Title 26 — Internal Revenue CodeRelease 119-73
§138 Medicare Advantage Msa
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter B— Computation of Taxable Income › Part III— ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME › § 138
Summary
If you are on a Medicare Advantage MSA plan, the payments Medicare deposits into your medical savings account are not counted as taxable income. A Medicare Advantage MSA is a special Archer medical savings account that can only receive money from the Secretary of Health and Human Services under Medicare, or through transfers between your own MSA accounts. You can only use the account tax-free for your own medical expenses, not for anyone else's. If you take money out for anything other than your own qualified medical expenses, you owe an extra tax of 50 percent on the part of the withdrawal that drops the account below a cushion equal to 60 percent of your plan's deductible. That penalty does not apply if you have become disabled or after you die, and it does not apply to transfers between your own Medicare Advantage MSAs or to the return of mistaken contributions. The account trustee must report the account's year-end value to you by January 31 each year.
Full Legal Text
Title 26, §138
Internal Revenue Code — Source: USLM XML via OLRC
(a)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)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.
(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)(A)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.
(B)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)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)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)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)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)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)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
Notes & Related Subsidiaries
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.
Amendments
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), Aug. 5, 1997, 111 Stat. 334, provided that: “The
Amendments
made by this section [enacting this section, amending section 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 December 31, 1998.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 138
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73