Montana State University Extension is informing residents about the potential state income tax savings available through Montana Medical Care Savings Accounts (MSAs). In 2025, individuals can deposit up to $4,600 into an MSA for eligible medical and long-term health care expenses. This amount can be deducted from a person’s state taxable income.
“Despite the name, MSAs are not limited to traditional savings accounts,” said Marsha Goetting, MSU Extension family economics specialist. “Liquidity is key: Account holders should select financial products that allow easy access when health care needs arise.”
Goetting explained that MSAs may take several forms, including checking accounts, certificates of deposit, or investment options like stocks, bonds, and mutual funds. All contributions must be placed in a separate account under one individual’s name; joint accounts are not allowed. She also noted that while payments do not need to go directly from the MSA to providers, documentation of qualified expenses is required.
Eligibility for MSAs extends to all Montana resident taxpayers aged 18 and older. This includes those who already have employer health plans or other types of health-related savings accounts. Unlike federal Health Savings Accounts (HSAs), there is no requirement for a high-deductible plan.
Withdrawals made for qualified medical costs—defined by IRS Section 213(d)—are tax-free at the state level. These costs include insurance premiums, prescription drugs, dental and medical services, nursing home care, eyeglasses, crutches, and transportation related to medical care. A full list of eligible expenses can be found on the IRS website at https://www.irs.gov/publications/p502.
However, funds cannot be used for expenses reimbursed by insurance or other coverage methods such as HSAs or FSAs. Goetting emphasized that while MSAs lower state taxable income and their earnings are tax free at the state level, they do not provide federal income tax benefits; any interest or investment gains must still be reported on federal returns.
Taxpayers’ savings will depend on their bracket. For example, according to Goetting, if a couple contributes $9,200—the combined maximum—and falls within Montana’s 5.9% tax rate bracket, they could save about $543 in state taxes.
Account holders are required to report contributions and earnings on their Montana Individual Income Tax Return using the appropriate MSA schedule. Withdrawals for eligible expenses incurred during the year must be made by January 15 of the following year; non-medical withdrawals incur a 10% penalty unless exceptions apply.
Residents seeking more information can contact their local MSU Extension office or search “MSA” at store.msuextension.org for additional resources online.
