Tax-exempt accounts for health care expenditures for an individual's parents

In determining Wisconsin taxable income each year, the bill authorizes a sponsor to deduct from his or her federal adjusted gross income an amount of up to $2,000 per beneficiary, and up to a total of $4,000 annually, for deposits to the account. All gains that accrue to such an account are also tax-exempt if the gains are redeposited into the account.

If a beneficiary incurs costs for health care expenses, the bill, or the receipt if the bill has been paid, may be submitted to the financial institution, and the financial institution must pay the bill or reimburse the payee if sufficient funds are in the account.

If any amount is withdrawn from the account by, or at the direction of, a sponsor or beneficiary and is used for any purpose other than the allowed purposes, the sponsor or beneficiary must pay a penalty equal to 10 percent of any accumulated interest, dividends, or other gain that has accrued to the account from the time that the account was opened. In addition, the sponsor or beneficiary must pay taxes on any interest, dividends, or other gain that accrues to the account in the year in which an improper withdrawal occurs. Upon the death of all beneficiaries, the account terminates and any amount left in the account becomes taxable and passes to the sponsor, if he or she is alive, or to the estate of the beneficiary if the sponsor is not alive.

The bill also requires that the Department of Health Services request and implement any waiver of federal Medicaid laws or state plan amendment necessary to exempt the account from liability as a third party for payments under the Medical Assistance program.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.