Bill > A1311

Introduced Session

This bill allows gross income tax advantages in connection with Health Savings Accounts in conformity with the federal income tax advantages extended to these accounts under recent federal law. The bill provides a gross income tax deduction for deposits to, and an exemption for withdrawals from, health savings accounts. Individuals can use these accounts to cover out-of-pocket medical care costs under high-deductible medical care plans. The bill also excludes the earnings in an account from gross income taxation, as the account earnings are excluded from federal income taxation. The federal Medicare Prescription Drug, Improvement, and Modernization Act of 2003 permits eligible individuals to establish health savings accounts (HSAs) for taxable years beginning on or after January 1, 2004. Under the federal income tax, HSA contributions are deductible from adjusted gross income, contributions grow tax-free over the years, and amounts can be distributed tax-free to pay or reimburse qualified medical expenses. HSAs are similar to Archer medical savings accounts (MSAs) established as tax-advantaged accounts under the federal income tax and accorded similar tax-free treatment under the New Jersey gross income tax. However, HSAs are more flexible and available to many more individuals than MSAs. Taxpayers can be expected to embrace them enthusiastically because the federal tax benefits are generous; HSAs are akin to tax-favored accounts like IRAs or 401(k)s. Eligible individuals are individuals who are covered by a high-deductible health plan. A high-deductible health plan is a health plan that has a deductible that is at least $1,000 for self-only coverage or $2,000 for family coverage. The policy must also have an out-of-pocket maximum that can be no greater than $5,000 for self-only coverage and $10,000 for family coverage. Out-of-pocket expense includes deductibles, copayments, and other amounts (other than premiums) that the individual must pay for covered benefits under their medical care plan. This bill makes contributions made by or on behalf of an eligible individual that are deductible for federal income tax purposes deductible by the individual for gross income tax purposes. Also, the bill makes employer contributions to an HSA excludible from gross income to the extent the contribution would be deductible if made by the employee. The maximum aggregate annual contribution that can be made to an HSA, as set by federal law, is the lesser of 100 percent of the annual deductible under the high-deductible health plan, or the maximum deductible permitted under an MSA as adjusted for inflation. Contributions can be made to individual HSAs by individual and their employers. For 2018, the amount of the maximum high deductible is estimated to be $6,650 in the case of self-only coverage and $13,300 in the case of family coverage. Under the gross income tax as under the federal income tax, tax-free rollover contributions from Archer MSAs and other HSAs into an HSA will be permitted. Rollovers will not be subject to the annual contribution limits. Under the bill, distributions from an HSA for qualified medical expense (most medical expenses defined as deductible for federal income tax purposes) for the taxpayer, the taxpayer's spouse, and dependents generally will be excludable from New Jersey gross income. Distributions from an HSA that are not for qualified medical expenses will be includable in New Jersey gross income. However, distributions that are not for qualified medical expenses will not be includable in gross income if they are made after death or disability, or after the individual attains the age of Medicare eligibility (age 65). HSAs give workers the opportunity to save tax-free for routine medical bills like doctor visits or medicines, the security of funds to cover the out-of-pocket expenses of a major illness, and the freedom of knowing that the account is worker-owned, not under the control of an insurance company, and is portable whenever a worker changes employers. During years when an individual's family health care spending is low, the money remaining in the HSA earns tax-free interest, dividends or gains and is available in the future when unexpected medical expenses arise. Health savings accounts are a new option which will give families access to affordable health care will reducing health insurance premiums. The tax advantages provided under federal law are not available under the current New Jersey gross income tax. This bill will extend that tax conformity.

AI Summary

Committee Categories

Chris DePhillips (R)*,  Erik Peterson (R)*,  Aura Dunn (R),  Dawn Fantasia (R),  Michael Inganamort (R),  Michele Matsikoudis (R),  Nancy Muñoz (R),  Jay Webber (R), 

Introduced, Referred to Assembly Commerce, Economic Development and Agriculture Committee (on 01/09/2024)

Official Document