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Form 1040 X

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Form 1040 X

Form 1040 x Index A Accrual period, Accrual period. Form 1040 x Acquisition premium, Acquisition premium. Form 1040 x Adjusted issue price, Adjusted issue price. Form 1040 x Assistance (see Tax help) B Backup withholding, Backup Withholding Bearer bonds and coupons, Bearer Bonds and Coupons Brokers (see Information for brokers and other middlemen) C Certificates of deposit, Certificates of Deposit Comments and suggestions, Comments and suggestions. Form 1040 x Contingent payment debt instruments, Contingent Payment Debt Instruments D Debt instrument, Debt instrument. Form 1040 x Debt instruments Long-term, Long-Term Debt Instruments Short-term, Short-Term Obligations Redeemed at Maturity Debt instruments and coupons purchased after 1984, Debt Instruments and Coupons Purchased After 1984 Debt instruments and coupons purchased after July 1, 1982, and before 1985, Debt Instruments and Coupons Purchased After July 1, 1982, and Before 1985 Debt instruments issued after 1954, corporate, Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 Debt instruments issued after 1984, Debt Instruments Issued After 1984 Debt instruments issued after July 1, 1982, Debt Instruments Issued After July 1, 1982, and Before 1985 Debt instruments issued after May 27, 1969, corporate, Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 Debt instruments not on the OID list, Debt Instruments Not on the OID List Debt Instruments on the OID list, Debt Instruments on the OID List Definitions, Definitions Accrual period, Accrual period. Form 1040 x Acquisition premium, Acquisition premium. Form 1040 x Adjusted issue price, Adjusted issue price. Form 1040 x Debt instrument, Debt instrument. Form 1040 x Issue price, Issue price. Form 1040 x Market discount, Market discount. Form 1040 x Original issue discount (OID), Original issue discount (OID). Form 1040 x Premium, Premium. Form 1040 x Qualified stated interest, Qualified stated interest. Form 1040 x Stated redemption price at maturity, Stated redemption price at maturity. Form 1040 x Yield to maturity, Yield to maturity (YTM). Form 1040 x E Electronic payee statements, Electronic payee statements. Form 1040 x F Form 1099-OID, Form 1099-OID. Form 1040 x Free tax services, Free help with your tax return. Form 1040 x H Help (see Tax help) I Inflation-indexed debt instruments, Inflation-Indexed Debt Instruments Information for brokers and other middlemen, Information for Brokers and Other Middlemen Information for owners of OID debt instruments, Information for Owners of OID Debt Instruments Issue price, Issue price. Form 1040 x Issuers of OID debt instruments, Instructions for, Instructions for issuers of OID debt instruments. Form 1040 x L Long-term debt instruments, Long-Term Debt Instruments M Market discount, Market discount. Form 1040 x O OID list, Debt Instruments on, Debt Instruments on the OID List OID on long-term debt instruments, figuring, Figuring OID on Long-Term Debt Instruments OID on stripped bonds and coupons, figuring, Figuring OID on Stripped Bonds and Coupons OID, figuring, Figuring OID. Form 1040 x Using section I, Using Section I. Form 1040 x Using the income tax regulations, Using the income tax regulations. Form 1040 x Original issue discount (OID), Original issue discount (OID). Form 1040 x Owners of OID debt instruments, information for, Information for Owners of OID Debt Instruments P Premium, Premium. Form 1040 x Publications (see Tax help) Q Qualified stated interest, Qualified stated interest. Form 1040 x R REMIC and CDO information reporting requirements, REMIC and CDO information reporting requirements. Form 1040 x S Section I, Section I. Form 1040 x Section II, Section II. Form 1040 x Section III, Section III. Form 1040 x Short-term obligations redeemed at maturity, Short-Term Obligations Redeemed at Maturity Stated redemption price at maturity, Stated redemption price at maturity. Form 1040 x Stripped bonds and coupons, figuring OID, Figuring OID on Stripped Bonds and Coupons Suggestions, Comments and, Comments and suggestions. Form 1040 x T Tax help, How To Get Tax Help Y Yield to maturity, Yield to maturity (YTM). Form 1040 x , Yield to maturity (YTM). Form 1040 x Prev  Up     Home   More Online Publications
 

The Form 1040 X

Form 1040 x Publication 969 - Main Content Table of Contents Health Savings Accounts (HSAs)Qualifying for an HSA Contributions to an HSA Distributions From an HSA Balance in an HSA Death of HSA Holder Filing Form 8889 Employer Participation Medical Savings Accounts (MSAs)Archer MSAs Contributions to an MSA Distributions From an MSA Balance in an Archer MSA Death of the Archer MSA Holder Filing Form 8853 Employer Participation Medicare Advantage MSAs Flexible Spending Arrangements (FSAs)Qualifying for an FSA Contributions to an FSA Distributions From an FSA Balance in an FSA Employer Participation Health Reimbursement Arrangements (HRAs)Qualifying for an HRA Contributions to an HRA Distributions From an HRA Balance in an HRA Employer Participation How To Get Tax HelpLow Income Taxpayer Clinics Health Savings Accounts (HSAs) A health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. Form 1040 x You must be an eligible individual to qualify for an HSA. Form 1040 x No permission or authorization from the IRS is necessary to establish an HSA. Form 1040 x You set up an HSA with a trustee. Form 1040 x A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. Form 1040 x The HSA can be established through a trustee that is different from your health plan provider. Form 1040 x Your employer may already have some information on HSA trustees in your area. Form 1040 x If you have an Archer MSA, you can generally roll it over into an HSA tax free. Form 1040 x See Rollovers, later. Form 1040 x What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. Form 1040 x You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. Form 1040 x Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. Form 1040 x The contributions remain in your account until you use them. Form 1040 x The interest or other earnings on the assets in the account are tax free. Form 1040 x Distributions may be tax free if you pay qualified medical expenses. Form 1040 x See Qualified medical expenses , later. Form 1040 x An HSA is “portable. Form 1040 x ” It stays with you if you change employers or leave the work force. Form 1040 x Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. Form 1040 x You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. Form 1040 x You have no other health coverage except what is permitted under Other health coverage , later. Form 1040 x You are not enrolled in Medicare. Form 1040 x You cannot be claimed as a dependent on someone else's 2013 tax return. Form 1040 x Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). Form 1040 x If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you. Form 1040 x If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. Form 1040 x This is true even if the other person does not actually claim your exemption. Form 1040 x Each spouse who is an eligible individual who wants an HSA must open a separate HSA. Form 1040 x You cannot have a joint HSA. Form 1040 x High deductible health plan (HDHP). Form 1040 x   An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Form 1040 x Out-of-pocket expenses include copayments and other amounts, but do not include premiums. Form 1040 x   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. Form 1040 x Preventive care includes, but is not limited to, the following. Form 1040 x Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. Form 1040 x Routine prenatal and well-child care. Form 1040 x Child and adult immunizations. Form 1040 x Tobacco cessation programs. Form 1040 x Obesity weight-loss programs. Form 1040 x Screening services. Form 1040 x This includes screening services for the following: Cancer. Form 1040 x Heart and vascular diseases. Form 1040 x Infectious diseases. Form 1040 x Mental health conditions. Form 1040 x Substance abuse. Form 1040 x Metabolic, nutritional, and endocrine conditions. Form 1040 x Musculoskeletal disorders. Form 1040 x Obstetric and gynecological conditions. Form 1040 x Pediatric conditions. Form 1040 x Vision and hearing disorders. Form 1040 x For more information on screening services, see Notice 2004-23, 2004-15 I. Form 1040 x R. Form 1040 x B. Form 1040 x 725 available at www. Form 1040 x irs. Form 1040 x gov/irb/2004-15_IRB/ar10. Form 1040 x html. Form 1040 x     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. Form 1040 x      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,250 $12,500 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Form 1040 x Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Form 1040 x    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. Form 1040 x      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,350 $12,700 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Form 1040 x Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Form 1040 x   Self-only HDHP coverage is an HDHP covering only an eligible individual. Form 1040 x Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual (whether or not that individual is an eligible individual). Form 1040 x Example. Form 1040 x An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. Form 1040 x This is family HDHP coverage. Form 1040 x Family plans that do not meet the high deductible rules. Form 1040 x   There are some family plans that have deductibles for both the family as a whole and for individual family members. Form 1040 x Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. Form 1040 x If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. Form 1040 x Example. Form 1040 x You have family health insurance coverage in 2013. Form 1040 x The annual deductible for the family plan is $3,500. Form 1040 x This plan also has an individual deductible of $1,500 for each family member. Form 1040 x The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($2,500) for family coverage. Form 1040 x Other health coverage. Form 1040 x   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Form 1040 x However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Form 1040 x    You can have additional insurance that provides benefits only for the following items. Form 1040 x Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. Form 1040 x A specific disease or illness. Form 1040 x A fixed amount per day (or other period) of hospitalization. Form 1040 x   You can also have coverage (whether provided through insurance or otherwise) for the following items. Form 1040 x Accidents. Form 1040 x Disability. Form 1040 x Dental care. Form 1040 x Vision care. Form 1040 x Long-term care. Form 1040 x    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. Form 1040 x For example, if your plan provides coverage substantially all of which is for a specific disease or illness, the plan is not an HDHP for purposes of establishing an HSA. Form 1040 x Prescription drug plans. Form 1040 x   You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan does not provide benefits until the minimum annual deductible of the HDHP has been met. Form 1040 x If you can receive benefits before that deductible is met, you are not an eligible individual. Form 1040 x Other employee health plans. Form 1040 x   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Form 1040 x Health FSAs and HRAs are discussed later. Form 1040 x   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. Form 1040 x Limited-purpose health FSA or HRA. Form 1040 x These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Form 1040 x Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. Form 1040 x Suspended HRA. Form 1040 x Before the beginning of an HRA coverage period, you can elect to suspend the HRA. Form 1040 x The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. Form 1040 x When the suspension period ends, you are no longer eligible to make contributions to an HSA. Form 1040 x Post-deductible health FSA or HRA. Form 1040 x These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. Form 1040 x The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met. Form 1040 x Retirement HRA. Form 1040 x This arrangement pays or reimburses only those medical expenses incurred after retirement. Form 1040 x After retirement you are no longer eligible to make contributions to an HSA. Form 1040 x Health FSA – grace period. Form 1040 x   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero. Form 1040 x See Flexible Spending Arrangements (FSAs) , later. Form 1040 x Contributions to an HSA Any eligible individual can contribute to an HSA. Form 1040 x For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. Form 1040 x For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. Form 1040 x Family members or any other person may also make contributions on behalf of an eligible individual. Form 1040 x Contributions to an HSA must be made in cash. Form 1040 x Contributions of stock or property are not allowed. Form 1040 x Limit on Contributions The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. Form 1040 x For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. Form 1040 x If you have family HDHP coverage, you can contribute up to $6,450. Form 1040 x For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. Form 1040 x If you have family HDHP coverage you can contribute up to $6,550. Form 1040 x If you were, or were considered (under the last-month rule, discussed later), an eligible individual for the entire year and did not change your type of coverage, you can contribute the full amount based on your type of coverage. Form 1040 x However, if you were not an eligible individual for the entire year or changed your coverage during the year, your contribution limit is the greater of: The limitation shown on the Line 3 Limitation Chart and Worksheetin the Instructions for Form 8889, Health Savings Accounts (HSAs), or The maximum annual HSA contribution based on your HDHP coverage (self-only or family) on the first day of the last month of your tax year. Form 1040 x If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2013 is $6,450 even if you changed coverage during the year. Form 1040 x Last-month rule. Form 1040 x   Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. Form 1040 x You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. Form 1040 x Testing period. Form 1040 x   If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. Form 1040 x For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. Form 1040 x For example, December 1, 2013, through December 31, 2014. Form 1040 x   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. Form 1040 x You include this amount in your income in the year in which you fail to be an eligible individual. Form 1040 x This amount is also subject to a 10% additional tax. Form 1040 x The income and additional tax are shown on Form 8889, Part III. Form 1040 x Example 1. Form 1040 x Chris, age 53, becomes an eligible individual on December 1, 2013. Form 1040 x He has family HDHP coverage on that date. Form 1040 x Under the last-month rule, he contributes $6,450 to his HSA. Form 1040 x Chris fails to be an eligible individual in June 2014. Form 1040 x Because Chris did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), he must include in his 2014 income the contributions made in 2013 that would not have been made except for the last-month rule. Form 1040 x Chris uses the worksheet in the Form 8889 instructions to determine this amount. Form 1040 x January -0- February -0- March -0- April -0- May -0- June -0- July -0- August -0- September -0- October -0- November -0- December $6,450. Form 1040 x 00 Total for all months $6,450. Form 1040 x 00 Limitation. Form 1040 x Divide the total by 12 $537. Form 1040 x 50 Chris would include $5,912. Form 1040 x 50 ($6,450. Form 1040 x 00 – $537. Form 1040 x 50) in his gross income on his 2014 tax return. Form 1040 x Also, a 10% additional tax applies to this amount. Form 1040 x Example 2. Form 1040 x Erika, age 39, has self-only HDHP coverage on January 1, 2013. Form 1040 x Erika changes to family HDHP coverage on November 1, 2013. Form 1040 x Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. Form 1040 x Erika fails to be an eligible individual in March 2014. Form 1040 x Because she did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), she must include in income the contribution made that would not have been made except for the last-month rule. Form 1040 x Erika uses the worksheet in the Form 8889 instructions to determine this amount. Form 1040 x January $3,250. Form 1040 x 00 February $3,250. Form 1040 x 00 March $3,250. Form 1040 x 00 April $3,250. Form 1040 x 00 May $3,250. Form 1040 x 00 June $3,250. Form 1040 x 00 July $3,250. Form 1040 x 00 August $3,250. Form 1040 x 00 September $3,250. Form 1040 x 00 October $3,250. Form 1040 x 00 November $6,450. Form 1040 x 00 December $6,450. Form 1040 x 00 Total for all months $45,400. Form 1040 x 00 Limitation. Form 1040 x Divide the total by 12 $3,783. Form 1040 x 34 Erika would include $2,666. Form 1040 x 67 ($6,450 – $3,783. Form 1040 x 34) in her gross income on her 2014 tax return. Form 1040 x Also, a 10% additional tax applies to this amount. Form 1040 x Additional contribution. Form 1040 x   If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. Form 1040 x For example, if you have self-only coverage, you can contribute up to $4,250 (the contribution limit for self-only coverage ($3,250) plus the additional contribution of $1,000). Form 1040 x However, see Enrolled in Medicare , later. Form 1040 x If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. Form 1040 x Reduction of contribution limit. Form 1040 x   You must reduce the amount that can be contributed (including any additional contribution) to your HSA by the amount of any contribution made to your Archer MSA (including employer contributions) for the year. Form 1040 x A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. Form 1040 x Rules for married people. Form 1040 x   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. Form 1040 x If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. Form 1040 x You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. Form 1040 x After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. Form 1040 x The rules for married people apply only if both spouses are eligible individuals. Form 1040 x If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. Form 1040 x If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. Form 1040 x Each spouse must make the additional contribution to his or her own HSA. Form 1040 x Example. Form 1040 x For 2013, Mr. Form 1040 x Auburn and his wife are both eligible individuals. Form 1040 x They each have family coverage under separate HDHPs. Form 1040 x Mr. Form 1040 x Auburn is 58 years old and Mrs. Form 1040 x Auburn is 53. Form 1040 x Mr. Form 1040 x and Mrs. Form 1040 x Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. Form 1040 x If they split it equally, Mr. Form 1040 x Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. Form 1040 x Auburn can contribute $3,225 to an HSA. Form 1040 x Employer contributions. Form 1040 x   You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. Form 1040 x This includes amounts contributed to your account by your employer through a cafeteria plan. Form 1040 x Enrolled in Medicare. Form 1040 x   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. Form 1040 x Example. Form 1040 x You turned age 65 in July 2013 and enrolled in Medicare. Form 1040 x You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Form 1040 x Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). Form 1040 x Qualified HSA funding distribution. Form 1040 x   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. Form 1040 x This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. Form 1040 x For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. Form 1040 x   The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. Form 1040 x The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. Form 1040 x The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. Form 1040 x The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. Form 1040 x   You can make only one qualified HSA funding distribution during your lifetime. Form 1040 x However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. Form 1040 x The total qualified HSA funding distribution cannot be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled. Form 1040 x Example. Form 1040 x In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. Form 1040 x You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). Form 1040 x Funding distribution – testing period. Form 1040 x   You must remain an eligible individual during the testing period. Form 1040 x For a qualified HSA funding distribution, the testing period begins with the month in which the qualified HSA funding distribution is contributed and ends on the last day of the 12th month following that month. Form 1040 x For example, if a qualified HSA funding distribution is contributed to your HSA on August 10, 2013, your testing period begins in August 2013, and ends on August 31, 2014. Form 1040 x   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the qualified HSA funding distribution. Form 1040 x You include this amount in income in the year in which you fail to be an eligible individual. Form 1040 x This amount is also subject to a 10% additional tax. Form 1040 x The income and the additional tax are shown on Form 8889, Part III. Form 1040 x   Each qualified HSA funding distribution allowed has its own testing period. Form 1040 x For example, you are an eligible individual, age 45, with self-only HDHP coverage. Form 1040 x On June 18, 2013, you make a qualified HSA funding distribution of $3,250. Form 1040 x On July 27, 2013, you enroll in family HDHP coverage and on August 17, 2013, you make a qualified HSA funding distribution of $3,200. Form 1040 x Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. Form 1040 x Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. Form 1040 x   The testing period rule that applies under the last-month rule (discussed earlier) does not apply to amounts contributed to an HSA through a qualified HSA funding distribution. Form 1040 x If you remain an eligible individual during the entire funding distribution testing period, then no amount of that distribution is included in income and will not be subject to the additional tax for failing to meet the last-month rule testing period. Form 1040 x Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. Form 1040 x Archer MSAs and other HSAs. Form 1040 x   You can roll over amounts from Archer MSAs and other HSAs into an HSA. Form 1040 x You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Form 1040 x Rollover contributions do not need to be in cash. Form 1040 x Rollovers are not subject to the annual contribution limits. Form 1040 x   You must roll over the amount within 60 days after the date of receipt. Form 1040 x You can make only one rollover contribution to an HSA during a 1-year period. Form 1040 x Note. Form 1040 x If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer is not considered a rollover. Form 1040 x There is no limit on the number of these transfers. Form 1040 x Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. Form 1040 x When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. Form 1040 x If you fail to be an eligible individual during 2013, you can still make contributions, up until April 15, 2014, for the months you were an eligible individual. Form 1040 x Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. Form 1040 x Your employer must notify you and the trustee of your HSA that the contribution is for 2013. Form 1040 x The contribution will be reported on your 2014 Form W-2. Form 1040 x Reporting Contributions on Your Return Contributions made by your employer are not included in your income. Form 1040 x Contributions to an employee's account by an employer using the amount of an employee's salary reduction through a cafeteria plan are treated as employer contributions. Form 1040 x Generally, you can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income. Form 1040 x Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Form 1040 x The contributions are treated as a distribution of money and are not included in the partner's gross income. Form 1040 x Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner's gross income. Form 1040 x In both situations, the partner can deduct the contribution made to the partner's HSA. Form 1040 x Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. Form 1040 x The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Form 1040 x Form 8889. Form 1040 x   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. Form 1040 x You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. Form 1040 x Contributions made by your employer and qualified HSA funding distributions are also shown on the form. Form 1040 x   You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. Form 1040 x Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Form 1040 x Follow the instructions for Form 8889. Form 1040 x Report your HSA deduction on Form 1040 or Form 1040NR. Form 1040 x Excess contributions. Form 1040 x   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Form 1040 x Excess contributions are not deductible. Form 1040 x Excess contributions made by your employer are included in your gross income. Form 1040 x If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. Form 1040 x   Generally, you must pay a 6% excise tax on excess contributions. Form 1040 x See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Form 1040 x The excise tax applies to each tax year the excess contribution remains in the account. Form 1040 x   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. Form 1040 x You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. Form 1040 x You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. Form 1040 x If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income is not an excess contribution. Form 1040 x If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. Form 1040 x Deducting an excess contribution in a later year. Form 1040 x   You may be able to deduct excess contributions for previous years that are still in your HSA. Form 1040 x The excess contribution you can deduct for the current year is the lesser of the following two amounts. Form 1040 x Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. Form 1040 x The total excess contributions in your HSA at the beginning of the year. Form 1040 x   Amounts contributed for the year include contributions by you, your employer, and any other person. Form 1040 x They also include any qualified HSA funding distribution made to your HSA. Form 1040 x Any excess contribution remaining at the end of a tax year is subject to the excise tax. Form 1040 x See Form 5329. Form 1040 x Distributions From an HSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. Form 1040 x When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA. Form 1040 x You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. Form 1040 x If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Form 1040 x You do not have to make distributions from your HSA each year. Form 1040 x If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Form 1040 x Generally, a distribution is money you get from your health savings account. Form 1040 x Your total distributions include amounts paid with a debit card that restricts payments to health care and amounts withdrawn from the HSA by other individuals that you have designated. Form 1040 x The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Form 1040 x Qualified medical expenses. Form 1040 x   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Form 1040 x These are explained in Publication 502, Medical and Dental Expenses. Form 1040 x   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. Form 1040 x A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. Form 1040 x   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. Form 1040 x State law determines when an HSA is established. Form 1040 x An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established. Form 1040 x   If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses. Form 1040 x   Qualified medical expenses are those incurred by the following persons. Form 1040 x You and your spouse. Form 1040 x All dependents you claim on your tax return. Form 1040 x Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Form 1040 x    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. Form 1040 x You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA. Form 1040 x Insurance premiums. Form 1040 x   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. Form 1040 x Health care continuation coverage (such as coverage under COBRA). Form 1040 x Health care coverage while receiving unemployment compensation under federal or state law. Form 1040 x Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Form 1040 x   The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. Form 1040 x See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). Form 1040 x   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. Form 1040 x For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses. Form 1040 x Health coverage tax credit. Form 1040 x   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. Form 1040 x See Publication 502 for more information on this credit. Form 1040 x Deemed distributions from HSAs. Form 1040 x   The following situations result in deemed taxable distributions from your HSA. Form 1040 x You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. Form 1040 x Your account ceases to be an HSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8889. Form 1040 x You used any portion of any of your HSAs as security for a loan at any time in 2013. Form 1040 x You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Form 1040 x   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the HSA, Lending of money between you and the HSA, Furnishing goods, services, or facilities between you and the HSA, and Transfer to or use by you, or for your benefit, of any assets of the HSA. Form 1040 x   Any deemed distribution will not be treated as used to pay qualified medical expenses. Form 1040 x These distributions are included in your income and are subject to the additional 20% tax, discussed later. Form 1040 x Recordkeeping. Form 1040 x You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. Form 1040 x Do not send these records with your tax return. Form 1040 x Keep them with your tax records. Form 1040 x Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). Form 1040 x If you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8889. Form 1040 x However, the distribution of an excess contribution taken out after the due date, including extensions, of your return is subject to tax even if used for qualified medical expenses. Form 1040 x Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Form 1040 x If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. Form 1040 x Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. Form 1040 x You may have to pay an additional 20% tax on your taxable distribution. Form 1040 x HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. Form 1040 x Additional tax. Form 1040 x   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Form 1040 x Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. Form 1040 x Exceptions. Form 1040 x   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Form 1040 x Balance in an HSA An HSA is generally exempt from tax. Form 1040 x You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Form 1040 x Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Form 1040 x Earnings on amounts in an HSA are not included in your income while held in the HSA. Form 1040 x Death of HSA Holder You should choose a beneficiary when you set up your HSA. Form 1040 x What happens to that HSA when you die depends on whom you designate as the beneficiary. Form 1040 x Spouse is the designated beneficiary. Form 1040 x   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. Form 1040 x Spouse is not the designated beneficiary. Form 1040 x   If your spouse is not the designated beneficiary of your HSA: The account stops being an HSA, and The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. Form 1040 x If your estate is the beneficiary, the value is included on your final income tax return. Form 1040 x The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. Form 1040 x Filing Form 8889 You must file Form 8889 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your HSA during the year. Form 1040 x You must file the form even if only your employer or your spouse's employer made contributions to the HSA. Form 1040 x If, during the tax year, you are the beneficiary of two or more HSAs or you are a beneficiary of an HSA and you have your own HSA, you must complete a separate Form 8889 for each HSA. Form 1040 x Enter “statement” at the top of each Form 8889 and complete the form as instructed. Form 1040 x Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. Form 1040 x Attach the statements to your tax return after the controlling Form 8889. Form 1040 x Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. Form 1040 x Unlike the previous discussions, “you” refers to the employer and not to the employee. Form 1040 x Health plan. Form 1040 x   If you want your employees to be able to have an HSA, they must have an HDHP. Form 1040 x You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Form 1040 x Contributions. Form 1040 x   You can make contributions to your employees' HSAs. Form 1040 x You deduct the contributions on your business income tax return for the year in which you make the contributions. Form 1040 x If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. Form 1040 x   For more information on employer contributions, see Notice 2008-59, 2008-29 I. Form 1040 x R. Form 1040 x B. Form 1040 x 123, questions 23 through 27, available at www. Form 1040 x irs. Form 1040 x gov/irb/2008-29_IRB/ar11. Form 1040 x html. Form 1040 x Comparable contributions. Form 1040 x   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. Form 1040 x Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. Form 1040 x The comparability rules do not apply to contributions made through a cafeteria plan. Form 1040 x Comparable participating employees. Form 1040 x   Comparable participating employees: Are covered by your HDHP and are eligible to establish an HSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (part-time, full-time, or former employees). Form 1040 x   To meet the comparability requirements for eligible employees who have not established an HSA by December 31 or have not notified you that they have an HSA, you must meet a notice requirement and a contribution requirement. Form 1040 x   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. Form 1040 x The notice must state that each eligible employee who, by the last day of February, establishes an HSA and notifies you that they have established an HSA will receive a comparable contribution to the HSA for the prior year. Form 1040 x For a sample of the notice, see Regulation 54. Form 1040 x 4980G-4 A-14(c). Form 1040 x You will meet the contribution requirement for these employees if by April 15, 2014, you contribute comparable amounts plus reasonable interest to the employee's HSA for the prior year. Form 1040 x Note. Form 1040 x For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. Form 1040 x Excise tax. Form 1040 x   If you made contributions to your employees' HSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. Form 1040 x Employment taxes. Form 1040 x   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. Form 1040 x You must report the contributions in box 12 of the Form W-2 you file for each employee. Form 1040 x This includes the amounts the employee elected to contribute through a cafeteria plan. Form 1040 x Enter code “W” in box 12. Form 1040 x Medical Savings Accounts (MSAs) Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder's spouse, or the account holder's dependent(s). Form 1040 x After December 31, 2007, you cannot be treated as an eligible individual for Archer MSA purposes unless: You were an active participant for any tax year ending before January 1, 2008, or You became an active participant for a tax year ending after December 31, 2007, by reason of coverage under a high deductible health plan (HDHP) of an Archer MSA participating employer. Form 1040 x A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare. Form 1040 x Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. Form 1040 x S. Form 1040 x financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. Form 1040 x What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. Form 1040 x You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. Form 1040 x The interest or other earnings on the assets in your Archer MSA are tax free. Form 1040 x Distributions may be tax free if you pay qualified medical expenses. Form 1040 x See Qualified medical expenses , later. Form 1040 x The contributions remain in your Archer MSA from year to year until you use them. Form 1040 x An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. Form 1040 x Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. Form 1040 x An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). Form 1040 x A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. Form 1040 x You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. Form 1040 x You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. Form 1040 x If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. Form 1040 x This is true even if the other person does not actually claim your exemption. Form 1040 x Small employer. Form 1040 x   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. Form 1040 x The definition of small employer is modified for new employers and growing employers. Form 1040 x Growing employer. Form 1040 x   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. Form 1040 x The employer will continue to meet the requirement for small employers if he or she: Had 50 or fewer employees when the Archer MSAs began, Made a contribution that was excludable or deductible as an Archer MSA for the last year he or she had 50 or fewer employees, and Had an average of 200 or fewer employees each year after 1996. Form 1040 x Changing employers. Form 1040 x   If you change employers, your Archer MSA moves with you. Form 1040 x However, you may not make additional contributions unless you are otherwise eligible. Form 1040 x High deductible health plan (HDHP). Form 1040 x   To be eligible for an Archer MSA, you must be covered under an HDHP. Form 1040 x An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the annual out-of-pocket medical expenses that you must pay for covered expenses. Form 1040 x Limits. Form 1040 x   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. Form 1040 x   Self-only coverage Family coverage Minimum annual deductible $2,150 $4,300 Maximum annual deductible $3,200 $6,450 Maximum annual out-of-pocket expenses $4,300 $7,850 Family plans that do not meet the high deductible rules. Form 1040 x   There are some family plans that have deductibles for both the family as a whole and for individual family members. Form 1040 x Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. Form 1040 x If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. Form 1040 x Example. Form 1040 x You have family health insurance coverage in 2013. Form 1040 x The annual deductible for the family plan is $5,500. Form 1040 x This plan also has an individual deductible of $2,000 for each family member. Form 1040 x The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($4,300) for family coverage. Form 1040 x Other health coverage. Form 1040 x   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Form 1040 x However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Form 1040 x However, you can have additional insurance that provides benefits only for the following items. Form 1040 x Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. Form 1040 x A specific disease or illness. Form 1040 x A fixed amount per day (or other period) of hospitalization. Form 1040 x You can also have coverage (whether provided through insurance or otherwise) for the following items. Form 1040 x Accidents. Form 1040 x Disability. Form 1040 x Dental care. Form 1040 x Vision care. Form 1040 x Long-term care. Form 1040 x Contributions to an MSA Contributions to an Archer MSA must be made in cash. Form 1040 x You cannot contribute stock or other property to an Archer MSA. Form 1040 x Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. Form 1040 x (You do not pay tax on these contributions. Form 1040 x ) If your employer does not make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. Form 1040 x Both you and your employer cannot make contributions to your Archer MSA in the same year. Form 1040 x You do not have to make contributions to your Archer MSA every year. Form 1040 x    If your spouse is covered by your HDHP and an excludable amount is contributed by your spouse's employer to an Archer MSA belonging to your spouse, you cannot make contributions to your own Archer MSA that year. Form 1040 x Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. Form 1040 x An income limit. Form 1040 x Annual deductible limit. Form 1040 x   You (or your employer) can contribute up to 75% of the annual deductible of your HDHP (65% if you have a self-only plan) to your Archer MSA. Form 1040 x You must have the HDHP all year to contribute the full amount. Form 1040 x If you do not qualify to contribute the full amount for the year, determine your annual deductible limit by using the worksheet in the Instructions for Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Form 1040 x Example 1. Form 1040 x You have an HDHP for your family all year in 2013. Form 1040 x The annual deductible is $5,000. Form 1040 x You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. Form 1040 x Example 2. Form 1040 x You have an HDHP for your family for the entire months of July through December 2013 (6 months). Form 1040 x The annual deductible is $5,000. Form 1040 x You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. Form 1040 x If you and your spouse each have a family plan, you are treated as having family coverage with the lower annual deductible of the two health plans. Form 1040 x The contribution limit is split equally between you unless you agree on a different division. Form 1040 x Income limit. Form 1040 x   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. Form 1040 x   If you are self-employed, you cannot contribute more than your net self-employment income. Form 1040 x This is your income from self-employment minus expenses (including the deductible part of self-employment tax). Form 1040 x Example 1. Form 1040 x Noah Paul earned $25,000 from ABC Company in 2013. Form 1040 x Through ABC, he had an HDHP for his family for the entire year. Form 1040 x The annual deductible was $5,000. Form 1040 x He can contribute up to $3,750 to his Archer MSA (75% × $5,000). Form 1040 x He can contribute the full amount because he earned more than $3,750 at ABC. Form 1040 x Example 2. Form 1040 x Westley Lawrence is self-employed. Form 1040 x He had an HDHP for his family for the entire year in 2013. Form 1040 x The annual deductible was $5,000. Form 1040 x Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). Form 1040 x However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. Form 1040 x Therefore, he is limited to a contribution of $2,500. Form 1040 x Individuals enrolled in Medicare. Form 1040 x   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. Form 1040 x However, you may be eligible for a Medicare Advantage MSA, discussed later. Form 1040 x When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. Form 1040 x Reporting Contributions on Your Return Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040 or Form 1040NR. Form 1040 x You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. Form 1040 x You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount you (or your employer) contributed during the year. Form 1040 x Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. Form 1040 x Follow the instructions for Form 8853 and complete the worksheet in the instructions. Form 1040 x Report your Archer MSA deduction on Form 1040 or Form 1040NR. Form 1040 x Excess contributions. Form 1040 x   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. Form 1040 x Excess contributions are not deductible. Form 1040 x Excess contributions made by your employer are included in your gross income. Form 1040 x If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. Form 1040 x   Generally, you must pay a 6% excise tax on excess contributions. Form 1040 x See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Form 1040 x The excise tax applies to each tax year the excess contribution remains in the account. Form 1040 x   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. Form 1040 x You withdraw the excess contributions by the due date, including extensions, of your tax return. Form 1040 x You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. Form 1040 x Deducting an excess contribution in a later year. Form 1040 x   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. Form 1040 x The excess contribution you can deduct in the current year is the lesser of the following two amounts. Form 1040 x Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. Form 1040 x The total excess contributions in your Archer MSA at the beginning of the year. Form 1040 x   Any excess contributions remaining at the end of a tax year are subject to the excise tax. Form 1040 x See Form 5329. Form 1040 x Distributions From an MSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. Form 1040 x When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your Archer MSA to send you a distribution from your Archer MSA. Form 1040 x You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). Form 1040 x If you receive distributions for other reasons, the amount will be subject to income tax and may be subject to an additional 20% tax as well. Form 1040 x You do not have to make withdrawals from your Archer MSA each year. Form 1040 x If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Form 1040 x A distribution is money you get from your Archer MSA. Form 1040 x The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Form 1040 x Qualified medical expenses. Form 1040 x   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Form 1040 x These are explained in Publication 502. Form 1040 x   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. Form 1040 x A medicine or drug will be a qualified medical expense for MSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. Form 1040 x   Qualified medical expenses are those incurred by the following persons. Form 1040 x You and your spouse. Form 1040 x All dependents you claim on your tax return. Form 1040 x Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Form 1040 x    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. Form 1040 x    You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your Archer MSA. Form 1040 x Special rules for insurance premiums. Form 1040 x   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. Form 1040 x You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law as qualified medical expenses for Archer MSAs. Form 1040 x Health coverage tax credit. Form 1040 x   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. Form 1040 x See Publication 502 for information on this credit. Form 1040 x Deemed distributions from Archer MSAs. Form 1040 x   The following situations result in deemed taxable distributions from your Archer MSA. Form 1040 x You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. Form 1040 x Your account ceases to be an Archer MSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8853. Form 1040 x You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. Form 1040 x You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Form 1040 x   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the Archer MSA, Lending of money between you and the Archer MSA, Furnishing goods, services, or facilities between you and the Archer MSA, and Transfer to or use by you, or for your benefit, of any assets of the Archer MSA. Form 1040 x   Any deemed distribution will not be treated as used to pay qualified medical expenses. Form 1040 x These distributions are included in your income and are subject to the additional 20% tax, discussed later. Form 1040 x Recordkeeping. Form 1040 x You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. Form 1040 x Do not send these records with your tax return. Form 1040 x Keep them with your tax records. Form 1040 x Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). Form 1040 x If you use a distribution from your Archer MSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. Form 1040 x Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Form 1040 x If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. Form 1040 x Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. Form 1040 x You may have to pay an additional 20% tax, discussed later, on your taxable distribution. Form 1040 x If an amount (other than a rollover) is contributed to your Archer MSA this year (by you or your employer), you also must report and pay tax on a distribution you receive from your Archer MSA this year that is used to pay medical expenses of someone who is not covered by an HDHP, or is also covered by another health plan that is not an HDHP, at the time the expenses are incurred. Form 1040 x Rollovers. Form 1040 x   Generally, any distribution from an Archer MSA that you roll over into another Archer MSA or an HSA is not taxable if you complete the rollover within 60 days. Form 1040 x An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. Form 1040 x See the Form 8853 instructions for more information. Form 1040 x Additional tax. Form 1040 x   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. Form 1040 x Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. Form 1040 x Report the additional tax in the total on Form 1040 or Form 1040NR. Form 1040 x Exceptions. Form 1040 x   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Form 1040 x Balance in an Archer MSA An Archer MSA is generally exempt from tax. Form 1040 x You are permitted to take a distribution from your Archer MSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Form 1040 x Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Form 1040 x Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. Form 1040 x Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. Form 1040 x What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. Form 1040 x Spouse is the designated beneficiary. Form 1040 x   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. Form 1040 x Spouse is not the designated beneficiary. Form 1040 x   If your spouse is not the designated beneficiary of your Archer MSA: The account stops being an Archer MSA, and The fair market value of the Archer MSA becomes taxable to the beneficiary in the year in which you die. Form 1040 x   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. Form 1040 x The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. Form 1040 x Filing Form 8853 You must file Form 8853 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your Archer MSA during the year. Form 1040 x You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. Form 1040 x If, during the tax year, you are the beneficiary of two or more Archer MSAs or you are a beneficiary of an Archer MSA and you have your own Archer MSA, you must complete a separate Form 8853 for each MSA. Form 1040 x Enter “statement” at the top of each Form 8853 and complete the form as instructed. Form 1040 x Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. Form 1040 x Attach the statements to your tax return after the controlling Form 8853. Form 1040 x Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. Form 1040 x Unlike the previous discussions, “you” refers to the employer and not to the employee. Form 1040 x Health plan. Form 1040 x   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. Form 1040 x You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Form 1040 x Contributions. Form 1040 x   You can make contributions to your employees' Archer MSAs. Form 1040 x You deduct the contributions on the “Employee benefit programs” line of your business income tax return for the year in which you make the contributions. Form 1040 x If you are filing Form 1040, Schedule C, this is Part II, line 14. Form 1040 x Comparable contributions. Form 1040 x   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. Form 1040 x Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. Form 1040 x Comparable participating employees. Form 1040 x   Comparable participating employees: Are covered by your HDHP and are eligible to establish an Archer MSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (either part-time or full-time). Form 1040 x Excise tax. Form 1040 x   If you made contributions to your employees' Archer MSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. Form 1040 x Employment taxes. Form 1040 x   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. Form 1040 x You must report the contributions in box 12 of the Form W-2 you file for each employee. Form 1040 x Enter code “R” in box 12. Form 1040 x Medicare Advantage MSAs A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. Form 1040 x To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have a high deductible health plan (HDHP) that meets the Medicare guidelines. Form 1040 x A Medicare Advantage MSA is a tax-exempt trust or custodial savings account that you set up with a financial institution (such as a bank or an insurance company) in which the Medicare program can deposit money for qualified medical expenses. Form 1040 x The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. Form 1040 x An HDHP is a special health insurance policy that has a high deductible. Form 1040 x You choose the policy you want to use as part of your Medicare Advantage MSA plan. Form 1040 x However, the policy must be approved by the Medicare program. Form 1040 x Medicare Advantage MSAs are administered through the federal Medicare program. Form 1040 x You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. Form 1040 x medicare. Form 1040 x gov. Form 1040 x Note. Form 1040 x You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. Form 1040 x Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. Form 1040 x FSAs are usually funded through voluntary salary reduction agreements with your employer. Form 1040 x No employment or federal income taxes are deducted from your contribution. Form 1040 x The employer may also contribute. Form 1040 x Note. Form 1040 x Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for FSAs on your income tax return. Form 1040 x For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. Form 1040 x What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. Form 1040 x Contributions made by your employer can be excluded from your gross income. Form 1040 x No employment or federal income taxes are deducted from the contributions. Form 1040 x Withdrawals may be tax free if you pay qualified medical expenses. Form 1040 x See Qualified medical expenses , later. Form 1040 x You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. Form 1040 x Qualifying for an FSA Health FSAs are employer-established benefit plans. Form 1040 x These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Form 1040 x Employers have complete flexibility to offer various combinations of benefits in designing their plan. Form 1040 x You do not have to be covered under any other health care plan to participate. Form 1040 x Self-employed persons are not eligible for an FSA. Form 1040 x Certain limitations may apply if you are a highly compensated participant or a key employee. Form 1040 x Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. Form 1040 x This is sometimes called a salary reduction agreement. Form 1040 x The employer may also contribute to your FSA if specified in the plan. Form 1040 x You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. Form 1040 x However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. Form 1040 x When To Contribute At the