26 U.S.C. § 220 — Archer MSAs

Page 958 TITLE 26—INTERNAL REVENUE CODE § 220 ‘‘(1) shall be treated as an active participant in a plan established for its employees by the United States for purposes of section 219(g) of the Internal Revenue Code of 1986, and ‘‘(2) shall be treated as an employee for purposes of chapter 1 of such Code. ‘‘(b) EFFECTIVE DATE.—The provisions of subsection (a) shall apply to taxable years beginning after Decem- ber 31, 1987.’’ PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1998 For provisions directing that if any amendments made by subtitle D [§§ 1401–1465] of title I of Pub. L. 104–188 require an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year begin- ning on or after Jan. 1, 1998, see section 1465 of Pub. L. 104–188, set out as a note under section 401 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1994 For provisions directing that if any amendments made by subtitle B [§§ 521–523] of title V of Pub. L. 102–318 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1994, see section 523 of Pub. L. 102–318, set out as a note under section 401 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. TRANSITIONAL RULES FOR ALLOWABLE DEDUCTIONS FOR FIRST TAXABLE YEAR BEGINNING IN 1978 Pub. L. 95–600, title I, § 157(b)(4)(B), Nov. 6, 1978, 92 Stat. 2805, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘If, but for this sub- paragraph, an amount would be allowable as a deduc- tion by reason of section 219(c)(5) or 220(c)(6) of the In- ternal Revenue Code of 1986 [formerly I.R.C. 1954] for a taxable year beginning before January 1, 1978, such amount shall be allowable only for the taxpayer’s first taxable year beginning in 1978.’’ § 220. Archer MSAs (a) Deduction allowed In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggre- gate amount paid in cash during such taxable year by such individual to an Archer MSA of such individual. (b) Limitations (1) In general The amount allowable as a deduction under subsection (a) to an individual for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible indi- vidual. (2) Monthly limitation The monthly limitation for any month is the amount equal to 1⁄12 of— (A) in the case of an individual who has self-only coverage under the high deductible health plan as of the first day of such month, 65 percent of the annual deductible under such coverage, and (B) in the case of an individual who has family coverage under the high deductible health plan as of the first day of such month, 75 percent of the annual deductible under such coverage. (3) Special rule for married individuals In the case of individuals who are married to each other, if either spouse has family cov- erage— (A) both spouses shall be treated as having only such family coverage (and if such spouses each have family coverage under dif- ferent plans, as having the family coverage with the lowest annual deductible), and (B) the limitation under paragraph (1) (after the application of subparagraph (A) of this paragraph) shall be divided equally be- tween them unless they agree on a different division. (4) Deduction not to exceed compensation (A) Employees The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (I) of subsection (c)(1)(A)(iii) shall not exceed such individ- ual’s wages, salaries, tips, and other em- ployee compensation which are attributable to such individual’s employment by the em- ployer referred to in such subclause. (B) Self-employed individuals The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (II) of subsection (c)(1)(A)(iii) shall not exceed such individ- ual’s earned income (as defined in section 401(c)(1)) derived by the taxpayer from the trade or business with respect to which the high deductible health plan is established. (C) Community property laws not to apply The limitations under this paragraph shall be determined without regard to community property laws. (5) Coordination with exclusion for employer contributions No deduction shall be allowed under this sec- tion for any amount paid for any taxable year to an Archer MSA of an individual if— (A) any amount is contributed to any Ar- cher MSA of such individual for such year which is excludable from gross income under section 106(b), or (B) if such individual’s spouse is covered under the high deductible health plan cov- ering such individual, any amount is con- tributed for such year to any Archer MSA of such spouse which is so excludable. (6) Denial of deduction to dependents No deduction shall be allowed under this sec- tion to any individual with respect to whom a deduction under section 151 is allowable to an- other taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins. (7) Medicare eligible individuals The limitation under this subsection for any month with respect to an individual shall be Page 959 TITLE 26—INTERNAL REVENUE CODE § 220 zero for the first month such individual is en- titled to benefits under title XVIII of the So- cial Security Act and for each month there- after. (c) Definitions For purposes of this section— (1) Eligible individual (A) In general The term ‘‘eligible individual’’ means, with respect to any month, any individual if— (i) such individual is covered under a high deductible health plan as of the 1st day of such month, (ii) such individual is not, while covered under a high deductible health plan, cov- ered under any health plan— (I) which is not a high deductible health plan, and (II) which provides coverage for any benefit which is covered under the high deductible health plan, and (iii)(I) the high deductible health plan covering such individual is established and maintained by the employer of such indi- vidual or of the spouse of such individual and such employer is a small employer, or (II) such individual is an employee (with- in the meaning of section 401(c)(1)) or the spouse of such an employee and the high deductible health plan covering such indi- vidual is not established or maintained by any employer of such individual or spouse. (B) Certain coverage disregarded Subparagraph (A)(ii) shall be applied with- out regard to— (i) coverage for any benefit provided by permitted insurance, and (ii) coverage (whether through insurance or otherwise) for accidents, disability, den- tal care, vision care, or long-term care. (C) Continued eligibility of employee and spouse establishing Archer MSAs If, while an employer is a small em- ployer— (i) any amount is contributed to an Ar- cher MSA of an individual who is an em- ployee of such employer or the spouse of such an employee, and (ii) such amount is excludable from gross income under section 106(b) or allowable as a deduction under this section, such individual shall not cease to meet the requirement of subparagraph (A)(iii)(I) by reason of such employer ceasing to be a small employer so long as such employee continues to be an employee of such em- ployer. (D) Limitations on eligibility For limitations on number of taxpayers who are eligible to have Archer MSAs, see subsection (i). (2) High deductible health plan (A) In general The term ‘‘high deductible health plan’’ means a health plan— (i) in the case of self-only coverage, which has an annual deductible which is not less than $1,500 and not more than $2,250, (ii) in the case of family coverage, which has an annual deductible which is not less than $3,000 and not more than $4,500, and (iii) the annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed— (I) $3,000 for self-only coverage, and (II) $5,500 for family coverage. (B) Special rules (i) Exclusion of certain plans Such term does not include a health plan if substantially all of its coverage is cov- erage described in paragraph (1)(B). (ii) Safe harbor for absence of preventive care deductible A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care if the absence of a deductible for such care is required by State law. (3) Permitted insurance The term ‘‘permitted insurance’’ means— (A) insurance if substantially all of the coverage provided under such insurance re- lates to— (i) liabilities incurred under workers’ compensation laws, (ii) tort liabilities, (iii) liabilities relating to ownership or use of property, or (iv) such other similar liabilities as the Secretary may specify by regulations, (B) insurance for a specified disease or ill- ness, and (C) insurance paying a fixed amount per day (or other period) of hospitalization. (4) Small employer (A) In general The term ‘‘small employer’’ means, with respect to any calendar year, any employer if such employer employed an average of 50 or fewer employees on business days during either of the 2 preceding calendar years. For purposes of the preceding sentence, a pre- ceding calendar year may be taken into ac- count only if the employer was in existence throughout such year. (B) Employers not in existence in preceding year In the case of an employer which was not in existence throughout the 1st preceding calendar year, the determination under sub- paragraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on busi- ness days in the current calendar year. (C) Certain growing employers retain treat- ment as small employer The term ‘‘small employer’’ includes, with respect to any calendar year, any employer if— (i) such employer met the requirement of subparagraph (A) (determined without re- Page 960 TITLE 26—INTERNAL REVENUE CODE § 220 gard to subparagraph (B)) for any pre- ceding calendar year after 1996, (ii) any amount was contributed to the Archer MSA of any employee of such em- ployer with respect to coverage of such employee under a high deductible health plan of such employer during such pre- ceding calendar year and such amount was excludable from gross income under sec- tion 106(b) or allowable as a deduction under this section, and (iii) such employer employed an average of 200 or fewer employees on business days during each preceding calendar year after 1996. (D) Special rules (i) Controlled groups For purposes of this paragraph, all per- sons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer. (ii) Predecessors Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer. (5) Family coverage The term ‘‘family coverage’’ means any cov- erage other than self-only coverage. (d) Archer MSA For purposes of this section— (1) Archer MSA The term ‘‘Archer MSA’’ means a trust cre- ated or organized in the United States as a medical savings account exclusively for the purpose of paying the qualified medical ex- penses of the account holder, but only if the written governing instrument creating the trust meets the following requirements: (A) Except in the case of a rollover con- tribution described in subsection (f)(5), no contribution will be accepted— (i) unless it is in cash, or (ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds 75 percent of the highest annual limit deduct- ible permitted under subsection (c)(2)(A)(ii) for such calendar year. (B) The trustee is a bank (as defined in section 408(n)), an insurance company (as de- fined in section 816), or another person who demonstrates to the satisfaction of the Sec- retary that the manner in which such person will administer the trust will be consistent with the requirements of this section. (C) No part of the trust assets will be in- vested in life insurance contracts. (D) The assets of the trust will not be com- mingled with other property except in a common trust fund or common investment fund. (E) The interest of an individual in the balance in his account is nonforfeitable. (2) Qualified medical expenses (A) In general The term ‘‘qualified medical expenses’’ means, with respect to an account holder, amounts paid by such holder for medical care (as defined in section 213(d)) for such in- dividual, the spouse of such individual, and any dependent (as defined in section 152, de- termined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such in- dividual, but only to the extent such amounts are not compensated for by insur- ance or otherwise. For purposes of this sub- paragraph, amounts paid for menstrual care products (as defined in section 223(d)(2)(D)) shall be treated as paid for medical care. (B) Health insurance may not be purchased from account (i) In general Subparagraph (A) shall not apply to any payment for insurance. (ii) Exceptions Clause (i) shall not apply to any expense for coverage under— (I) a health plan during any period of continuation coverage required under any Federal law, (II) a qualified long-term care insur- ance contract (as defined in section 7702B(b)), or (III) a health plan during a period in which the individual is receiving unem- ployment compensation under any Fed- eral or State law. (C) Medical expenses of individuals who are not eligible individuals Subparagraph (A) shall apply to an amount paid by an account holder for med- ical care of an individual who is not de- scribed in clauses (i) and (ii) of subsection (c)(1)(A) for the month in which the expense for such care is incurred only if no amount is contributed (other than a rollover con- tribution) to any Archer MSA of such ac- count holder for the taxable year which in- cludes such month. This subparagraph shall not apply to any expense for coverage de- scribed in subclause (I) or (III) of subpara- graph (B)(ii). (3) Account holder The term ‘‘account holder’’ means the indi- vidual on whose behalf the Archer MSA was established. (4) Certain rules to apply Rules similar to the following rules shall apply for purposes of this section: (A) Section 219(d)(2) (relating to no deduc- tion for rollovers). (B) Section 219(f)(3) (relating to time when contributions deemed made). (C) Except as provided in section 106(b), section 219(f)(5) (relating to employer pay- ments). (D) Section 408(g) (relating to community property laws). (E) Section 408(h) (relating to custodial ac- counts). (e) Tax treatment of accounts (1) In general An Archer MSA is exempt from taxation under this subtitle unless such account has Page 961 TITLE 26—INTERNAL REVENUE CODE § 220 ceased to be an Archer MSA. Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (re- lating to imposition of tax on unrelated busi- ness income of charitable, etc. organizations). (2) Account terminations Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to Archer MSAs, and any amount treated as distributed under such rules shall be treated as not used to pay qualified medical expenses. (f) Tax treatment of distributions (1) Amounts used for qualified medical ex- penses Any amount paid or distributed out of an Archer MSA which is used exclusively to pay qualified medical expenses of any account holder shall not be includible in gross income. (2) Inclusion of amounts not used for qualified medical expenses Any amount paid or distributed out of an Archer MSA which is not used exclusively to pay the qualified medical expenses of the ac- count holder shall be included in the gross in- come of such holder. (3) Excess contributions returned before due date of return (A) In general If any excess contribution is contributed for a taxable year to any Archer MSA of an individual, paragraph (2) shall not apply to distributions from the Archer MSAs of such individual (to the extent such distributions do not exceed the aggregate excess contribu- tions to all such accounts of such individual for such year) if— (i) such distribution is received by the individual on or before the last day pre- scribed by law (including extensions of time) for filing such individual’s return for such taxable year, and (ii) such distribution is accompanied by the amount of net income attributable to such excess contribution. Any net income described in clause (ii) shall be included in the gross income of the indi- vidual for the taxable year in which it is re- ceived. (B) Excess contribution For purposes of subparagraph (A), the term ‘‘excess contribution’’ means any contribu- tion (other than a rollover contribution) which is neither excludable from gross in- come under section 106(b) nor deductible under this section. (4) Additional tax on distributions not used for qualified medical expenses (A) In general The tax imposed by this chapter on the ac- count holder for any taxable year in which there is a payment or distribution from an Archer MSA of such holder which is includ- ible in gross income under paragraph (2) shall be increased by 20 percent of the amount which is so includible. (B) Exception for disability or death Subparagraph (A) shall not apply if the payment or distribution is made after the account holder becomes disabled within the meaning of section 72(m)(7) or dies. (C) Exception for distributions after medi- care eligibility Subparagraph (A) shall not apply to any payment or distribution after the date on which the account holder attains the age specified in section 1811 of the Social Secu- rity Act. (5) Rollover contribution An amount is described in this paragraph as a rollover contribution if it meets the require- ments of subparagraphs (A) and (B). (A) In general Paragraph (2) shall not apply to any amount paid or distributed from an Archer MSA to the account holder to the extent the amount received is paid into an Archer MSA or a health savings account (as defined in section 223(d)) for the benefit of such holder not later than the 60th day after the day on which the holder receives the payment or distribution. (B) Limitation This paragraph shall not apply to any amount described in subparagraph (A) re- ceived by an individual from an Archer MSA if, at any time during the 1-year period end- ing on the day of such receipt, such indi- vidual received any other amount described in subparagraph (A) from an Archer MSA which was not includible in the individual’s gross income because of the application of this paragraph. (6) Coordination with medical expense deduc- tion For purposes of determining the amount of the deduction under section 213, any payment or distribution out of an Archer MSA for qualified medical expenses shall not be treated as an expense paid for medical care. (7) Transfer of account incident to divorce The transfer of an individual’s interest in an Archer MSA to an individual’s spouse or former spouse under a divorce or separation instrument described in clause (i) of section 121(d)(3)(C) shall not be considered a taxable transfer made by such individual notwith- standing any other provision of this subtitle, and such interest shall, after such transfer, be treated as an Archer MSA with respect to which such spouse is the account holder. (8) Treatment after death of account holder (A) Treatment if designated beneficiary is spouse If the account holder’s surviving spouse acquires such holder’s interest in an Archer MSA by reason of being the designated bene- ficiary of such account at the death of the account holder, such Archer MSA shall be treated as if the spouse were the account holder. (B) Other cases (i) In general If, by reason of the death of the account holder, any person acquires the account Page 962 TITLE 26—INTERNAL REVENUE CODE § 220 holder’s interest in an Archer MSA in a case to which subparagraph (A) does not apply— (I) such account shall cease to be an Archer MSA as of the date of death, and (II) an amount equal to the fair market value of the assets in such account on such date shall be includible if such per- son is not the estate of such holder, in such person’s gross income for the tax- able year which includes such date, or if such person is the estate of such holder, in such holder’s gross income for the last taxable year of such holder. (ii) Special rules (I) Reduction of inclusion for pre-death expenses The amount includible in gross income under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified medical expenses which were incurred by the decedent be- fore the date of the decedent’s death and paid by such person within 1 year after such date. (II) Deduction for estate taxes An appropriate deduction shall be al- lowed under section 691(c) to any person (other than the decedent or the dece- dent’s spouse) with respect to amounts included in gross income under clause (i) by such person. (g) Cost-of-living adjustment In the case of any taxable year beginning in a calendar year after 1998, each dollar amount in subsection (c)(2) shall be increased by an amount equal to— (1) such dollar amount, multiplied by (2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins by sub- stituting ‘‘calendar year 1997’’ for ‘‘calendar year 2016’’ in subparagraph (A)(ii) thereof. If any increase under the preceding sentence is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50. (h) Reports The Secretary may require the trustee of an Archer MSA to make such reports regarding such account to the Secretary and to the ac- count holder with respect to contributions, dis- tributions, and such other matters as the Sec- retary determines appropriate. The reports re- quired by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary. (i) Limitation on number of taxpayers having Ar- cher MSAs (1) In general Except as provided in paragraph (5), no indi- vidual shall be treated as an eligible indi- vidual for any taxable year beginning after the cut-off year unless— (A) such individual was an active MSA participant for any taxable year ending on or before the close of the cut-off year, or (B) such individual first became an active MSA participant for a taxable year ending after the cut-off year by reason of coverage under a high deductible health plan of an MSA-participating employer. (2) Cut-off year For purposes of paragraph (1), the term ‘‘cut- off year’’ means the earlier of— (A) calendar year 2007, or (B) the first calendar year before 2007 for which the Secretary determines under sub- section (j) that the numerical limitation for such year has been exceeded. (3) Active MSA participant For purposes of this subsection— (A) In general The term ‘‘active MSA participant’’ means, with respect to any taxable year, any individual who is the account holder of any Archer MSA into which any contribution was made which was excludable from gross income under section 106(b), or allowable as a deduction under this section, for such tax- able year. (B) Special rule for cut-off years before 2007 In the case of a cut-off year before 2007— (i) an individual shall not be treated as an eligible individual for any month of such year or an active MSA participant under paragraph (1)(A) unless such indi- vidual is, on or before the cut-off date, covered under a high deductible health plan, and (ii) an employer shall not be treated as an MSA-participating employer unless the employer, on or before the cut-off date, of- fered coverage under a high deductible health plan to any employee. (C) Cut-off date For purposes of subparagraph (B)— (i) In general Except as otherwise provided in this sub- paragraph, the cut-off date is October 1 of the cut-off year. (ii) Employees with enrollment periods after October 1 In the case of an individual described in subclause (I) of subsection (c)(1)(A)(iii), if the regularly scheduled enrollment period for health plans of the individual’s em- ployer occurs during the last 3 months of the cut-off year, the cut-off date is Decem- ber 31 of the cut-off year. (iii) Self-employed individuals In the case of an individual described in subclause (II) of subsection (c)(1)(A)(iii), the cut-off date is November 1 of the cut- off year. (iv) Special rules for 1997 If 1997 is a cut-off year by reason of sub- section (j)(1)(A)— (I) each of the cut-off dates under clauses (i) and (iii) shall be 1 month ear- lier than the date determined without regard to this clause, and Page 963 TITLE 26—INTERNAL REVENUE CODE § 220 (II) clause (ii) shall be applied by sub- stituting ‘‘4 months’’ for ‘‘3 months’’. (4) MSA-participating employer For purposes of this subsection, the term ‘‘MSA-participating employer’’ means any small employer if— (A) such employer made any contribution to the Archer MSA of any employee during the cut-off year or any preceding calendar year which was excludable from gross in- come under section 106(b), or (B) at least 20 percent of the employees of such employer who are eligible individuals for any month of the cut-off year by reason of coverage under a high deductible health plan of such employer each made a contribu- tion of at least $100 to their Archer MSAs for any taxable year ending with or within the cut-off year which was allowable as a deduc- tion under this section. (5) Additional eligibility after cut-off year If the Secretary determines under sub- section (j)(2)(A) that the numerical limit for the calendar year following a cut-off year de- scribed in paragraph (2)(B) has not been ex- ceeded— (A) this subsection shall not apply to any otherwise eligible individual who is covered under a high deductible health plan during the first 6 months of the second calendar year following the cut-off year (and such in- dividual shall be treated as an active MSA participant for purposes of this subsection if a contribution is made to any Archer MSA with respect to such coverage), and (B) any employer who offers coverage under a high deductible health plan to any employee during such 6-month period shall be treated as an MSA-participating em- ployer for purposes of this subsection if the requirements of paragraph (4) are met with respect to such coverage. For purposes of this paragraph, subsection (j)(2)(A) shall be applied for 1998 by sub- stituting ‘‘750,000’’ for ‘‘600,000’’. (j) Determination of whether numerical limits are exceeded (1) Determination of whether limit exceeded for 1997 The numerical limitation for 1997 is exceed- ed if, based on the reports required under para- graph (4), the number of Archer MSAs estab- lished as of— (A) April 30, 1997, exceeds 375,000, or (B) June 30, 1997, exceeds 525,000. (2) Determination of whether limit exceeded for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 (A) In general The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 is exceeded if the sum of— (i) the number of MSA returns filed on or before April 15 of such calendar year for taxable years ending with or within the preceding calendar year, plus (ii) the Secretary’s estimate (determined on the basis of the returns described in clause (i)) of the number of MSA returns for such taxable years which will be filed after such date, exceeds 750,000 (600,000 in the case of 1998). For purposes of the preceding sentence, the term ‘‘MSA return’’ means any return on which any exclusion is claimed under sec- tion 106(b) or any deduction is claimed under this section. (B) Alternative computation of limitation The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, or 2006 is also exceeded if the sum of— (i) 90 percent of the sum determined under subparagraph (A) for such calendar year, plus (ii) the product of 2.5 and the number of Archer MSAs established during the por- tion of such year preceding July 1 (based on the reports required under paragraph (4)) for taxable years beginning in such year, exceeds 750,000. (C) No limitation for 2000 or 2003 The numerical limitation shall not apply for 2000 or 2003. (3) Previously uninsured individuals not in- cluded in determination (A) In general The determination of whether any cal- endar year is a cut-off year shall be made by not counting the Archer MSA of any pre- viously uninsured individual. (B) Previously uninsured individual For purposes of this subsection, the term ‘‘previously uninsured individual’’ means, with respect to any Archer MSA, any indi- vidual who had no health plan coverage (other than coverage referred to in sub- section (c)(1)(B)) at any time during the 6- month period before the date such individ- ual’s coverage under the high deductible health plan commences. (4) Reporting by MSA trustees (A) In general Not later than August 1 of 1997, 1998, 1999, 2001, 2002, 2004, 2005, and 2006, each person who is the trustee of an Archer MSA estab- lished before July 1 of such calendar year shall make a report to the Secretary (in such form and manner as the Secretary shall specify) which specifies— (i) the number of Archer MSAs estab- lished before such July 1 (for taxable years beginning in such calendar year) of which such person is the trustee, (ii) the name and TIN of the account holder of each such account, and (iii) the number of such accounts which are accounts of previously uninsured indi- viduals. (B) Additional report for 1997 Not later than June 1, 1997, each person who is the trustee of an Archer MSA estab- lished before May 1, 1997, shall make an ad- Page 964 TITLE 26—INTERNAL REVENUE CODE § 220 ditional report described in subparagraph (A) but only with respect to accounts estab- lished before May 1, 1997. (C) Penalty for failure to file report The penalty provided in section 6693(a) shall apply to any report required by this paragraph, except that— (i) such section shall be applied by sub- stituting ‘‘$25’’ for ‘‘$50’’, and (ii) the maximum penalty imposed on any trustee shall not exceed $5,000. (D) Aggregation of accounts To the extent practicable, in determining the number of Archer MSAs on the basis of the reports under this paragraph, all Archer MSAs of an individual shall be treated as 1 account and all accounts of individuals who are married to each other shall be treated as 1 account. (5) Date of making determinations Any determination under this subsection that a calendar year is a cut-off year shall be made by the Secretary and shall be published not later than October 1 of such year. (Added Pub. L. 104–191, title III, § 301(a), Aug. 21, 1996, 110 Stat. 2037; amended Pub. L. 105–33, title IV, § 4006(b)(2), Aug. 5, 1997, 111 Stat. 333; Pub. L. 105–34, title XVI, § 1602(a)(2), (3), Aug. 5, 1997, 111 Stat. 1093, 1094; Pub. L. 106–554, § 1(a)(7) [title II, §§ 201(a), (b), 202(a)(4), (b)(2)(B), (3)–(8), (10), (11)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628, 2763A–629; Pub. L. 107–147, title VI, § 612(a), (b), Mar. 9, 2002, 116 Stat. 61; Pub. L. 108–173, title XII, § 1201(c), Dec. 8, 2003, 117 Stat. 2476; Pub. L. 108–311, title II, § 207(19), title III, § 322(a), (b), Oct. 4, 2004, 118 Stat. 1178, 1183; Pub. L. 109–432, div. A, title I, § 117(a), (b), Dec. 20, 2006, 120 Stat. 2941; Pub. L. 111–148, title IX, §§ 9003(b), 9004(b), Mar. 23, 2010, 124 Stat. 854; Pub. L. 115–97, title I, §§ 11002(d)(1)(T), 11051(b)(3)(D), Dec. 22, 2017, 131 Stat. 2060, 2090; Pub. L. 116–136, div. A, title III, § 3702(b), Mar. 27, 2020, 134 Stat. 416.) INFLATION ADJUSTED ITEMS FOR CERTAIN YEARS For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under section 1 of this title. Editorial Notes REFERENCES IN TEXT The Social Security Act, referred to in subsecs. (b)(7) and (f)(4)(C), is act Aug. 14, 1935, ch. 531, 49 Stat. 620. Title XVIII of the Act is classified generally to sub- chapter XVIII (§ 1395 et seq.) of chapter 7 of Title 42, The Public Health and Welfare. Section 1811 of the Act is classified to section 1395c 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 220 was renumbered 224 of this title. Another prior section 220, added Pub. L. 100–647, title VI, § 6007(a), Nov. 10, 1988, 102 Stat. 3687, related to jury duty pay remitted to employer, prior to repeal by Pub. L. 101–508, title XI, § 11802(e)(2), Nov. 5, 1990, 104 Stat. 1388–530. Another prior section 220, added Pub. L. 94–455, title XV, § 1501(a), Oct. 4, 1976, 90 Stat. 1734; amended Pub. L. 95–600, title I, §§ 156(c)(3), 157(a)(2), (b)(2), title VII, § 703(c)(2), (3), Nov. 6, 1978, 92 Stat. 2803, 2804, 2939; Pub. L. 96–222, title I, § 101(a)(14)(B), Apr. 1, 1980, 94 Stat. 204, related to retirement savings for certain married indi- viduals, prior to repeal by Pub. L. 97–34, title III, § 311(e), Aug. 13, 1981, 95 Stat. 280, applicable to taxable years beginning after Dec. 31, 1981, and deductions al- lowed under section 220 of this title, as in effect prior to its repeal, treated as deductions under section 219 of this title. AMENDMENTS 2020—Subsec. (d)(2)(A). Pub. L. 116–136 substituted ‘‘For purposes of this subparagraph, amounts paid for menstrual care products (as defined in section 223(d)(2)(D)) shall be treated as paid for medical care.’’ for ‘‘Such term shall include an amount paid for medi- cine or a drug only if such medicine or drug is a pre- scribed drug (determined without regard to whether such drug is available without a prescription) or is in- sulin.’’ 2017—Subsec. (f)(7). Pub. L. 115–97, § 11051(b)(3)(D), sub- stituted ‘‘clause (i) of section 121(d)(3)(C)’’ for ‘‘sub- paragraph (A) of section 71(b)(2)’’. Subsec. (g)(2). Pub. L. 115–97, § 11002(d)(1)(T), sub- stituted ‘‘for ‘calendar year 2016’ in subparagraph (A)(ii)’’ for ‘‘for ‘calendar year 1992’ in subparagraph (B)’’. 2010—Subsec. (d)(2)(A). Pub. L. 111–148, § 9003(b), in- serted at end ‘‘Such term shall include an amount paid for medicine or a drug only if such medicine or drug is a prescribed drug (determined without regard to wheth- er such drug is available without a prescription) or is insulin.’’ Subsec. (f)(4)(A). Pub. L. 111–148, § 9004(b), substituted ‘‘20 percent’’ for ‘‘15 percent’’. 2006—Subsec. (i)(2), (3)(B). Pub. L. 109–432, § 117(a), substituted ‘‘2007’’ for ‘‘2005’’ wherever appearing in headings and text. Subsec. (j)(2). Pub. L. 109–432, § 117(b)(1), substituted ‘‘2004, 2005, or 2006’’ for ‘‘or 2004’’ in heading and in in- troductory provisions of subpars. (A) and (B). Subsec. (j)(4)(A). Pub. L. 109–432, § 117(b)(2), sub- stituted ‘‘2004, 2005, and 2006’’ for ‘‘and 2004’’ in intro- ductory provisions. 2004—Subsec. (d)(2)(A). Pub. L. 108–311, § 207(19), in- serted ‘‘, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof’’ after ‘‘section 152’’. Subsec. (i)(2), (3)(B). Pub. L. 108–311, § 322(a), sub- stituted ‘‘2005’’ for ‘‘2003’’ wherever appearing in head- ings and text. Subsec. (j)(2). Pub. L. 108–311, § 322(b)(1)(B), sub- stituted ‘‘2002, or 2004’’ for ‘‘or 2002’’ in heading. Subsec. (j)(2)(A), (B). Pub. L. 108–311, § 322(b)(1)(A), substituted ‘‘2002, or 2004’’ for ‘‘or 2002’’ in introductory provisions. Subsec. (j)(2)(C). Pub. L. 108–311, § 322(b)(3), amended heading and text of subpar. (C) generally. Prior to amendment text read as follows: ‘‘The numerical limi- tation shall not apply for 2000.’’ Subsec. (j)(4)(A). Pub. L. 108–311, § 322(b)(2), sub- stituted ‘‘2002, and 2004’’ for ‘‘and 2002’’ in introductory provisions. 2003—Subsec. (f)(5)(A). Pub. L. 108–173 inserted ‘‘or a health savings account (as defined in section 223(d))’’ after ‘‘paid into an Archer MSA’’. 2002—Subsec. (i)(2). Pub. L. 107–147, § 612(a), sub- stituted ‘‘2003’’ for ‘‘2002’’ in subpars. (A) and (B). Subsec. (i)(3)(B). Pub. L. 107–147, § 612(a), substituted ‘‘2003’’ for ‘‘2002’’ in heading and introductory provi- sions. Subsec. (j)(2). Pub. L. 107–147, § 612(b)(1), substituted ‘‘1998, 1999, 2001, or 2002’’ for ‘‘1998, 1999, or 2001’’ wher- ever appearing in heading and text. Subsec. (j)(4)(A). Pub. L. 107–147, § 612(b)(2), sub- stituted ‘‘2001, and 2002’’ for ‘‘and 2001’’. 2000—Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(8)], sub- stituted ‘‘Archer MSAs’’ for ‘‘Medical savings ac- counts’’ in section catchline. Subsecs. (a), (b)(5). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted ‘‘an Archer MSA’’ for ‘‘a Ar- cher MSA’’. Page 965 TITLE 26—INTERNAL REVENUE CODE § 220 Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], sub- stituted ‘‘Archer MSA’’ for ‘‘medical savings account’’ wherever appearing. Subsec. (c)(1)(C). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(7)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’ in heading. Subsec. (c)(1)(C)(i). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted ‘‘an Archer MSA’’ for ‘‘a Ar- cher MSA’’. Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], sub- stituted ‘‘Archer MSA’’ for ‘‘medical savings account’’. Subsec. (c)(1)(D). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(B)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’. Subsec. (c)(4)(C)(ii). Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], substituted ‘‘Archer MSA’’ for ‘‘medical sav- ings account’’. Subsec. (d). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(4)], substituted ‘‘Archer MSA’’ for ‘‘Medical sav- ings account’’ in heading. Subsec. (d)(1). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(5)], substituted ‘‘Archer MSA’’ for ‘‘Medical sav- ings account’’ in heading. Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4), (b)(3)], in introductory provisions, substituted ‘‘Archer MSA’’ for ‘‘medical savings account’’ and inserted ‘‘as a medical savings account’’ after ‘‘United States’’. Subsec. (d)(2)(C), (3). Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], substituted ‘‘Archer MSA’’ for ‘‘medical sav- ings account’’. Subsec. (e)(1). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10), (11)], substituted ‘‘An Archer MSA is ex- empt’’ for ‘‘A Archer MSA is exempt’’ and ‘‘ceased to be an Archer MSA’’ for ‘‘ceased to be a Archer MSA’’. Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], sub- stituted ‘‘Archer MSA’’ for ‘‘medical savings account’’ in two places. Subsec. (e)(2). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(B)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’. Subsec. (f). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted ‘‘an Archer MSA’’ for ‘‘a Ar- cher MSA’’ wherever appearing. Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4), (b)(2)(B)], substituted ‘‘Archer MSA’’ for ‘‘medical savings ac- count’’ wherever appearing and ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’ in introductory provisions of par. (3)(A). Subsec. (h). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted ‘‘an Archer MSA’’ for ‘‘a Ar- cher MSA’’. Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], sub- stituted ‘‘Archer MSA’’ for ‘‘medical savings account’’. Subsec. (i). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(6)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’ in heading. Subsec. (i)(2)(A), (B). Pub. L. 106–554, § 1(a)(7) [title II, § 201(a)], substituted ‘‘2002’’ for ‘‘2000’’. Subsec. (i)(3)(A). Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], substituted ‘‘Archer MSA’’ for ‘‘medical sav- ings account’’. Subsec. (i)(3)(B). Pub. L. 106–554, § 1(a)(7) [title II, § 201(a)], substituted ‘‘2002’’ for ‘‘2000’’ in heading and introductory provisions. Subsec. (i)(4)(A). Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], substituted ‘‘Archer MSA’’ for ‘‘medical sav- ings account’’. Subsec. (i)(4)(B). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(B)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’. Subsec. (i)(5)(A). Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], substituted ‘‘Archer MSA’’ for ‘‘medical sav- ings account’’. Subsec. (j)(1). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(B)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’ in introductory provisions. Subsec. (j)(2). Pub. L. 106–554, § 1(a)(7) [title II, § 201(b)(1)(A)], substituted ‘‘1998, 1999, or 2001’’ for ‘‘1998 or 1999’’ in heading and in introductory provisions of subpars. (A) and (B). Subsec. (j)(2)(A). Pub. L. 106–554, § 1(a)(7) [title II, § 201(b)(1)(B)], substituted ‘‘750,000 (600,000 in the case of 1998)’’ for ‘‘600,000 (750,000 in the case of 1999)’’ in con- cluding provisions. Subsec. (j)(2)(B)(ii). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(B)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’. Subsec. (j)(2)(C). Pub. L. 106–554, § 1(a)(7) [title II, § 201(b)(1)(C)], added subpar. (C). Subsec. (j)(3)(A), (B). Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], substituted ‘‘Archer MSA’’ for ‘‘medical sav- ings account’’. Subsec. (j)(4)(A). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted ‘‘an Archer MSA’’ for ‘‘a Ar- cher MSA’’ in introductory provisions. Pub. L. 106–554, § 1(a)(7) [title II, §§ 201(b)(2), 202(a)(4)], in introductory provisions, substituted ‘‘1999, and 2001’’ for ‘‘and 1999’’ and ‘‘Archer MSA’’ for ‘‘medical savings account’’. Subsec. (j)(4)(A)(i). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(B)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’. Subsec. (j)(4)(B). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted ‘‘an Archer MSA’’ for ‘‘a Ar- cher MSA’’. Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(4)], sub- stituted ‘‘Archer MSA’’ for ‘‘medical savings account’’. Subsec. (j)(4)(D). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(2)(B)], substituted ‘‘Archer MSAs’’ for ‘‘medical savings accounts’’ in two places. 1997—Subsec. (b)(7). Pub. L. 105–33 added par. (7). Subsec. (c)(3). Pub. L. 105–34, § 1602(a)(2), redesignated subpars. (B) to (D) as (A) to (C), respectively, and struck out former subpar. (A) which read as follows: ‘‘Medicare supplemental insurance,’’. Subsec. (d)(2)(C). Pub. L. 105–34, § 1602(a)(3), sub- stituted ‘‘described in clauses (i) and (ii) of subsection (c)(1)(A)’’ for ‘‘an eligible individual’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2020 AMENDMENT Pub. L. 116–136, div. A, title III, § 3702(d)(1), Mar. 27, 2020, 134 Stat. 416, provided that: ‘‘The amendment made by subsections (a) and (b) [amending this section and section 223 of this title] shall apply to amounts paid after December 31, 2019.’’ EFFECTIVE DATE OF 2017 AMENDMENT Amendment by section 11002(d)(1)(T) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 11002(e) of Pub. L. 115–97, set out as a note under section 1 of this title. Amendment by section 11051(b)(3)(D) of Pub. L. 115–97 applicable to any divorce or separation instrument (as defined in former section 71(b)(2) of this title as in ef- fect before Dec. 22, 2017) executed after Dec. 31, 2018, and to such instruments executed on or before Dec. 31, 2018, and modified after Dec. 31, 2018, if the modifica- tion expressly provides that the amendment made by section 11051 of Pub. L. 115–97 applies to such modifica- tion, see section 11051(c) of Pub. L. 115–97, set out as a note under section 61 of this title. EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 111–148, title IX, § 9003(d)(1), Mar. 23, 2010, 124 Stat. 854, provided that: ‘‘The amendments made by subsections (a) and (b) [amending this section and sec- tion 223 of this title] shall apply to amounts paid with respect to taxable years beginning after December 31, 2010.’’ Pub. L. 111–148, title IX, § 9004(c), Mar. 23, 2010, 124 Stat. 854, provided that: ‘‘The amendments made by this section [amending this section and section 223 of this title] shall apply to distributions made after De- cember 31, 2010.’’ EFFECTIVE DATE OF 2004 AMENDMENT Amendment by section 207(19) of Pub. L. 108–311 appli- cable to taxable years beginning after Dec. 31, 2004, see Page 966 TITLE 26—INTERNAL REVENUE CODE § 221 1 So in original. Probably should be followed by a comma. section 208 of Pub. L. 108–311, set out as a note under section 2 of this title. Pub. L. 108–311, title III, § 322(c), Oct. 4, 2004, 118 Stat. 1183, provided that: ‘‘The amendments made by this section [amending this section] shall take effect on January 1, 2004.’’ EFFECTIVE DATE OF 2003 AMENDMENT Amendment by Pub. L. 108–173 applicable to taxable years beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108–173, set out as a note under section 62 of this title. EFFECTIVE DATE OF 2002 AMENDMENT Pub. L. 107–147, title VI, § 612(c), Mar. 9, 2002, 116 Stat. 61, provided that: ‘‘The amendments made by this sec- tion [amending this section] shall take effect on Janu- ary 1, 2002.’’ EFFECTIVE DATE OF 2000 AMENDMENT Pub. L. 106–554, § 1(a)(7) [title II, § 201(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628, provided that: ‘‘The amend- ments made by this section [amending this section] shall take effect on the date of the enactment of this Act [Dec. 21, 2000].’’ EFFECTIVE DATE OF 1997 AMENDMENTS Amendment by Pub. L. 105–34 effective as if included in the provisions of the Health Insurance Portability and Accountability Act of 1996, Pub. L. 104–191, to which such amendment relates, see section 1602(i) of Pub. L. 105–34, set out as a note under section 26 of this title. Amendment by Pub. L. 105–33 applicable to taxable years beginning after Dec. 31, 1998, see section 4006(c) of Pub. L. 105–33, set out as an Effective Date note under section 138 of this title. EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 1996, see section 301(j) of Pub. L. 104–191, set out as an Effective Date of 1996 Amendment note under sec- tion 62 of this title. TIME FOR FILING REPORTS, ETC. Pub. L. 109–432, div. A, title I, § 117(c), Dec. 20, 2006, 120 Stat. 2942, provided that: ‘‘(1) The report required by section 220(j)(4) of the In- ternal Revenue Code of 1986 to be made on August 1, 2005, or August 1, 2006, as the case may be, shall be treated as timely if made before the close of the 90-day period beginning on the date of the enactment of this Act [Dec. 20, 2006]. ‘‘(2) The determination and publication required by section 220(j)(5) of such Code with respect to calendar year 2005 or calendar year 2006, as the case may be, shall be treated as timely if made before the close of the 120-day period beginning on the date of the enact- ment of this Act. If the determination under the pre- ceding sentence is that 2005 or 2006 is a cut-off year under section 220(i) of such Code, the cut-off date under such section 220(i) shall be the last day of such 120-day period.’’ Pub. L. 108–311, title III, § 322(d), Oct. 4, 2004, 118 Stat. 1183, provided that: ‘‘(1) The report required by section 220(j)(4) of the In- ternal Revenue Code of 1986 to be made on August 1, 2004, shall be treated as timely if made before the close of the 90-day period beginning on the date of the enact- ment of this Act [Oct. 4, 2004]. ‘‘(2) The determination and publication required by section 220(j)(5) of such Code with respect to calendar year 2004 shall be treated as timely if made before the close of the 120-day period beginning on the date of the enactment of this Act. If the determination under the preceding sentence is that 2004 is a cut-off year under section 220(i) of such Code, the cut-off date under such section 220(i) shall be the last day of such 120-day pe- riod.’’ MONITORING OF PARTICIPATION IN MEDICAL SAVINGS ACCOUNTS Pub. L. 104–191, title III, § 301(k), Aug. 21, 1996, 110 Stat. 2052, provided that: ‘‘The Secretary of the Treas- ury or his delegate shall— ‘‘(1) during 1997, 1998, 1999, and 2000, regularly evalu- ate the number of individuals who are maintaining medical savings accounts and the reduction in reve- nues to the United States by reason of such accounts, and ‘‘(2) provide such reports of such evaluations to Congress as such Secretary determines appropriate.’’ STUDY OF EFFECTS OF MEDICAL SAVINGS ACCOUNTS ON SMALL GROUP MARKET Pub. L. 104–191, title III, § 301(l), Aug. 21, 1996, 110 Stat. 2052, mandated a comprehensive study regarding the ef- fects of medical savings accounts in the small group market on selection, health costs, preventive care, con- sumer choice, high deductible plans, and other relevant issues, and mandated a report to Congress on the re- sults of the study by Jan. 1, 1999. § 221. Interest on education loans (a) Allowance of deduction In the case of an individual, there shall be al- lowed as a deduction for the taxable year an amount equal to the interest paid by the tax- payer during the taxable year on any qualified education loan. (b) Maximum deduction (1) In general Except as provided in paragraph (2), the de- duction allowed by subsection (a) for the tax- able year shall not exceed $2,500. (2) Limitation based on modified adjusted gross income (A) In general The amount which would (but for this paragraph) be allowable as a deduction under this section shall be reduced (but not below zero) by the amount determined under subparagraph (B). (B) Amount of reduction The amount determined under this sub- paragraph is the amount which bears the same ratio to the amount which would be so taken into account as— (i) the excess of— (I) the taxpayer’s modified adjusted gross income for such taxable year, over (II) $50,000 ($100,000 in the case of a joint return), bears to (ii) $15,000 ($30,000 in the case of a joint return). (C) Modified adjusted gross income The term ‘‘modified adjusted gross in- come’’ means adjusted gross income deter- mined— (i) without regard to this section and sections 85(c) 1 911, 931, and 933, and (ii) after application of sections 86, 135, 137, 219, and 469. (c) Dependents not eligible for deduction No deduction shall be allowed by this section to an individual for the taxable year if a deduc-