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Free E File State Tax Return

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Free E File State Tax Return

Free e file state tax return 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. Free e file state tax return You must be an eligible individual to qualify for an HSA. Free e file state tax return No permission or authorization from the IRS is necessary to establish an HSA. Free e file state tax return You set up an HSA with a trustee. Free e file state tax return 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. Free e file state tax return The HSA can be established through a trustee that is different from your health plan provider. Free e file state tax return Your employer may already have some information on HSA trustees in your area. Free e file state tax return If you have an Archer MSA, you can generally roll it over into an HSA tax free. Free e file state tax return See Rollovers, later. Free e file state tax return What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. Free e file state tax return 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. Free e file state tax return Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. Free e file state tax return The contributions remain in your account until you use them. Free e file state tax return The interest or other earnings on the assets in the account are tax free. Free e file state tax return Distributions may be tax free if you pay qualified medical expenses. Free e file state tax return See Qualified medical expenses , later. Free e file state tax return An HSA is “portable. Free e file state tax return ” It stays with you if you change employers or leave the work force. Free e file state tax return Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. Free e file state tax return You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. Free e file state tax return You have no other health coverage except what is permitted under Other health coverage , later. Free e file state tax return You are not enrolled in Medicare. Free e file state tax return You cannot be claimed as a dependent on someone else's 2013 tax return. Free e file state tax return 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). Free e file state tax return 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. Free e file state tax return If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. Free e file state tax return This is true even if the other person does not actually claim your exemption. Free e file state tax return Each spouse who is an eligible individual who wants an HSA must open a separate HSA. Free e file state tax return You cannot have a joint HSA. Free e file state tax return High deductible health plan (HDHP). Free e file state tax return   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. Free e file state tax return Out-of-pocket expenses include copayments and other amounts, but do not include premiums. Free e file state tax return   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. Free e file state tax return Preventive care includes, but is not limited to, the following. Free e file state tax return Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. Free e file state tax return Routine prenatal and well-child care. Free e file state tax return Child and adult immunizations. Free e file state tax return Tobacco cessation programs. Free e file state tax return Obesity weight-loss programs. Free e file state tax return Screening services. Free e file state tax return This includes screening services for the following: Cancer. Free e file state tax return Heart and vascular diseases. Free e file state tax return Infectious diseases. Free e file state tax return Mental health conditions. Free e file state tax return Substance abuse. Free e file state tax return Metabolic, nutritional, and endocrine conditions. Free e file state tax return Musculoskeletal disorders. Free e file state tax return Obstetric and gynecological conditions. Free e file state tax return Pediatric conditions. Free e file state tax return Vision and hearing disorders. Free e file state tax return For more information on screening services, see Notice 2004-23, 2004-15 I. Free e file state tax return R. Free e file state tax return B. Free e file state tax return 725 available at www. Free e file state tax return irs. Free e file state tax return gov/irb/2004-15_IRB/ar10. Free e file state tax return html. Free e file state tax return     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. Free e file state tax return      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. Free e file state tax return Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Free e file state tax return    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. Free e file state tax return      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. Free e file state tax return Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Free e file state tax return   Self-only HDHP coverage is an HDHP covering only an eligible individual. Free e file state tax return 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). Free e file state tax return Example. Free e file state tax return An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. Free e file state tax return This is family HDHP coverage. Free e file state tax return Family plans that do not meet the high deductible rules. Free e file state tax return   There are some family plans that have deductibles for both the family as a whole and for individual family members. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Example. Free e file state tax return You have family health insurance coverage in 2013. Free e file state tax return The annual deductible for the family plan is $3,500. Free e file state tax return This plan also has an individual deductible of $1,500 for each family member. Free e file state tax return 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. Free e file state tax return Other health coverage. Free e file state tax return   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Free e file state tax return However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Free e file state tax return    You can have additional insurance that provides benefits only for the following items. Free e file state tax return Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. Free e file state tax return A specific disease or illness. Free e file state tax return A fixed amount per day (or other period) of hospitalization. Free e file state tax return   You can also have coverage (whether provided through insurance or otherwise) for the following items. Free e file state tax return Accidents. Free e file state tax return Disability. Free e file state tax return Dental care. Free e file state tax return Vision care. Free e file state tax return Long-term care. Free e file state tax return    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. Free e file state tax return 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. Free e file state tax return Prescription drug plans. Free e file state tax return   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. Free e file state tax return If you can receive benefits before that deductible is met, you are not an eligible individual. Free e file state tax return Other employee health plans. Free e file state tax return   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. Free e file state tax return Health FSAs and HRAs are discussed later. Free e file state tax return   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. Free e file state tax return Limited-purpose health FSA or HRA. Free e file state tax return These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Free e file state tax return Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. Free e file state tax return Suspended HRA. Free e file state tax return Before the beginning of an HRA coverage period, you can elect to suspend the HRA. Free e file state tax return 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. Free e file state tax return When the suspension period ends, you are no longer eligible to make contributions to an HSA. Free e file state tax return Post-deductible health FSA or HRA. Free e file state tax return These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. Free e file state tax return 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. Free e file state tax return Retirement HRA. Free e file state tax return This arrangement pays or reimburses only those medical expenses incurred after retirement. Free e file state tax return After retirement you are no longer eligible to make contributions to an HSA. Free e file state tax return Health FSA – grace period. Free e file state tax return   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. Free e file state tax return See Flexible Spending Arrangements (FSAs) , later. Free e file state tax return Contributions to an HSA Any eligible individual can contribute to an HSA. Free e file state tax return For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. Free e file state tax return For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. Free e file state tax return Family members or any other person may also make contributions on behalf of an eligible individual. Free e file state tax return Contributions to an HSA must be made in cash. Free e file state tax return Contributions of stock or property are not allowed. Free e file state tax return 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. Free e file state tax return For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. Free e file state tax return If you have family HDHP coverage, you can contribute up to $6,450. Free e file state tax return For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. Free e file state tax return If you have family HDHP coverage you can contribute up to $6,550. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Last-month rule. Free e file state tax return   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. Free e file state tax return You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. Free e file state tax return Testing period. Free e file state tax return   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. Free e file state tax return 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. Free e file state tax return For example, December 1, 2013, through December 31, 2014. Free e file state tax return   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. Free e file state tax return You include this amount in your income in the year in which you fail to be an eligible individual. Free e file state tax return This amount is also subject to a 10% additional tax. Free e file state tax return The income and additional tax are shown on Form 8889, Part III. Free e file state tax return Example 1. Free e file state tax return Chris, age 53, becomes an eligible individual on December 1, 2013. Free e file state tax return He has family HDHP coverage on that date. Free e file state tax return Under the last-month rule, he contributes $6,450 to his HSA. Free e file state tax return Chris fails to be an eligible individual in June 2014. Free e file state tax return 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. Free e file state tax return Chris uses the worksheet in the Form 8889 instructions to determine this amount. Free e file state tax return 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. Free e file state tax return 00 Total for all months $6,450. Free e file state tax return 00 Limitation. Free e file state tax return Divide the total by 12 $537. Free e file state tax return 50 Chris would include $5,912. Free e file state tax return 50 ($6,450. Free e file state tax return 00 – $537. Free e file state tax return 50) in his gross income on his 2014 tax return. Free e file state tax return Also, a 10% additional tax applies to this amount. Free e file state tax return Example 2. Free e file state tax return Erika, age 39, has self-only HDHP coverage on January 1, 2013. Free e file state tax return Erika changes to family HDHP coverage on November 1, 2013. Free e file state tax return Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. Free e file state tax return Erika fails to be an eligible individual in March 2014. Free e file state tax return 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. Free e file state tax return Erika uses the worksheet in the Form 8889 instructions to determine this amount. Free e file state tax return January $3,250. Free e file state tax return 00 February $3,250. Free e file state tax return 00 March $3,250. Free e file state tax return 00 April $3,250. Free e file state tax return 00 May $3,250. Free e file state tax return 00 June $3,250. Free e file state tax return 00 July $3,250. Free e file state tax return 00 August $3,250. Free e file state tax return 00 September $3,250. Free e file state tax return 00 October $3,250. Free e file state tax return 00 November $6,450. Free e file state tax return 00 December $6,450. Free e file state tax return 00 Total for all months $45,400. Free e file state tax return 00 Limitation. Free e file state tax return Divide the total by 12 $3,783. Free e file state tax return 34 Erika would include $2,666. Free e file state tax return 67 ($6,450 – $3,783. Free e file state tax return 34) in her gross income on her 2014 tax return. Free e file state tax return Also, a 10% additional tax applies to this amount. Free e file state tax return Additional contribution. Free e file state tax return   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. Free e file state tax return 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). Free e file state tax return However, see Enrolled in Medicare , later. Free e file state tax return If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. Free e file state tax return Reduction of contribution limit. Free e file state tax return   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. Free e file state tax return A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. Free e file state tax return Rules for married people. Free e file state tax return   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. Free e file state tax return If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. Free e file state tax return You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. Free e file state tax return After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. Free e file state tax return The rules for married people apply only if both spouses are eligible individuals. Free e file state tax return If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. Free e file state tax return If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. Free e file state tax return Each spouse must make the additional contribution to his or her own HSA. Free e file state tax return Example. Free e file state tax return For 2013, Mr. Free e file state tax return Auburn and his wife are both eligible individuals. Free e file state tax return They each have family coverage under separate HDHPs. Free e file state tax return Mr. Free e file state tax return Auburn is 58 years old and Mrs. Free e file state tax return Auburn is 53. Free e file state tax return Mr. Free e file state tax return and Mrs. Free e file state tax return Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. Free e file state tax return If they split it equally, Mr. Free e file state tax return Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. Free e file state tax return Auburn can contribute $3,225 to an HSA. Free e file state tax return Employer contributions. Free e file state tax return   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. Free e file state tax return This includes amounts contributed to your account by your employer through a cafeteria plan. Free e file state tax return Enrolled in Medicare. Free e file state tax return   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. Free e file state tax return Example. Free e file state tax return You turned age 65 in July 2013 and enrolled in Medicare. Free e file state tax return You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Free e file state tax return Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). Free e file state tax return Qualified HSA funding distribution. Free e file state tax return   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. Free e file state tax return This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. Free e file state tax return 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. Free e file state tax return   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. Free e file state tax return The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. Free e file state tax return The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. Free e file state tax return The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. Free e file state tax return   You can make only one qualified HSA funding distribution during your lifetime. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Example. Free e file state tax return In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. Free e file state tax return You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). Free e file state tax return Funding distribution – testing period. Free e file state tax return   You must remain an eligible individual during the testing period. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return   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. Free e file state tax return You include this amount in income in the year in which you fail to be an eligible individual. Free e file state tax return This amount is also subject to a 10% additional tax. Free e file state tax return The income and the additional tax are shown on Form 8889, Part III. Free e file state tax return   Each qualified HSA funding distribution allowed has its own testing period. Free e file state tax return For example, you are an eligible individual, age 45, with self-only HDHP coverage. Free e file state tax return On June 18, 2013, you make a qualified HSA funding distribution of $3,250. Free e file state tax return 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. Free e file state tax return Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. Free e file state tax return Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. Free e file state tax return   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. Free e file state tax return 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. Free e file state tax return Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. Free e file state tax return Archer MSAs and other HSAs. Free e file state tax return   You can roll over amounts from Archer MSAs and other HSAs into an HSA. Free e file state tax return You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Free e file state tax return Rollover contributions do not need to be in cash. Free e file state tax return Rollovers are not subject to the annual contribution limits. Free e file state tax return   You must roll over the amount within 60 days after the date of receipt. Free e file state tax return You can make only one rollover contribution to an HSA during a 1-year period. Free e file state tax return Note. Free e file state tax return 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. Free e file state tax return There is no limit on the number of these transfers. Free e file state tax return Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. Free e file state tax return When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. Free e file state tax return 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. Free e file state tax return Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. Free e file state tax return Your employer must notify you and the trustee of your HSA that the contribution is for 2013. Free e file state tax return The contribution will be reported on your 2014 Form W-2. Free e file state tax return Reporting Contributions on Your Return Contributions made by your employer are not included in your income. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Free e file state tax return The contributions are treated as a distribution of money and are not included in the partner's gross income. Free e file state tax return 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. Free e file state tax return In both situations, the partner can deduct the contribution made to the partner's HSA. Free e file state tax return 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. Free e file state tax return The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Free e file state tax return Form 8889. Free e file state tax return   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. Free e file state tax return You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. Free e file state tax return Contributions made by your employer and qualified HSA funding distributions are also shown on the form. Free e file state tax return   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. Free e file state tax return Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Free e file state tax return Follow the instructions for Form 8889. Free e file state tax return Report your HSA deduction on Form 1040 or Form 1040NR. Free e file state tax return Excess contributions. Free e file state tax return   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Free e file state tax return Excess contributions are not deductible. Free e file state tax return Excess contributions made by your employer are included in your gross income. Free e file state tax return 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. Free e file state tax return   Generally, you must pay a 6% excise tax on excess contributions. Free e file state tax return See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Free e file state tax return The excise tax applies to each tax year the excess contribution remains in the account. Free e file state tax return   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. Free e file state tax return You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. Free e file state tax return Deducting an excess contribution in a later year. Free e file state tax return   You may be able to deduct excess contributions for previous years that are still in your HSA. Free e file state tax return The excess contribution you can deduct for the current year is the lesser of the following two amounts. Free e file state tax return Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. Free e file state tax return The total excess contributions in your HSA at the beginning of the year. Free e file state tax return   Amounts contributed for the year include contributions by you, your employer, and any other person. Free e file state tax return They also include any qualified HSA funding distribution made to your HSA. Free e file state tax return Any excess contribution remaining at the end of a tax year is subject to the excise tax. Free e file state tax return See Form 5329. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return You do not have to make distributions from your HSA each year. Free e file state tax return If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Free e file state tax return Generally, a distribution is money you get from your health savings account. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Qualified medical expenses. Free e file state tax return   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Free e file state tax return These are explained in Publication 502, Medical and Dental Expenses. Free e file state tax return   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. Free e file state tax return 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. Free e file state tax return   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. Free e file state tax return State law determines when an HSA is established. Free e file state tax return 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. Free e file state tax return   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. Free e file state tax return   Qualified medical expenses are those incurred by the following persons. Free e file state tax return You and your spouse. Free e file state tax return All dependents you claim on your tax return. Free e file state tax return 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. Free e file state tax return    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. Free e file state tax return 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. Free e file state tax return Insurance premiums. Free e file state tax return   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. Free e file state tax return Health care continuation coverage (such as coverage under COBRA). Free e file state tax return Health care coverage while receiving unemployment compensation under federal or state law. Free e file state tax return Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Free e file state tax return   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. Free e file state tax return See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). Free e file state tax return   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. Free e file state tax return 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. Free e file state tax return Health coverage tax credit. Free e file state tax return   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. Free e file state tax return See Publication 502 for more information on this credit. Free e file state tax return Deemed distributions from HSAs. Free e file state tax return   The following situations result in deemed taxable distributions from your HSA. Free e file state tax return You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. Free e file state tax return 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. Free e file state tax return You used any portion of any of your HSAs as security for a loan at any time in 2013. Free e file state tax return You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Free e file state tax return   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. Free e file state tax return   Any deemed distribution will not be treated as used to pay qualified medical expenses. Free e file state tax return These distributions are included in your income and are subject to the additional 20% tax, discussed later. Free e file state tax return Recordkeeping. Free e file state tax return 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. Free e file state tax return Do not send these records with your tax return. Free e file state tax return Keep them with your tax records. Free e file state tax return 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). Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Free e file state tax return If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. Free e file state tax return Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. Free e file state tax return You may have to pay an additional 20% tax on your taxable distribution. Free e file state tax return HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. Free e file state tax return Additional tax. Free e file state tax return   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Free e file state tax return Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. Free e file state tax return Exceptions. Free e file state tax return   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Free e file state tax return Balance in an HSA An HSA is generally exempt from tax. Free e file state tax return 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. Free e file state tax return Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Free e file state tax return Earnings on amounts in an HSA are not included in your income while held in the HSA. Free e file state tax return Death of HSA Holder You should choose a beneficiary when you set up your HSA. Free e file state tax return What happens to that HSA when you die depends on whom you designate as the beneficiary. Free e file state tax return Spouse is the designated beneficiary. Free e file state tax return   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. Free e file state tax return Spouse is not the designated beneficiary. Free e file state tax return   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. Free e file state tax return If your estate is the beneficiary, the value is included on your final income tax return. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return You must file the form even if only your employer or your spouse's employer made contributions to the HSA. Free e file state tax return 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. Free e file state tax return Enter “statement” at the top of each Form 8889 and complete the form as instructed. Free e file state tax return Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. Free e file state tax return Attach the statements to your tax return after the controlling Form 8889. Free e file state tax return Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. Free e file state tax return Unlike the previous discussions, “you” refers to the employer and not to the employee. Free e file state tax return Health plan. Free e file state tax return   If you want your employees to be able to have an HSA, they must have an HDHP. Free e file state tax return You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Free e file state tax return Contributions. Free e file state tax return   You can make contributions to your employees' HSAs. Free e file state tax return You deduct the contributions on your business income tax return for the year in which you make the contributions. Free e file state tax return If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. Free e file state tax return   For more information on employer contributions, see Notice 2008-59, 2008-29 I. Free e file state tax return R. Free e file state tax return B. Free e file state tax return 123, questions 23 through 27, available at www. Free e file state tax return irs. Free e file state tax return gov/irb/2008-29_IRB/ar11. Free e file state tax return html. Free e file state tax return Comparable contributions. Free e file state tax return   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. Free e file state tax return 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. Free e file state tax return The comparability rules do not apply to contributions made through a cafeteria plan. Free e file state tax return Comparable participating employees. Free e file state tax return   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). Free e file state tax return   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. Free e file state tax return   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. Free e file state tax return 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. Free e file state tax return For a sample of the notice, see Regulation 54. Free e file state tax return 4980G-4 A-14(c). Free e file state tax return 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. Free e file state tax return Note. Free e file state tax return For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. Free e file state tax return Excise tax. Free e file state tax return   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. Free e file state tax return Employment taxes. Free e file state tax return   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. Free e file state tax return You must report the contributions in box 12 of the Form W-2 you file for each employee. Free e file state tax return This includes the amounts the employee elected to contribute through a cafeteria plan. Free e file state tax return Enter code “W” in box 12. Free e file state tax return 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). Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. Free e file state tax return S. Free e file state tax return financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. Free e file state tax return What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. Free e file state tax return You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. Free e file state tax return The interest or other earnings on the assets in your Archer MSA are tax free. Free e file state tax return Distributions may be tax free if you pay qualified medical expenses. Free e file state tax return See Qualified medical expenses , later. Free e file state tax return The contributions remain in your Archer MSA from year to year until you use them. Free e file state tax return An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. Free e file state tax return Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. Free e file state tax return 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). Free e file state tax return A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. Free e file state tax return You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. Free e file state tax return You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. Free e file state tax return If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. Free e file state tax return This is true even if the other person does not actually claim your exemption. Free e file state tax return Small employer. Free e file state tax return   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. Free e file state tax return The definition of small employer is modified for new employers and growing employers. Free e file state tax return Growing employer. Free e file state tax return   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. Free e file state tax return 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. Free e file state tax return Changing employers. Free e file state tax return   If you change employers, your Archer MSA moves with you. Free e file state tax return However, you may not make additional contributions unless you are otherwise eligible. Free e file state tax return High deductible health plan (HDHP). Free e file state tax return   To be eligible for an Archer MSA, you must be covered under an HDHP. Free e file state tax return 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. Free e file state tax return Limits. Free e file state tax return   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. Free e file state tax return   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. Free e file state tax return   There are some family plans that have deductibles for both the family as a whole and for individual family members. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return Example. Free e file state tax return You have family health insurance coverage in 2013. Free e file state tax return The annual deductible for the family plan is $5,500. Free e file state tax return This plan also has an individual deductible of $2,000 for each family member. Free e file state tax return 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. Free e file state tax return Other health coverage. Free e file state tax return   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Free e file state tax return However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Free e file state tax return However, you can have additional insurance that provides benefits only for the following items. Free e file state tax return Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. Free e file state tax return A specific disease or illness. Free e file state tax return A fixed amount per day (or other period) of hospitalization. Free e file state tax return You can also have coverage (whether provided through insurance or otherwise) for the following items. Free e file state tax return Accidents. Free e file state tax return Disability. Free e file state tax return Dental care. Free e file state tax return Vision care. Free e file state tax return Long-term care. Free e file state tax return Contributions to an MSA Contributions to an Archer MSA must be made in cash. Free e file state tax return You cannot contribute stock or other property to an Archer MSA. Free e file state tax return Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. Free e file state tax return (You do not pay tax on these contributions. Free e file state tax return ) 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. Free e file state tax return Both you and your employer cannot make contributions to your Archer MSA in the same year. Free e file state tax return You do not have to make contributions to your Archer MSA every year. Free e file state tax return    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. Free e file state tax return Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. Free e file state tax return An income limit. Free e file state tax return Annual deductible limit. Free e file state tax return   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. Free e file state tax return You must have the HDHP all year to contribute the full amount. Free e file state tax return 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. Free e file state tax return Example 1. Free e file state tax return You have an HDHP for your family all year in 2013. Free e file state tax return The annual deductible is $5,000. Free e file state tax return You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. Free e file state tax return Example 2. Free e file state tax return You have an HDHP for your family for the entire months of July through December 2013 (6 months). Free e file state tax return The annual deductible is $5,000. Free e file state tax return You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. Free e file state tax return 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. Free e file state tax return The contribution limit is split equally between you unless you agree on a different division. Free e file state tax return Income limit. Free e file state tax return   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. Free e file state tax return   If you are self-employed, you cannot contribute more than your net self-employment income. Free e file state tax return This is your income from self-employment minus expenses (including the deductible part of self-employment tax). Free e file state tax return Example 1. Free e file state tax return Noah Paul earned $25,000 from ABC Company in 2013. Free e file state tax return Through ABC, he had an HDHP for his family for the entire year. Free e file state tax return The annual deductible was $5,000. Free e file state tax return He can contribute up to $3,750 to his Archer MSA (75% × $5,000). Free e file state tax return He can contribute the full amount because he earned more than $3,750 at ABC. Free e file state tax return Example 2. Free e file state tax return Westley Lawrence is self-employed. Free e file state tax return He had an HDHP for his family for the entire year in 2013. Free e file state tax return The annual deductible was $5,000. Free e file state tax return Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). Free e file state tax return However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. Free e file state tax return Therefore, he is limited to a contribution of $2,500. Free e file state tax return Individuals enrolled in Medicare. Free e file state tax return   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. Free e file state tax return However, you may be eligible for a Medicare Advantage MSA, discussed later. Free e file state tax return When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. Free e file state tax return 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. Free e file state tax return You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. Free e file state tax return 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. Free e file state tax return Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. Free e file state tax return Follow the instructions for Form 8853 and complete the worksheet in the instructions. Free e file state tax return Report your Archer MSA deduction on Form 1040 or Form 1040NR. Free e file state tax return Excess contributions. Free e file state tax return   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. Free e file state tax return Excess contributions are not deductible. Free e file state tax return Excess contributions made by your employer are included in your gross income. Free e file state tax return 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. Free e file state tax return   Generally, you must pay a 6% excise tax on excess contributions. Free e file state tax return See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Free e file state tax return The excise tax applies to each tax year the excess contribution remains in the account. Free e file state tax return   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. Free e file state tax return You withdraw the excess contributions by the due date, including extensions, of your tax return. Free e file state tax return 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. Free e file state tax return Deducting an excess contribution in a later year. Free e file state tax return   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. Free e file state tax return The excess contribution you can deduct in the current year is the lesser of the following two amounts. Free e file state tax return Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. Free e file state tax return The total excess contributions in your Archer MSA at the beginning of the year. Free e file state tax return   Any excess contributions remaining at the end of a tax year are subject to the excise tax. Free e file state tax return See Form 5329. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). Free e file state tax return 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. Free e file state tax return You do not have to make withdrawals from your Archer MSA each year. Free e file state tax return If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Free e file state tax return A distribution is money you get from your Archer MSA. Free e file state tax return 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. Free e file state tax return Qualified medical expenses. Free e file state tax return   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Free e file state tax return These are explained in Publication 502. Free e file state tax return   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. Free e file state tax return 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. Free e file state tax return   Qualified medical expenses are those incurred by the following persons. Free e file state tax return You and your spouse. Free e file state tax return All dependents you claim on your tax return. Free e file state tax return 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. Free e file state tax return    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. Free e file state tax return    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. Free e file state tax return Special rules for insurance premiums. Free e file state tax return   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. Free e file state tax return 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. Free e file state tax return Health coverage tax credit. Free e file state tax return   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. Free e file state tax return See Publication 502 for information on this credit. Free e file state tax return Deemed distributions from Archer MSAs. Free e file state tax return   The following situations result in deemed taxable distributions from your Archer MSA. Free e file state tax return You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. Free e file state tax return 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. Free e file state tax return You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. Free e file state tax return You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Free e file state tax return   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. Free e file state tax return   Any deemed distribution will not be treated as used to pay qualified medical expenses. Free e file state tax return These distributions are included in your income and are subject to the additional 20% tax, discussed later. Free e file state tax return Recordkeeping. Free e file state tax return 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. Free e file state tax return Do not send these records with your tax return. Free e file state tax return Keep them with your tax records. Free e file state tax return 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). Free e file state tax return 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. Free e file state tax return Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Free e file state tax return If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. Free e file state tax return Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. Free e file state tax return You may have to pay an additional 20% tax, discussed later, on your taxable distribution. Free e file state tax return 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. Free e file state tax return Rollovers. Free e file state tax return   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. Free e file state tax return An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. Free e file state tax return See the Form 8853 instructions for more information. Free e file state tax return Additional tax. Free e file state tax return   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. Free e file state tax return Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. Free e file state tax return Report the additional tax in the total on Form 1040 or Form 1040NR. Free e file state tax return Exceptions. Free e file state tax return   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Free e file state tax return Balance in an Archer MSA An Archer MSA is generally exempt from tax. Free e file state tax return 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. Free e file state tax return Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Free e file state tax return Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. Free e file state tax return Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. Free e file state tax return What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. Free e file state tax return Spouse is the designated beneficiary. Free e file state tax return   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. Free e file state tax return Spouse is not the designated beneficiary. Free e file state tax return   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. Free e file state tax return   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. Free e file state tax return 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. Free e file state tax return Enter “statement” at the top of each Form 8853 and complete the form as instructed. Free e file state tax return Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. Free e file state tax return Attach the statements to your tax return after the controlling Form 8853. Free e file state tax return Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. Free e file state tax return Unlike the previous discussions, “you” refers to the employer and not to the employee. Free e file state tax return Health plan. Free e file state tax return   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. Free e file state tax return You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Free e file state tax return Contributions. Free e file state tax return   You can make contributions to your employees' Archer MSAs. Free e file state tax return 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. Free e file state tax return If you are filing Form 1040, Schedule C, this is Part II, line 14. Free e file state tax return Comparable contributions. Free e file state tax return   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. Free e file state tax return 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. Free e file state tax return Comparable participating employees. Free e file state tax return   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). Free e file state tax return Excise tax. Free e file state tax return   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. Free e file state tax return Employment taxes. Free e file state tax return   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. Free e file state tax return You must report the contributions in box 12 of the Form W-2 you file for each employee. Free e file state tax return Enter code “R” in box 12. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return 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. Free e file state tax return The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. Free e file state tax return An HDHP is a special health insurance policy that has a high deductible. Free e file state tax return You choose the policy you want to use as part of your Medicare Advantage MSA plan. Free e file state tax return However, the policy must be approved by the Medicare program. Free e file state tax return Medicare Advantage MSAs are administered through the federal Medicare program. Free e file state tax return You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. Free e file state tax return medicare. Free e file state tax return gov. Free e file state tax return Note. Free e file state tax return You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. Free e file state tax return Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. Free e file state tax return FSAs are usually funded through voluntary salary reduction agreements with your employer. Free e file state tax return No employment or federal income taxes are deducted from your contribution. Free e file state tax return The employer may also contribute. Free e file state tax return Note. Free e file state tax return 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. Free e file state tax return For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. Free e file state tax return What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. Free e file state tax return Contributions made by your employer can be excluded from your gross income. Free e file state tax return No employment or federal income taxes are deducted from the contributions. Free e file state tax return Withdrawals may be tax free if you pay qualified medical expenses. Free e file state tax return See Qualified medical expenses , later. Free e file state tax return You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. Free e file state tax return Qualifying for an FSA Health FSAs are employer-established benefit plans. Free e file state tax return These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Free e file state tax return Employers have complete flexibility to offer various combinations of benefits in designing their plan. Free e file state tax return You do not have to be covered under any other health care plan to participate. Free e file state tax return Self-employed persons are not eligible for an FSA. Free e file state tax return Certain limitations may apply if you are a highly compensated participant or a key employee. Free e file state tax return Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. Free e file state tax return This is sometimes called a salary reduction agreement. Free e file state tax return The employer may also contribute to your FSA if specified in the plan. Free e file state tax return You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. Free e file state tax return However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. Free e file state tax return When To Contribute At the
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Free e file state tax return 2. Free e file state tax return   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. Free e file state tax return This chapter will help you determine the source of different types of income you may receive during the tax year. Free e file state tax return This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. Free e file state tax return Topics - This chapter discusses: Income source rules, and Community income. Free e file state tax return Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. Free e file state tax return S. Free e file state tax return citizen. Free e file state tax return If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. Free e file state tax return S. Free e file state tax return tax return. Free e file state tax return You must report these amounts from sources within and outside the United States. Free e file state tax return Nonresident Aliens A nonresident alien usually is subject to U. Free e file state tax return S. Free e file state tax return income tax only on U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return Under limited circumstances, certain foreign source income is subject to U. Free e file state tax return S. Free e file state tax return tax. Free e file state tax return See Foreign Income in chapter 4. Free e file state tax return The general rules for determining U. Free e file state tax return S. Free e file state tax return source income that apply to most nonresident aliens are shown in Table 2-1. Free e file state tax return The following discussions cover the general rules as well as the exceptions to these rules. Free e file state tax return Not all items of U. Free e file state tax return S. Free e file state tax return source income are taxable. Free e file state tax return See chapter 3. Free e file state tax return Interest Income Generally, U. Free e file state tax return S. Free e file state tax return source interest income includes the following items. Free e file state tax return Interest on bonds, notes, or other interest-bearing obligations of U. Free e file state tax return S. Free e file state tax return residents or domestic corporations. Free e file state tax return Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. Free e file state tax return S. Free e file state tax return trade or business at any time during the tax year. Free e file state tax return Original issue discount. Free e file state tax return Interest from a state, the District of Columbia, or the U. Free e file state tax return S. Free e file state tax return Government. Free e file state tax return The place or manner of payment is immaterial in determining the source of the income. Free e file state tax return A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. Free e file state tax return Exceptions. Free e file state tax return   U. Free e file state tax return S. Free e file state tax return source interest income does not include the following items. Free e file state tax return Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. Free e file state tax return S. Free e file state tax return possession. Free e file state tax return However, the interest will be considered U. Free e file state tax return S. Free e file state tax return source interest income if either of the following apply. Free e file state tax return The recipient of the interest is related to the resident alien or domestic corporation. Free e file state tax return See section 954(d)(3) for the definition of related person. Free e file state tax return The terms of the obligation are significantly modified after August 9, 2010. Free e file state tax return Any extension of the term of the obligation is considered a significant modification. Free e file state tax return Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. Free e file state tax return Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. Free e file state tax return Dividends In most cases, dividend income received from domestic corporations is U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return Dividend income from foreign corporations is usually foreign source income. Free e file state tax return Exceptions to both of these rules are discussed below. Free e file state tax return A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. Free e file state tax return Dividend equivalent payments. Free e file state tax return   U. Free e file state tax return S. Free e file state tax return source dividends also include all dividend equivalent payments. Free e file state tax return Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. Free e file state tax return S. Free e file state tax return sources. Free e file state tax return    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. Free e file state tax return You can view this regulation at www. Free e file state tax return irs. Free e file state tax return gov/irb/2013-52_IRB/ar08. Free e file state tax return html. Free e file state tax return First exception. Free e file state tax return   Dividends received from a domestic corporation are not U. Free e file state tax return S. Free e file state tax return source income if the corporation elects to take the American Samoa economic development credit. Free e file state tax return Second exception. Free e file state tax return   Part of the dividends received from a foreign corporation is U. Free e file state tax return S. Free e file state tax return source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. Free e file state tax return If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. Free e file state tax return Determine the part that is U. Free e file state tax return S. Free e file state tax return source income by multiplying the dividend by the following fraction. Free e file state tax return   Foreign corporation's gross income connected with a U. Free e file state tax return S. Free e file state tax return trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return They must be paid by a noncorporate resident or U. Free e file state tax return S. Free e file state tax return corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. Free e file state tax return S. Free e file state tax return trade or business. Free e file state tax return For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). Free e file state tax return Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. Free e file state tax return The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. Free e file state tax return If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. Free e file state tax return Compensation (other than certain fringe benefits) is sourced on a time basis. Free e file state tax return Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Free e file state tax return Or, you may be permitted to use an alternative basis to determine the source of compensation. Free e file state tax return See Alternative Basis , later. Free e file state tax return Multi-level marketing. Free e file state tax return   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. Free e file state tax return Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. Free e file state tax return The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. Free e file state tax return Self-employed individuals. Free e file state tax return   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Free e file state tax return In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Free e file state tax return Time Basis Use a time basis to figure your U. Free e file state tax return S. Free e file state tax return source compensation (other than the fringe benefits discussed later). Free e file state tax return Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. Free e file state tax return The time period for which the compensation is made does not have to be a year. Free e file state tax return Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Free e file state tax return Example 1. Free e file state tax return Christina Brooks, a resident of the Netherlands, worked 240 days for a U. Free e file state tax return S. Free e file state tax return company during the tax year. Free e file state tax return She received $80,000 in compensation. Free e file state tax return None of it was for fringe benefits. Free e file state tax return Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. Free e file state tax return Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return Example 2. Free e file state tax return Rob Waters, a resident of South Africa, is employed by a corporation. Free e file state tax return His annual salary is $100,000. Free e file state tax return None of it is for fringe benefits. Free e file state tax return During the first quarter of the year he worked entirely within the United States. Free e file state tax return On April 1, Rob was transferred to Singapore for the remainder of the year. Free e file state tax return Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. Free e file state tax return Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. Free e file state tax return 25 × $100,000). Free e file state tax return All of it is U. Free e file state tax return S. Free e file state tax return source income because he worked entirely within the United States during that quarter. Free e file state tax return The remaining $75,000 is attributable to the last three quarters of the year. Free e file state tax return During those quarters, he worked 150 days in Singapore and 30 days in the United States. Free e file state tax return His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. Free e file state tax return Of this $75,000, $12,500 ($75,000 × 30/180) is U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return Multi-year compensation. Free e file state tax return   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Free e file state tax return Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. Free e file state tax return   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. Free e file state tax return For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. Free e file state tax return   The amount of compensation treated as from U. Free e file state tax return S. Free e file state tax return sources is figured by multiplying the total multi-year compensation by a fraction. Free e file state tax return The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. Free e file state tax return The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. Free e file state tax return Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. Free e file state tax return Housing. Free e file state tax return Education. Free e file state tax return Local transportation. Free e file state tax return Tax reimbursement. Free e file state tax return Hazardous or hardship duty pay as defined in Regulations section 1. Free e file state tax return 861-4(b)(2)(ii)(D)(5). Free e file state tax return Moving expense reimbursement. Free e file state tax return The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. Free e file state tax return Principal place of work. Free e file state tax return   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. Free e file state tax return Your principal place of work is usually the place where you spend most of your working time. Free e file state tax return This could be your office, plant, store, shop, or other location. Free e file state tax return If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. Free e file state tax return   If you have more than one job at any time, your main job location depends on the facts in each case. Free e file state tax return The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. Free e file state tax return Housing. Free e file state tax return   The source of a housing fringe benefit is determined based on the location of your principal place of work. Free e file state tax return A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. Free e file state tax return Rent. Free e file state tax return Utilities (except telephone charges). Free e file state tax return Real and personal property insurance. Free e file state tax return Occupancy taxes not deductible under section 164 or 216(a). Free e file state tax return Nonrefundable fees for securing a leasehold. Free e file state tax return Rental of furniture and accessories. Free e file state tax return Household repairs. Free e file state tax return Residential parking. Free e file state tax return Fair rental value of housing provided in kind by your employer. Free e file state tax return   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. Free e file state tax return ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. Free e file state tax return Education. Free e file state tax return   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. Free e file state tax return An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. Free e file state tax return Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. Free e file state tax return Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. Free e file state tax return Local transportation. Free e file state tax return   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. Free e file state tax return Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. Free e file state tax return The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. Free e file state tax return Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. Free e file state tax return Tax reimbursement. Free e file state tax return   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. Free e file state tax return Moving expense reimbursement. Free e file state tax return   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. Free e file state tax return However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. Free e file state tax return Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. Free e file state tax return The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. Free e file state tax return It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. Free e file state tax return Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. Free e file state tax return If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. Free e file state tax return Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. Free e file state tax return Your name and social security number (written across the top of the statement). Free e file state tax return The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. Free e file state tax return For each item in (2), the alternative basis of allocation of source used. Free e file state tax return For each item in (2), a computation showing how the alternative allocation was computed. Free e file state tax return A comparison of the dollar amount of the U. Free e file state tax return S. Free e file state tax return compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. Free e file state tax return Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. Free e file state tax return This is true whether the vessel or aircraft is owned, hired, or leased. Free e file state tax return The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. Free e file state tax return All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. Free e file state tax return If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. Free e file state tax return For transportation income from personal services, 50% of the income is U. Free e file state tax return S. Free e file state tax return source income if the transportation is between the United States and a U. Free e file state tax return S. Free e file state tax return possession. Free e file state tax return For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. Free e file state tax return For information on how U. Free e file state tax return S. Free e file state tax return source transportation income is taxed, see chapter 4. Free e file state tax return Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. Free e file state tax return However, see Activities to be performed outside the United States , later. Free e file state tax return For example, payments for research or study in the United States made by the United States, a noncorporate U. Free e file state tax return S. Free e file state tax return resident, or a domestic corporation, are from U. Free e file state tax return S. Free e file state tax return sources. Free e file state tax return Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. Free e file state tax return S. Free e file state tax return agent. Free e file state tax return Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. Free e file state tax return Activities to be performed outside the United States. Free e file state tax return   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return    These rules do not apply to amounts paid as salary or other compensation for services. Free e file state tax return See Personal Services, earlier, for the source rules that apply. Free e file state tax return Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. Free e file state tax return S. Free e file state tax return sources. Free e file state tax return That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. Free e file state tax return This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). Free e file state tax return If you performed services as an employee of the United States, you may receive a distribution from the U. Free e file state tax return S. Free e file state tax return Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. Free e file state tax return Your U. Free e file state tax return S. Free e file state tax return source income is the otherwise taxable amount of the distribution that is attributable to your total U. Free e file state tax return S. Free e file state tax return Government basic pay other than tax-exempt pay for services performed outside the United States. Free e file state tax return Rents or Royalties Your U. Free e file state tax return S. Free e file state tax return source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. Free e file state tax return U. Free e file state tax return S. Free e file state tax return source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. Free e file state tax return Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. Free e file state tax return Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. Free e file state tax return Natural resources. Free e file state tax return   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. Free e file state tax return For information on determining that part, see section 1. Free e file state tax return 863-1(b) of the regulations. Free e file state tax return Table 2-1. Free e file state tax return Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. Free e file state tax return S. Free e file state tax return or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Free e file state tax return Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. Free e file state tax return For more information, see section 1. Free e file state tax return 863-1(b) of the regulations. Free e file state tax return *Exceptions include: a) Dividends paid by a U. Free e file state tax return S. Free e file state tax return corporation are foreign source if the corporation elects the  American Samoa economic development credit. Free e file state tax return  b) Part of a dividend paid by a foreign corporation is U. Free e file state tax return S. Free e file state tax return source if at least 25% of the  corporation's gross income is effectively connected with a U. Free e file state tax return S. Free e file state tax return trade or business for the  3 tax years before the year in which the dividends are declared. Free e file state tax return Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. Free e file state tax return Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. Free e file state tax return If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. Free e file state tax return Tax home. Free e file state tax return   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Free e file state tax return Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. Free e file state tax return If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Free e file state tax return If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Free e file state tax return Inventory property. Free e file state tax return   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Free e file state tax return Income from the sale of inventory that you purchased is sourced where the property is sold. Free e file state tax return Generally, this is where title to the property passes to the buyer. Free e file state tax return For example, income from the sale of inventory in the United States is U. Free e file state tax return S. Free e file state tax return source income, whether you purchased it in the United States or in a foreign country. Free e file state tax return   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. Free e file state tax return For information on making this allocation, see section 1. Free e file state tax return 863-3 of the regulations. Free e file state tax return   These rules apply even if your tax home is not in the United States. Free e file state tax return Depreciable property. Free e file state tax return   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. Free e file state tax return You allocate this part of the gain to sources in the United States based on the ratio of U. Free e file state tax return S. Free e file state tax return depreciation adjustments to total depreciation adjustments. Free e file state tax return The rest of this part of the gain is considered to be from sources outside the United States. Free e file state tax return   For this purpose, “U. Free e file state tax return S. Free e file state tax return depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. Free e file state tax return S. Free e file state tax return sources. Free e file state tax return However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. Free e file state tax return S. Free e file state tax return depreciation adjustments. Free e file state tax return But there are some exceptions for certain transportation, communications, and other property used internationally. Free e file state tax return   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. Free e file state tax return   A loss is sourced in the same way as the depreciation deductions were sourced. Free e file state tax return However, if the property was used predominantly in the United States, the entire loss reduces U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. Free e file state tax return Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. Free e file state tax return The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. Free e file state tax return A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. Free e file state tax return Intangible property. Free e file state tax return   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. Free e file state tax return The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. Free e file state tax return This is the same as the source rule for gain from the sale of depreciable property. Free e file state tax return See Depreciable property , earlier, for details on how to apply this rule. Free e file state tax return   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. Free e file state tax return If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. Free e file state tax return If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. Free e file state tax return Sales through offices or fixed places of business. Free e file state tax return   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. Free e file state tax return   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. Free e file state tax return S. Free e file state tax return source income. Free e file state tax return The income is treated as U. Free e file state tax return S. Free e file state tax return source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. Free e file state tax return This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. Free e file state tax return Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. Free e file state tax return S. Free e file state tax return state, or a U. Free e file state tax return S. Free e file state tax return possession, you generally must follow those laws to determine the income of yourself and your spouse for U. Free e file state tax return S. Free e file state tax return tax purposes. Free e file state tax return But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. Free e file state tax return S. Free e file state tax return citizen or resident and you do not both choose to be treated as U. Free e file state tax return S. Free e file state tax return residents as explained in chapter 1. Free e file state tax return In these cases, you and your spouse must report community income as explained later. Free e file state tax return Earned income. Free e file state tax return   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. Free e file state tax return That spouse must report all of it on his or her separate return. Free e file state tax return Trade or business income. Free e file state tax return   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. Free e file state tax return That spouse must report all of it on his or her separate return. Free e file state tax return Partnership income (or loss). Free e file state tax return   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. Free e file state tax return The partner must report all of it on his or her separate return. Free e file state tax return Separate property income. Free e file state tax return   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. Free e file state tax return That spouse must report all of it on his or her separate return. Free e file state tax return Use the appropriate community property law to determine what is separate property. Free e file state tax return Other community income. Free e file state tax return   All other community income is treated as provided by the applicable community property laws. Free e file state tax return Prev  Up  Next   Home   More Online Publications