Sec. 17. (a) An employee may, under this section, withdraw money from the employee’s medical care savings account for a purpose other than the purposes set forth in section 13 of this chapter.

     (b) Except as provided in sections 11(b) and 11.5 of this chapter, if an employee withdraws money from the employee’s medical care savings account on the last business day of the account administrator’s business year for a purpose not set forth in section 13 of this chapter:

(1) the money withdrawn is income to the individual that is subject to taxation under IC 6-3-2-18(e); but

(2) the withdrawal does not:

(A) subject the employee to a penalty; or

(B) make the interest earned on the account during the tax year taxable as income of the employee.

     (c) Except as provided in sections 11(b) and 11.5 of this chapter, if an employee withdraws money for a purpose not set forth in section 13 of this chapter at any time other than the last business day of the account administrator’s business year, all of the following apply:

(1) The amount of the withdrawal is income to the individual that is subject to taxation under IC 6-3-2-18(e).

(2) The administrator shall withhold and, on behalf of the employee, pay a penalty to the department of state revenue equal to ten percent (10%) of the amount of the withdrawal.

(3) All interest earned on the balance in the account during the tax year in which a withdrawal under this subsection is made is income to the individual that is subject to taxation under IC 6-3-2-18(f).

     (d) Money paid to the department of state revenue as a penalty under this section shall be deposited in the local public health fund established by IC 16-46-10-1.

As added by P.L.92-1995, SEC.2 and P.L.93-1995, SEC.2. Amended by P.L.122-2016, SEC.9; P.L.164-2023, SEC.3.