fees for the use of or the privilege of using without the
United States any patents, copyrights, secret process and
formulas, good will, trademarks, trade brands, franchises and
other like properties; and
(C) Gains, profits or other income from the sale of intangible or real property located without the United States.
In determining the source of "foreign source income", the
provisions of Sections 861, 862 and 863 of the Internal Revenue
Code of 1986, as amended, shall be applied.
(d) Net operating loss deduction. -- Except as otherwise
provided in this subsection, there shall be allowed as a
deduction for the taxable year an amount equal to the aggregate
of: (1) The West Virginia net operating loss carryovers to that
year; plus (2) the net operating loss carrybacks to that year:
Provided, That no more than three hundred thousand dollars of net
operating loss from any taxable year beginning after the thirty-
first day of December, one thousand nine hundred ninety-two, may
be carried back to any previous taxable year. For purposes of
this subsection, the term "West Virginia net operating loss
deduction" means the deduction allowed by this subsection,
determined in accordance with Section 172 of the Internal Revenue
Code of 1986, as amended.
(1) Special rules. --
(A) When the corporation further adjusts its adjusted
federal taxable income under section seven of this article, the
West Virginia net operating loss deduction allowed by this
subsection shall be deducted after the section seven adjustments
are made;
(B) The tax commissioner shall prescribe the transition
regulations as he deems necessary for fair and equitable
administration of this subsection as amended by this act.
(2) Effective date. -- The provisions of this subsection, as amended by chapter one hundred nineteen, acts of the Legislature,
one thousand nine hundred eighty-eight, shall apply to all
taxable years ending after the thirtieth day of June, one
thousand nine hundred eighty-eight; and to all loss carryovers
from taxable years ending on or before said thirtieth day of
June.
(e) Special adjustments for expenditures for water and air
pollution control facilities. --
(1) If the taxpayer so elects under subdivision (2) of this
subsection, there shall be:
(A) Subtracted from federal taxable income the total of the
amounts paid or incurred during the taxable year for the
acquisition, construction or development within this state of
water pollution control facilities or air pollution control
facilities as defined in Section 169 of the Internal Revenue
Code; and
(B) Added to federal taxable income the total of the amounts
of any allowances for depreciation and amortization of the water
pollution control facilities or air pollution control facilities,
as so defined, to the extent deductible in determining federal
taxable income.
(2) The election referred to in subdivision (1) of this
subsection shall be made in the return filed within the time
prescribed by law (including extensions thereof) for the taxable
year in which the amounts were paid or incurred. The election
shall be made in that manner, and the scope of application of
that election shall be defined, as the tax commissioner may by regulations prescribe, and shall be irrevocable when made as to
all amounts paid or incurred for any particular water pollution
control facility or air pollution control facility.
(3) Notwithstanding any other provisions of this subsection
or of section seven to the contrary, if the taxpayer's federal
taxable income is subject to allocation and apportionment under
section seven, the adjustments prescribed in paragraphs (A) and
(B), subdivision (1) of this subsection shall (instead of being
made to the taxpayer's federal taxable income before allocation
and apportionment thereof as provided in section seven) be made
to the portion of the taxpayer's net income, computed without
regard to the adjustments, allocated and apportioned to this
state in accordance with section seven.
(f) Allowance for certain government obligations and
obligations secured by residential property. -- The West Virginia
taxable income of a taxpayer subject to this article as adjusted
in accordance with subsections (b), (c), (d) and (e) of this
section shall be further adjusted by multiplying the taxable
income after the adjustment by said subsections by a fraction
equal to one minus a fraction:
(1) The numerator of which is the sum of the average of the
monthly beginning and ending account balances during the taxable
year (account balances to be determined at cost in the same
manner that obligations, investments and loans are reported on
Schedule L of the Federal Form 1120) of the following:
(A) Obligations or securities of the United States, or of
any agency, authority, commission or instrumentality of the United States and any other corporation or entity created under
the authority of the United States Congress for the purpose of
implementing or furthering an objective of national policy;
(B) Obligations or securities of this state and any
political subdivision or authority thereof;
(C) Investments or loans primarily secured by mortgages, or
deeds of trust, on residential property located in this state and
occupied by nontransients; and
(D) Loans primarily secured by a lien or security agreement
on residential property in the form of a mobile home, modular
home or double-wide, located in this state and occupied by
nontransients.
(2) The denominator of which is the average of the monthly
beginning and ending account balances of the total assets of the
taxpayer which are shown on Schedule L of Federal Form 1120,
which are filed by the taxpayer with the Internal Revenue
Service.
CHAPTER 33. INSURANCE.
ARTICLE 15. ACCIDENT AND SICKNESS INSURANCE.
§33-15-20. Individual medical savings accounts; definitions;
ownership; trustees; regulations.
(a) Any individual resident of this state may establish a
medical savings account to serve as self-insurance for the
payment of medical expenses. As used in this section "individual
medical savings account" means a trust for the payment of medical
expenses created or organized for the exclusive benefit of an
individual, his or her children and dependents, and his or her beneficiaries:
Provided,
That an individual establishing a
medical savings account may designate a percentage of the account
that may be withdrawn by the individual if not needed for medical
expenses of the individual, his or her children or other
dependents and his or her beneficiaries:
Provided, however,
That
any amount remaining in a medical savings account on the earlier
of the date of retirement, at the age of fifty-nine and one-half
years or more, of the individual who established the account, or
the date of death of that individual, may be withdrawn by the
individual or by his or her personal representative for a purpose
other than the payment of medical expenses:
Provided further,
That any withdrawal for a purpose other than to pay medical
expenses as provided in this section shall be added to the
federal adjusted gross income of the payee or distributee for
purposes of calculating West Virginia adjusted gross income:
And
provided further,
That no withdrawal pursuant to this subsection
shall be subject to the additional twenty percent tax as provided
in subsection (d) of this section. "Medical expenses" means
amounts paid for services for the diagnosis, cure, mitigation,
treatment, or prevention of disease, or for the purpose of
affecting any structure or function of the body, which expenses
may be included in calculating the federal deduction for medical
and dental expenses for federal income tax purposes; for
insurance premiums for combined plans issued pursuant to this
section; but excluding expenses for cosmetic surgery as defined
in Section 213 of the Internal Revenue Code of 1986, as amended.
Funds in an individual medical savings account may not be used for payment of medical expenses which any third-party payor is
obligated to pay, except for expenses of a medicaid-eligible
individual covered under the state's medicaid program. The
interest of an individual in a medical savings account
established for his or her benefit pursuant to this section shall
be nonforfeitable. Combined plans are subject to the protections
afforded by article twenty-six-a of this chapter.
(b) The trustee for an individual medical savings account
shall be a bank or other entity qualified as a trustee of
individual retirement accounts under Section 408 of the Internal
Revenue Code of 1986, as amended. An insurer qualified under the
Internal Revenue Code, of 1986, as amended, may act as trustee.
The assets of the trust shall not be commingled with other
property except in a common trust fund or common investment fund.
A trustee who is an insurer may hold the assets of individuals
insured under individual accident and sickness plans in a common
fund for the account of all individuals who have an interest in
the trust, if there is a separate accounting for the interest of
each individual or member.
(c) Any insurer issuing accident and sickness policies in
this state in accordance with the provisions of this article may
offer a benefit plan including deductibles or copayments combined
with individual self-insurance through the establishment of
individual medical savings accounts. A benefit plan established
pursuant to this subsection shall provide that medical expenses
included within deductible or copayment provisions of the
accident and sickness policy for the individual or for his or her covered dependents and therefore not payable under that policy be
paid by the trustee, either directly or as reimbursement to an
individual who has previously paid medical expenses, from the
individual medical savings investment account. A benefit plan
may limit payment of medical expenses until the group plan annual
deductible is met from the medical savings account to expenses
which are covered services under the policy.
(d) The insurance commissioner shall promulgate legislative
rules pursuant to article three, chapter twenty-nine-a of this
code to establish specific standards for individual medical
savings accounts and for plans in which a policy of insurance is
combined with self-insurance under an individual medical savings
account. Such standards shall be in addition to and in
accordance with the applicable laws of this state and may cover,
but shall not be limited to:
(1) Definitions of terms;
(2) An annual contribution minimum for individual medical
savings accounts;
(3) An annual contribution maximum for individual medical
savings accounts;
(4) Limitations upon an individual's access to or use of
individual medical savings account funds and circumstances under
which funds in the account may be disbursed:
Provided,
That if,
during any taxable year, the beneficial owner of an individual
medical savings account borrows any money under or by use of that
account, the account ceases to be an individual medical savings
account as of the first day of that taxable year:
Provided, however,
That any amount paid or distributed out of a medical
savings account for any purpose other than to defray medical
expenses as provided in this section shall be added to the
federal adjusted gross income of the payee or distributee for
purposes of calculating West Virginia adjusted gross income:
Provided further,
That the payee's or distributee's tax under
this article for the taxable year in which the amount is
received, except as specifically provided in subsection (a) of
this section or except for a distribution of account assets
pursuant to order of a federal bankruptcy court, shall be
increased by an amount equal to ten percent of the portion of the
payment or distribution that is includible in the payee's or
distributee's federal adjusted gross income;
(5) Circumstances under which a combined benefit plan
offered through an insurer may permit reduced contributions to
the individual medical savings account, which circumstances may
include the accruing of a specified account balance;
(6) Provisions relating to reporting payments for the
benefit of an individual from an individual medical savings
account for medical expenses to an insurer offering a combined
benefit plan; and
(7) Provisions relating to change or redesignation of a
trustee.
(e) The tax commissioner is authorized to establish
penalties for early or unauthorized withdrawals from individual
medical savings accounts pursuant to rules promulgated pursuant
to article three, chapter twenty-nine-a of this code, which penalties may not exceed federal penalties for early or
unauthorized withdrawals from individual retirement accounts
under the Internal Revenue Code of 1986, as amended.
ARTICLE 16. GROUP ACCIDENT AND SICKNESS INSURANCE.
§33-16-15. Individual medical savings accounts; definitions;
ownership; contributions; trustees; regulations.
(a) Any insurer issuing group accident and sickness policies
in this state, the public employees insurance agency and any
employer offering a health benefit plan pursuant to the Employee
Retirement Income Security Act of 1974, as amended may offer a
benefit plan including deductibles or copayments combined with
employee self-insurance through the establishment of individual
medical savings accounts. As used in this section "individual
medical savings account" means a trust for the payment of medical
expenses created or organized for the exclusive benefit of an
individual, his or her dependents covered under a group accident
and sickness policy, and his or her beneficiaries:
Provided,
That
an employee establishing a medical savings account, or for whom
a medical savings account is established by an employer, may
designate a percentage of the employee's contributions, if any,
to that account that may be withdrawn by the employee if not
needed for medical expenses of the employee, his or her children
or other dependents and his or her beneficiaries:
Provided,
however,
That any amount remaining in a medical savings account
on the earlier of the date of retirement, at the age of
fifty-nine and one-half years or more, of the employee or the
date of death of the employee, may be withdrawn by the employee or by his or her personal representative for a purpose other than
the payment of medical expenses:
Provided further,
That any
withdrawal for a purpose other than to pay medical expenses as
provided in this section shall be added to the federal adjusted
gross income of the payee or distributee:
And provided further,
That no withdrawal pursuant to this subsection shall be subject
to the additional twenty percent tax as provided in subsection
(d) of this section. "Medical expenses" means amounts paid for
services for the diagnosis, cure, mitigation, treatment, or
prevention of disease, or for the purpose of affecting any
structure or function of the body, which expenses may be included
in calculating the federal deduction for medical and dental
expenses for federal income tax purposes; for insurance premiums
for combined plans issued pursuant to this section; but excluding
expenses for cosmetic surgery as defined in Section 213 of the
Internal Revenue Code of 1986, as amended. Funds in an
individual medical savings account may not be used for payment of
medical expenses which any third-party payor is obligated to pay,
except for medical expenses of a medicaid-eligible individual
covered under the state's medicaid program. A benefit plan
established pursuant to this section shall provide that medical
expenses included within deductible or copayment provisions of
the group accident and sickness policy and therefore not payable
under the group policy for the employee or for his or her covered
dependents be paid by the trustee, either directly or as
reimbursement to an employee who has previously paid medical
expenses, from the individual medical savings account. A benefit plan may limit payment of medical expenses until the group plan
annual deductible is met from the medical savings account to
expenses which are covered services under the group policy.
(b) The interest of an employee in a medical savings account
established for his or her benefit pursuant to this section shall
be nonforfeitable.
(c) The trustee for an individual medical savings account
shall be a bank or other entity qualified as a trustee of
individual retirement accounts under Section 408 of the Internal
Revenue Code of 1986, as amended. An insurer so qualified may
act as trustee. The assets of the trust shall not be commingled
with other property except in a common trust fund or common
investment fund. The trustee may hold the assets of employees
insured under a group accident and sickness plan in a common fund
for the account of all individuals who have an interest in the
trust, if there is a separate accounting for the interest of each
employee or member. Combined plans are subject to the
protections afforded by article twenty-six-a of this chapter.
(d) The insurance commissioner shall promulgate legislative
rules pursuant to article three chapter twenty-nine-a of this
code to establish specific standards for plans in which a group
policy is combined with self-insurance under an individual
medical savings account. These standards shall be in addition to
and in accordance with the applicable laws of this state and may
cover, but shall not be limited to:
(1) Definitions of terms;
(2) An annual contribution minimum for individual medical savings accounts;
(3) An annual contribution maximum for individual medical
savings accounts;
(4) Limitations which a plan may impose upon an employee's
access to or use of individual medical savings account funds and
circumstances under which funds in the account may be disbursed:
Provided,
That if, during any taxable year, the beneficial owner
of an individual medical savings account borrows any money under
or by use of that account, the account ceases to be an individual
medical savings account as of the first day of that taxable year:
Provided, however,
That any amount paid or distributed out of a
medical savings account for any purpose other than to defray
medical expenses as provided in this section shall be added to
the federal adjusted gross income of the payee or distributee for
purposes of calculating West Virginia adjusted gross income:
Provided further,
That the payee's or distributee's tax under
this article for the taxable year in which the amount is received
except as specifically provided in subsection (a) of this section
or except for a distribution of account assets pursuant to order
of a federal bankruptcy court, shall be increased by an amount
equal to ten percent of the portion of the payment or
distribution that is includible in the payee's or distributee's
federal adjusted gross income;
(5) Circumstances under which a plan may permit reduced
contributions to the individual medical savings account, which
circumstances may include the accruing of a specified account
balance;
(6) Provisions relating to reporting payments for the
benefit of an employee from an individual medical savings account
for medical expenses to the group policy insurer; and
(7) Provisions relating to change or redesignation of a
trustee and provisions relation to circumstances requiring or
permitting continuation of coverage by the group plan or
conversion to an individual medical savings account upon
termination of an employee's employment.
(e) The tax commissioner is authorized to establish
penalties for early or unauthorized withdrawals from individual
medical savings accounts pursuant to rules promulgated in
accordance with article three, chapter twenty-nine-a of this
code. which penalties may not exceed federal penalties for early
or unauthorized withdrawals from individual retirement accounts
under the Internal Revenue Code of 1986, as amended.