PA Senate Passes HSA State Tax Exemption

April 25, 2005 ( - The Pennsylvania Senate has passed legislation that would exempt health savings accounts (HSAs) from that state's personal income tax.

On April 20, the state Senate unanimously passed the    legislation . Under it, any HSA that complies with the federal tax code is also eligible to be exempt from the state tax.

Contributions, interest earned on the accounts, and withdrawals to pay for certain medical and dental expenses would be exempt from the state income tax. Also, on top of the costs of medical and dental diagnosis and treatment, the money could, under the legislation, be used tax-free to cover such things as costs of diagnostic devices, equipment, and supplies.

The tax provisions for HSA contributions, interest, and withdrawals would apply to tax years beginning after December 31, 2004. The bill would take effect 60 days after enactment.