Montana State University Extension explains state tax savings for 2026 medical care savings accounts

BOZEMAN - Montana residents can reduce their 2026 state income taxes while preparing for current and future healthcare costs by taking advantage of a Montana medical care savings account.

Montanans can open a medical care savings account at a bank or credit union or make deposits into existing MSAs before Dec. 31 to reduce their state income taxes for 2026, according to Marsha Goetting, Montana State University Extension family economics specialist. The amount used to reduce state income tax for Montana residents is the total amount deposited in an MSA during the tax year, not the amount withdrawn for eligible medical care expenses between January and December of the tax year.

"There is still time to save and plan ahead to make a deposit by the end of the year," Goetting said.

In the 2026 calendar year, MSA account holders may deposit up to $4,800 to be used for eligible medical and long-term healthcare expenses. Even if medical expenses have already been paid this year, a person can open an MSA and then deposit and withdraw the amount they paid. Withdrawals for expenses during 2026 can be made until Jan. 15, 2027. A person can deposit up to $4,800 by Dec. 31, 2026, not use it, and still have state income tax savings. The amount rolls over to use for medical expenses in future years.

According to Goetting, a person with taxable income under $95,000 could save approximately $225, or $450 for a married couple, in 2026 state income taxes by contributing to an MSA. Those with incomes over $95,000 would save approximately $271, or $542 for a married couple. Interest earned on an MSA is not subject to Montana income tax.

MSA-eligible expenses include medical costs as defined by the Internal Revenue Service, including medical insurance premiums, long-term care insurance, prescription drugs, medical and dental services, nursing home care, eyeglasses, crutches and transportation for medical care. IRS Publication 502 provides a detailed list of eligible expenses and is available at irs.gov/publications/p502.

All resident taxpayers ages 18 and older are eligible to set up a Montana MSA, even if they have a similar plan, such as a Section 125 flexible spending account or a federal health savings account, provided by their employer. Unlike federal HSAs, a high-deductible health plan is not a prerequisite. Those on Medicare are eligible to have an MSA.

Goetting added that an MSA can be a legacy when an account owner dies. By placing a payable-on-death designation on an MSA account, individuals can leave those funds to Montana spouses, children or parents for medical expenses.

For more details about Montana MSAs, visit a local MSU Extension office or access the MontGuide factsheet "Montana Medical Care Savings Accounts (MSAs) for the 2026 Tax Year" online.