Pennsylvania Gov. Edward Rendell has signed a bill that will make employer and employee contributions to health savings accounts subject to the state income tax.[@@]

Originally, the authors of the bill had tried to exempt HSA contributions from the state income tax, but Rendell, a Democrat, threatened to veto the bill, and lawmakers ended up stripping HSA tax breaks from the bill, according to a statement issued by the Pennsylvania Chamber of Commerce, Harrisburg, Pa.

The bill that Rendell signed does allow Pennsylvania health insurers to sell high-deductible policies that are compatible with the federal HSA law.

But, because of the changes requested by Rendell, the new law based on the bill “provides virtually no tax incentive at the state level,” says Jim Welty, the Pennsylvania Chamber’s vice president of legislative and corporate affairs.