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

Free military taxes Publication 544 - Introductory Material Table of Contents Future Developments What's New Important Reminders IntroductionOrdering forms and publications. Free military taxes Tax questions. Free military taxes Future Developments For the latest information about developments related to Publication 544, such as legislation enacted after it was published, go to www. Free military taxes irs. Free military taxes gov/pub544. Free military taxes What's New Direct reporting on Schedule D. Free military taxes   For 2013, certain transactions may be combined and the totals reported directly on Schedule D. Free military taxes If you choose to do that, you do not need to include these transactions on Form 8949, Sales and Other Dispositions of Capital Assets. Free military taxes For additional information, see Schedule D and Form 8949 in chapter 4. Free military taxes Tax rate on net capital gain and qualified dividends. Free military taxes   The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. Free military taxes See Capital Gains Tax Rates in chapter 4. Free military taxes Important Reminders Dispositions of U. Free military taxes S. Free military taxes real property interests by foreign persons. Free military taxes  If you are a foreign person or firm and you sell or otherwise dispose of a U. Free military taxes S. Free military taxes real property interest, the buyer (or other transferee) may have to withhold income tax on the amount you receive for the property (including cash, the fair market value of other property, and any assumed liability). Free military taxes Corporations, partnerships, trusts, and estates also may have to withhold on certain U. Free military taxes S. Free military taxes real property interests they distribute to you. Free military taxes You must report these dispositions and distributions and any income tax withheld on your U. Free military taxes S. Free military taxes income tax return. Free military taxes For more information on dispositions of U. Free military taxes S. Free military taxes real property interests, see Publication 519, U. Free military taxes S. Free military taxes Tax Guide for Aliens. Free military taxes Also see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Free military taxes Foreign source income. Free military taxes  If you are a U. Free military taxes S. Free military taxes citizen with income from dispositions of property outside the United States (foreign income), you must report all such income on your tax return unless it is exempt from U. Free military taxes S. Free military taxes law. Free military taxes This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payor. Free military taxes Photographs of missing children. Free military taxes  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Free military taxes Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free military taxes You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free military taxes Introduction You dispose of property when any of the following occurs. Free military taxes You sell property. Free military taxes You exchange property for other property. Free military taxes Your property is condemned or disposed of under threat of condemnation. Free military taxes Your property is repossessed. Free military taxes You abandon property. Free military taxes You give property away. Free military taxes This publication explains the tax rules that apply when you dispose of property. Free military taxes It discusses the following topics. Free military taxes How to figure a gain or loss. Free military taxes Whether your gain or loss is ordinary or capital. Free military taxes How to treat your gain or loss when you dispose of business property. Free military taxes How to report a gain or loss. Free military taxes This publication also explains whether your gain is taxable or your loss is deductible. Free military taxes This publication does not discuss certain transactions covered in other IRS publications. Free military taxes These include the following. Free military taxes Most transactions involving stocks, bonds, options, forward and futures contracts, and similar investments. Free military taxes See chapter 4 of Publication 550, Investment Income and Expenses. Free military taxes Sale of your main home. Free military taxes See Publication 523, Selling Your Home. Free military taxes Installment sales. Free military taxes See Publication 537, Installment Sales. Free military taxes Transfers of property at death. Free military taxes See Publication 559, Survivors, Executors, and Administrators. Free military taxes Forms to file. Free military taxes   When you dispose of property, you usually will have to file one or more of the following forms. Free military taxes Schedule D, Capital Gains and Losses. Free military taxes Form 4797, Sales of Business Property. Free military taxes Form 8824, Like-Kind Exchanges. Free military taxes Form 8949, Sales and Other Dispositions of Capital Assets. Free military taxes    Although the discussions in this publication may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Free military taxes However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Free military taxes Comments and suggestions. Free military taxes   We welcome your comments about this publication and your suggestions for future editions. Free military taxes   You can send your comments to the following address. Free military taxes Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free military taxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free military taxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free military taxes You can also send us comments from www. Free military taxes irs. Free military taxes gov/formspubs/. Free military taxes Click on “More Information ” and then on “Give us feedback. Free military taxes ” Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products. Free military taxes Ordering forms and publications. Free military taxes   Visit www. Free military taxes irs. Free military taxes gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free military taxes Internal Revenue Service 1201 N. Free military taxes Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free military taxes   If you have a tax question, check the information available on IRS. Free military taxes gov or call 1-800-829-1040. Free military taxes We cannot answer tax questions sent to either of the above addresses. Free military taxes Prev  Up  Next   Home   More Online Publications