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119th Congress

Title 26 — Internal Revenue Code

Part III · Chapter 1 — Normal Taxes and Surtaxes

§ 138. Medicare Advantage MSA

Statutory text

(a)

Exclusion

Gross income shall not include any payment to the Medicare Advantage MSA of an individual by the Secretary of Health and Human Services under part C of title XVIII of the Social Security Act.

(b)

Medicare Advantage MSA

For purposes of this section, the term “Medicare Advantage MSA” means an Archer MSA (as defined in section 220(d))—

(1)

which is designated as a Medicare Advantage MSA,

(2)

with respect to which no contribution may be made other than—

(A)

a contribution made by the Secretary of Health and Human Services pursuant to part C of title XVIII of the Social Security Act, or

(B)

a trustee-to-trustee transfer described in subsection (c)(4),

(3)

the governing instrument of which provides that trustee-to-trustee transfers described in subsection (c)(4) may be made to and from such account, and

(4)

which is established in connection with an MSA plan described in section 1859(b)(3) of the Social Security Act.

(c)

Special rules for distributions

(1)

Distributions for qualified medical expenses

In applying section 220 to a Medicare Advantage MSA—

(A)

qualified medical expenses shall not include amounts paid for medical care for any individual other than the account holder, and

(B)

section 220(d)(2)(C) shall not apply.

(2)

Penalty for distributions from Medicare Advantage MSA not used for qualified medical expenses if minimum balance not maintained

(A)

In general

The tax imposed by this chapter for any taxable year in which there is a payment or distribution from a Medicare Advantage MSA which is not used exclusively to pay the qualified medical expenses of the account holder shall be increased by 50 percent of the excess (if any) of—

(i)

the amount of such payment or distribution, over

(ii)

the excess (if any) of—

(I)

the fair market value of the assets in such MSA as of the close of the calendar year preceding the calendar year in which the taxable year begins, over

(II)

an amount equal to 60 percent of the deductible under the Medicare Advantage MSA plan covering the account holder as of January 1 of the calendar year in which the taxable year begins.

Section 220(f)(4) shall not apply to any payment or distribution from a Medicare Advantage MSA.

(B)

Exceptions

Subparagraph (A) shall not apply if the payment or distribution is made on or after the date the account holder—

(i)

becomes disabled within the meaning of section 72(m)(7), or

(ii)

dies.

(C)

Special rules

For purposes of subparagraph (A)—

(i)

all Medicare Advantage MSAs of the account holder shall be treated as 1 account,

(ii)

all payments and distributions not used exclusively to pay the qualified medical expenses of the account holder during any taxable year shall be treated as 1 distribution, and

(iii)

any distribution of property shall be taken into account at its fair market value on the date of the distribution.

(3)

Withdrawal of erroneous contributions

Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any payment or distribution from a Medicare Advantage MSA to the Secretary of Health and Human Services of an erroneous contribution to such MSA and of the net income attributable to such contribution.

(4)

Trustee-to-trustee transfers

Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any trustee-to-trustee transfer from a Medicare Advantage MSA of an account holder to another Medicare Advantage MSA of such account holder.

(d)

Special rules for treatment of account after death of account holder

In applying section 220(f)(8)(A) to an account which was a Medicare Advantage MSA of a decedent, the rules of section 220(f) shall apply in lieu of the rules of subsection (c) of this section with respect to the spouse as the account holder of such Medicare Advantage MSA.

(e)

Reports

In the case of a Medicare Advantage MSA, the report under section 220(h)—

(1)

shall include the fair market value of the assets in such Medicare Advantage MSA as of the close of each calendar year, and

(2)

shall be furnished to the account holder—

(A)

not later than January 31 of the calendar year following the calendar year to which such reports relate, and

(B)

in such manner as the Secretary prescribes in such regulations.

(f)

Coordination with limitation on number of taxpayers having Archer MSAs

Subsection (i) of section 220 shall not apply to an individual with respect to a Medicare Advantage MSA, and Medicare Advantage MSAs shall not be taken into account in determining whether the numerical limitations under section 220(j) are exceeded.

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

  1. Balanced Budget Act of 1997

    Pub. L. 105–33 title IV § 4006(a) · 111 Stat. 251

    Enacted · 26 U.S.C. § 138

    Added Pub. L. 105–33, title IV, § 4006(a), Aug. 5, 1997, 111 Stat. 332

    Source evidence

    Code source credit
    Added Pub. L. 105–33, title IV, § 4006(a), Aug. 5, 1997, 111 Stat. 332

    Enacted provision · exact public law section
    (a) In General.— Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to amounts specifically excluded from gross income) is amended by redesignating section 138 as section 139 and by inserting after section 137 the following 26 USC 138, 139. new section: “SEC. 138. MEDICARE+CHOICE MSA. “(a) Exclusion.— Gross income shall not include any payment to the Medicare+Choice MSA of an individual by the Secretary of Health and Human Services under part C of title XVIII of the Social Security Act. “(b) Medicare+Choice MSA.— For purposes of this section, the term ‘Medicare+Choice MSA’ means a medical savings account (as defined in section 220(d))— “(1) which is designated as a Medicare+Choice MSA, “(2) with respect to which no contribution may be made other than— “(A) a contribution made by the Secretary of Health and Human Services pursuant to part C of title XVIII of the Social Security Act, or “(B) a trustee-to-trustee transfer described in subsection (c)(4). “(3) the governing instrument of which provides that trustee-to-trustee transfers described in subsection (c)(4) may be made to and from such account, and “(4) which is established in connection with an MSA plan described in section 1859(b)(3) of the Social Security Act. “(c) Special Rules for Distributions.— “(1) Distributions for qualified medical expenses.— In applying section 220 to a Medicare+Choice MSA— “(A) qualified medical expenses shall not include amounts paid for medical care for any individual other than the account holder, and “(B) section 220(d)(2)(C) shall not apply. “(2) Penalty for distributions from medicare+choice msa not used for qualified medical expenses if minimum balance not maintained.— “(A) In general.— The tax imposed by this chapter for any taxable year in which there is a payment or distribution from a Medicare+Choice MSA which is not used exclusively to pay the qualified medical expenses of the account holder shall be increased by 50 percent of the excess (if any) of— “(i) the amount of such payment or distribution, over “(ii) the excess (if any) of— “(I) the fair market value of the assets in such MSA as of the close of the calendar year preceding the calendar year in which the taxable year begins, over “(II) an amount equal to 60 percent of the deductible under the Medicare+Choice MSA plan covering the account holder as of January 1 of the calendar year in which the taxable year begins. Section 220(f)(4) shall not apply to any payment or distribution from a Medicare+Choice MSA. “(B) Exceptions.— Subparagraph (A) shall not apply if the payment or distribution is made on or after the date the account holder— “(i) becomes disabled within the meaning of section 72(m)(7), or “(ii) dies. “(C) Special rules.— For purposes of subparagraph (A)— “(i) all Medicare+Choice MSAs of the account holder shall be treated as 1 account, “(ii) all payments and distributions not used exclusively to pay the qualified medical expenses of the account holder during any taxable year shall be treated as 1 distribution, and “(iii) any distribution of property shall be taken into account at its fair market value on the date of the distribution. “(3) Withdrawal of erroneous contributions.— Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any payment or distribution from a Medicare+Choice MSA to the Secretary of Health and Human Services of an erroneous contribution to such MSA and of the net income attributable to such contribution. “(4) Trustee-to-trustee transfers.— Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any trustee-to-trustee transfer from a Medicare+Choice MSA of an account holder to another Medicare+Choice MSA of such account holder. “(d) Special Rules for Treatment of Account After Death of Account Holder.— In applying section 220(f)(8)(A) to an account which was a Medicare+Choice MSA of a decedent, the rules of section 220(f) shall apply in lieu of the rules of subsection (c) of this section with respect to the spouse as the account holder of such Medicare+Choice MSA. “(e) Reports.— In the case of a Medicare+Choice MSA the report under section 220(h)— “(1) shall include the fair market value of the assets in such Medicare+Choice MSA as of the close of each calendar year, and “(2) shall be furnished to the account holder— “(A) not later than January 31 of the calendar year following the calendar year to which such reports relate, and “(B) in such manner as the Secretary prescribes in such regulations. “(f) Coordination With Limitation on Number of Taxpayers Having Medical Savings Accounts.— Subsection (i) of section 220 shall not apply to an individual with respect to a Medicare+Choice MSA, and Medicare+Choice MSA’s shall not be taken into account in determining whether the numerical limitations under section 220(j) are exceeded.”.

  2. Consolidated Appropriations Act, 2001

    Pub. L. 106–554 § 1(a)(7)(tII)(s202)(b)(10) · 114 Stat. 2763

    Substituted · 26 U.S.C. § 138(b)

    Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA” in introductory provisions

    Source evidence

    Code amendment note
    Subsec. (b). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA” in introductory provisions.

    Enacted provision · exact public law section
    (7) H.R. 5662, as introduced on December 14, 2000.

  3. Consolidated Appropriations Act, 2001

    Pub. L. 106–554 § 1(a)(7)(tII)(s202)(a)(3) · 114 Stat. 2763

    Substituted · 26 U.S.C. § 138(b)

    Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(3)], substituted “Archer MSA” for “medical savings account” in introductory provisions

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(3)], substituted “Archer MSA” for “medical savings account” in introductory provisions.

    Enacted provision · exact public law section
    (7) H.R. 5662, as introduced on December 14, 2000.

  4. Consolidated Appropriations Act, 2001

    Pub. L. 106–554 § 1(a)(7)(tII)(s202)(b)(6) · 114 Stat. 2763

    Substituted · 26 U.S.C. § 138(f)

    Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(6)], substituted “Archer MSAs” for “medical savings accounts” in heading

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(6)], substituted “Archer MSAs” for “medical savings accounts” in heading.

    Enacted provision · exact public law section
    (7) H.R. 5662, as introduced on December 14, 2000.

  5. Working Families Tax Relief Act of 2004

    Pub. L. 108–311 § 408(a)(5)(A) · 118 Stat. 1166

    Substituted · 26 U.S.C. § 138

    Pub. L. 108–311, § 408(a)(5)(A)–(D), substituted “Medicare Advantage” for “Medicare+Choice” wherever appearing in section catchline, headings, and text

    Source evidence

    Code amendment note
    Pub. L. 108–311, § 408(a)(5)(A)–(D), substituted “Medicare Advantage” for “Medicare+Choice” wherever appearing in section catchline, headings, and text.

    Enacted provision · exact public law section
    (A) Section 138 and paragraph (2) of section 26(b) are each amended by striking “Medicare+Choice MSA” each place it appears in the text and inserting “Medicare Advantage MSA”.

  6. Working Families Tax Relief Act of 2004

    Pub. L. 108–311 § 408(a)(5)(E) · 118 Stat. 1166

    Substituted · 26 U.S.C. § 138(c)(2)(C)(i)

    Pub. L. 108–311, § 408(a)(5)(E), substituted “Medicare Advantage MSAs” for “Medicare+Choice MSAs”

    Source evidence

    Code amendment note
    Subsec. (c)(2)(C)(i). Pub. L. 108–311, § 408(a)(5)(E), substituted “Medicare Advantage MSAs” for “Medicare+Choice MSAs”.

    Enacted provision · exact public law section
    (E) Clause (i) of section 138(c)(2)(C) is amended by striking “Medicare+Choice MSAs” and inserting “Medicare Advantage MSAs”.

  7. Working Families Tax Relief Act of 2004

    Pub. L. 108–311 § 408(a)(5)(F) · 118 Stat. 1166

    Substituted · 26 U.S.C. § 138(f)

    Pub. L. 108–311, § 408(a)(5)(F), substituted “Medicare Advantage MSAs” for “Medicare+Choice MSA’s”

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 108–311, § 408(a)(5)(F), substituted “Medicare Advantage MSAs” for “Medicare+Choice MSA’s”.

    Enacted provision · exact public law section
    (F) Subsection (f) of section 138 is amended by striking “Medicare+Choice MSA’s” and inserting “Medicare Advantage MSAs”.

7 of 7 references resolved to an enrolled provision

Editorial Notes

References in Text

The Social Security Act, referred to in subsecs. (a) and (b)(2)(A), is act Aug. 14, 1935, ch. 531, 49 Stat. 620. Part C of title XVIII of the Act is classified generally to part C (§ 1395w–21 et seq.) of subchapter XVIII of chapter 7 of Title 42, The Public Health and Welfare. Section 1859 of the Act is classified to section 1395w–28 of Title 42. For complete classification of this Act to the Code, see section 1305 of Title 42 and Tables.

Prior Provisions

A prior section 138 was renumbered section 140 of this title.

Amendments2000–2004 · 2 rounds

2004

Pub. L. 108–311, § 408(a)(5)(A)–(D), substituted “Medicare Advantage” for “Medicare+Choice” wherever appearing in section catchline, headings, and text.

Subsec. (c)(2)(C)(i). Pub. L. 108–311, § 408(a)(5)(E), substituted “Medicare Advantage MSAs” for “Medicare+Choice MSAs”.

Subsec. (f). Pub. L. 108–311, § 408(a)(5)(F), substituted “Medicare Advantage MSAs” for “Medicare+Choice MSA’s”.

2000

Subsec. (b). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA” in introductory provisions.

Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(3)], substituted “Archer MSA” for “medical savings account” in introductory provisions.

Subsec. (f). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(6)], substituted “Archer MSAs” for “medical savings accounts” in heading.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 105–33, title IV, § 4006(c), , 111 Stat. 334, provided that: “The amendments made by this section [enacting this section, amending sections 220 and 4973 of this title, and renumbering former section 138 of this title as section 139 of this title] shall apply to taxable years beginning after .”

Credits

1997–2004 · 3 acts
  1. 1997Added Pub. L. 105–33, title IV, § 4006(a), , 111 Stat. 332
  2. 2000amended Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(3), (b)(6), (10)], , 114 Stat. 2763, 2763A–628, 2763A–629
  3. 2004Pub. L. 108–311, title IV, § 408(a)(5)(A)–(F), , 118 Stat. 1191.
Show as published

(Added Pub. L. 105–33, title IV, § 4006(a), , 111 Stat. 332; amended Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(3), (b)(6), (10)], , 114 Stat. 2763, 2763A–628, 2763A–629; Pub. L. 108–311, title IV, § 408(a)(5)(A)–(F), , 118 Stat. 1191.)

Parsed from the official OLRC USLM XML in data/usc_all/usc26.xml · release point 119-108 · OLRC build 2026-09-16

USLM identifier /us/usc/t26/s138