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Hr Block Free Military

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

Hr block free military 7. Hr block free military   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Hr block free military Custodian account for your child. Hr block free military Penalty for failure to supply SSN. Hr block free military Reporting backup withholding. Hr block free military Savings account with parent as trustee. Hr block free military Interest not reported on Form 1099-INT. Hr block free military Nominees. Hr block free military Incorrect amount. Hr block free military Information reporting requirement. Hr block free military Taxable InterestInterest subject to penalty for early withdrawal. Hr block free military Money borrowed to invest in certificate of deposit. Hr block free military U. Hr block free military S. Hr block free military Savings Bonds Education Savings Bond Program U. Hr block free military S. Hr block free military Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Hr block free military How To Report Interest IncomeSchedule B (Form 1040A or 1040). Hr block free military Reporting tax-exempt interest. Hr block free military U. Hr block free military S. Hr block free military savings bond interest previously reported. Hr block free military Reminder Foreign-source income. Hr block free military  If you are a U. Hr block free military S. Hr block free military citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Hr block free military S. Hr block free military law. Hr block free military This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Hr block free military Introduction This chapter discusses the following topics. Hr block free military Different types of interest income. Hr block free military What interest is taxable and what interest is nontaxable. Hr block free military When to report interest income. Hr block free military How to report interest income on your tax return. Hr block free military In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Hr block free military Exceptions to this rule are discussed later in this chapter. Hr block free military You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Hr block free military See Money borrowed to invest in certificate of deposit , later, and chapter 28. Hr block free military Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Hr block free military S. Hr block free military Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Hr block free military S. Hr block free military Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Hr block free military Recordkeeping. Hr block free military You should keep a list showing sources and interest amounts received during the year. Hr block free military Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Hr block free military Tax on unearned income of certain children. Hr block free military    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Hr block free military If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Hr block free military If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Hr block free military   Some parents can choose to include the child's interest and dividends on the parent's return. Hr block free military If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Hr block free military   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Hr block free military Beneficiary of an estate or trust. Hr block free military   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Hr block free military You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Hr block free military , from the fiduciary. Hr block free military Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Hr block free military Social security number (SSN). Hr block free military   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Hr block free military This includes payers of interest. Hr block free military If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Hr block free military SSN for joint account. Hr block free military   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Hr block free military (For information on who owns the funds in a joint account, see Joint accounts , later. Hr block free military ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Hr block free military This is because only one name and SSN can be shown on Form 1099. Hr block free military   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Hr block free military For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Hr block free military Custodian account for your child. Hr block free military   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Hr block free military For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Hr block free military Penalty for failure to supply SSN. Hr block free military   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Hr block free military See Failure to supply SSN under Penalties in chapter 1. Hr block free military Backup withholding also may apply. Hr block free military Backup withholding. Hr block free military   Your interest income is generally not subject to regular withholding. Hr block free military However, it may be subject to backup withholding to ensure that income tax is collected on the income. Hr block free military Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Hr block free military   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Hr block free military For more information, see Backup Withholding in chapter 4. Hr block free military Reporting backup withholding. Hr block free military   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Hr block free military The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Hr block free military ” Joint accounts. Hr block free military   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Hr block free military Income from property given to a child. Hr block free military   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Hr block free military   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Hr block free military Savings account with parent as trustee. Hr block free military   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Hr block free military The savings account legally belongs to the child. Hr block free military The parents are not legally permitted to use any of the funds to support the child. Hr block free military Form 1099-INT. Hr block free military   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Hr block free military This form shows you the interest you received during the year. Hr block free military Keep this form for your records. Hr block free military You do not have to attach it to your tax return. Hr block free military   Report on your tax return the total interest income you receive for the tax year. Hr block free military Interest not reported on Form 1099-INT. Hr block free military   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Hr block free military For example, you may receive distributive shares of interest from partnerships or S corporations. Hr block free military This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Hr block free military , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Hr block free military Nominees. Hr block free military   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Hr block free military   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Hr block free military Incorrect amount. Hr block free military   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Hr block free military The new Form 1099-INT you receive will be marked “Corrected. Hr block free military ” Form 1099-OID. Hr block free military   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Hr block free military For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Hr block free military Exempt-interest dividends. Hr block free military   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Hr block free military (However, see Information reporting requirement , next. Hr block free military ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Hr block free military You do not reduce your basis for distributions that are exempt-interest dividends. Hr block free military Information reporting requirement. Hr block free military   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Hr block free military This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Hr block free military Note. Hr block free military Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Hr block free military See Alternative Minimum Tax (AMT) in chapter 30 for more information. Hr block free military Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Hr block free military Interest on VA dividends. Hr block free military   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Hr block free military This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Hr block free military Individual retirement arrangements (IRAs). Hr block free military   Interest on a Roth IRA generally is not taxable. Hr block free military Interest on a traditional IRA is tax deferred. Hr block free military You generally do not include it in your income until you make withdrawals from the IRA. Hr block free military See chapter 17. Hr block free military Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Hr block free military The following are some sources of taxable interest. Hr block free military Dividends that are actually interest. Hr block free military   Certain distributions commonly called dividends are actually interest. Hr block free military You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Hr block free military  The “dividends” will be shown as interest income on Form 1099-INT. Hr block free military Money market funds. Hr block free military   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Hr block free military Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Hr block free military Certificates of deposit and other deferred interest accounts. Hr block free military   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Hr block free military You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Hr block free military The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Hr block free military If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Hr block free military Interest subject to penalty for early withdrawal. Hr block free military   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Hr block free military You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Hr block free military See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Hr block free military Money borrowed to invest in certificate of deposit. Hr block free military   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Hr block free military You must report the total interest you earn on the certificate in your income. Hr block free military If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Hr block free military See Interest Expenses in chapter 3 of Publication 550. Hr block free military Example. Hr block free military You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Hr block free military The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Hr block free military The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Hr block free military The bank also gives you a statement showing that you paid $310 interest for 2013. Hr block free military You must include the $575 in your income. Hr block free military If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Hr block free military Gift for opening account. Hr block free military   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Hr block free military   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Hr block free military For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Hr block free military The value is determined by the cost to the financial institution. Hr block free military Example. Hr block free military You open a savings account at your local bank and deposit $800. Hr block free military The account earns $20 interest. Hr block free military You also receive a $15 calculator. Hr block free military If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Hr block free military You must report $35 interest income on your tax return. Hr block free military Interest on insurance dividends. Hr block free military   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Hr block free military However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Hr block free military Prepaid insurance premiums. Hr block free military   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Hr block free military U. Hr block free military S. Hr block free military obligations. Hr block free military   Interest on U. Hr block free military S. Hr block free military obligations, such as U. Hr block free military S. Hr block free military Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Hr block free military Interest on tax refunds. Hr block free military   Interest you receive on tax refunds is taxable income. Hr block free military Interest on condemnation award. Hr block free military   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Hr block free military Installment sale payments. Hr block free military   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Hr block free military That interest is taxable when you receive it. Hr block free military If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Hr block free military See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Hr block free military Interest on annuity contract. Hr block free military   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Hr block free military Usurious interest. Hr block free military   Usurious interest is interest charged at an illegal rate. Hr block free military This is taxable as interest unless state law automatically changes it to a payment on the principal. Hr block free military Interest income on frozen deposits. Hr block free military   Exclude from your gross income interest on frozen deposits. Hr block free military A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Hr block free military   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Hr block free military If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Hr block free military   The interest you exclude is treated as credited to your account in the following year. Hr block free military You must include it in income in the year you can withdraw it. Hr block free military Example. Hr block free military $100 of interest was credited on your frozen deposit during the year. Hr block free military You withdrew $80 but could not withdraw any more as of the end of the year. Hr block free military You must include $80 in your income and exclude $20 from your income for the year. Hr block free military You must include the $20 in your income for the year you can withdraw it. Hr block free military Bonds traded flat. Hr block free military   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Hr block free military The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Hr block free military When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Hr block free military Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Hr block free military See Bonds Sold Between Interest Dates , later, for more information. Hr block free military Below-market loans. Hr block free military   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Hr block free military See Below-Market Loans in chapter 1 of Publication 550 for more information. Hr block free military U. Hr block free military S. Hr block free military Savings Bonds This section provides tax information on U. Hr block free military S. Hr block free military savings bonds. Hr block free military It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Hr block free military For other information on U. Hr block free military S. Hr block free military savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Hr block free military O. Hr block free military Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Hr block free military O. Hr block free military Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Hr block free military O. Hr block free military Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Hr block free military treasurydirect. Hr block free military gov/indiv/indiv. Hr block free military htm. Hr block free military Accrual method taxpayers. Hr block free military   If you use an accrual method of accounting, you must report interest on U. Hr block free military S. Hr block free military savings bonds each year as it accrues. Hr block free military You cannot postpone reporting interest until you receive it or until the bonds mature. Hr block free military Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Hr block free military Cash method taxpayers. Hr block free military   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Hr block free military S. Hr block free military savings bonds when you receive it. Hr block free military The cash method of accounting is explained in chapter 1 under Accounting Methods. Hr block free military But see Reporting options for cash method taxpayers , later. Hr block free military Series HH bonds. Hr block free military    These bonds were issued at face value. Hr block free military Interest is paid twice a year by direct deposit to your bank account. Hr block free military If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Hr block free military   Series HH bonds were first offered in 1980 and last offered in August 2004. Hr block free military Before 1980, series H bonds were issued. Hr block free military Series H bonds are treated the same as series HH bonds. Hr block free military If you are a cash method taxpayer, you must report the interest when you receive it. Hr block free military   Series H bonds have a maturity period of 30 years. Hr block free military Series HH bonds mature in 20 years. Hr block free military The last series H bonds matured in 2009. Hr block free military Series EE and series I bonds. Hr block free military   Interest on these bonds is payable when you redeem the bonds. Hr block free military The difference between the purchase price and the redemption value is taxable interest. Hr block free military Series EE bonds. Hr block free military   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Hr block free military   Before July 1980, series E bonds were issued. Hr block free military The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Hr block free military Paper series EE and series E bonds are issued at a discount. Hr block free military The face value is payable to you at maturity. Hr block free military Electronic series EE bonds are issued at their face value. Hr block free military The face value plus accrued interest is payable to you at maturity. Hr block free military As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Hr block free military   Owners of paper series EE bonds can convert them to electronic bonds. Hr block free military These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Hr block free military Series I bonds. Hr block free military   Series I bonds were first offered in 1998. Hr block free military These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Hr block free military The face value plus all accrued interest is payable to you at maturity. Hr block free military Reporting options for cash method taxpayers. Hr block free military   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Hr block free military Method 1. Hr block free military Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Hr block free military (However, see Savings bonds traded , later. Hr block free military )  Note. Hr block free military Series EE bonds issued in 1983 matured in 2013. Hr block free military If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Hr block free military The last series E bonds were issued in 1980 and matured in 2010. Hr block free military If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Hr block free military Method 2. Hr block free military Choose to report the increase in redemption value as interest each year. Hr block free military You must use the same method for all series EE, series E, and series I bonds you own. Hr block free military If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Hr block free military    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Hr block free military To learn how, see Education Savings Bond Program, later. Hr block free military Change from method 1. Hr block free military   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Hr block free military In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Hr block free military   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Hr block free military Change from method 2. Hr block free military   To change from method 2 to method 1, you must request permission from the IRS. Hr block free military Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Hr block free military You have typed or printed the following number at the top: “131. Hr block free military ” It includes your name and social security number under “131. Hr block free military ” It includes the year of change (both the beginning and ending dates). Hr block free military It identifies the savings bonds for which you are requesting this change. Hr block free military It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Hr block free military   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Hr block free military   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Hr block free military On the statement, type or print “Filed pursuant to section 301. Hr block free military 9100-2. Hr block free military ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Hr block free military    By the date you file the original statement with your return, you must also send a signed copy to the address below. Hr block free military   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Hr block free military O. Hr block free military Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Hr block free military   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. Hr block free military In that case, follow the form instructions for an automatic change. Hr block free military No user fee is required. Hr block free military Co-owners. Hr block free military   If a U. Hr block free military S. Hr block free military savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Hr block free military One co-owner's funds used. Hr block free military    If you used your funds to buy the bond, you must pay the tax on the interest. Hr block free military This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Hr block free military Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Hr block free military The co-owner who redeemed the bond is a “nominee. Hr block free military ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Hr block free military Both co-owners' funds used. Hr block free military   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Hr block free military Community property. Hr block free military   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Hr block free military If you file separate returns, each of you generally must report one-half of the bond interest. Hr block free military For more information about community property, see Publication 555. Hr block free military Table 7-1. Hr block free military   These rules are also shown in Table 7-1. Hr block free military Ownership transferred. Hr block free military   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Hr block free military But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Hr block free military   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Hr block free military Purchased jointly. Hr block free military   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Hr block free military The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Hr block free military This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Hr block free military   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Hr block free military But the new co-owner will report only his or her share of the interest earned after the transfer. Hr block free military   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Hr block free military    Table 7-1. Hr block free military Who Pays the Tax on U. Hr block free military S. Hr block free military Savings Bond Interest IF . Hr block free military . Hr block free military . Hr block free military THEN the interest must be reported by . Hr block free military . Hr block free military . Hr block free military you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Hr block free military you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Hr block free military you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Hr block free military you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Hr block free military If you file separate returns, both you and your spouse generally report one-half of the interest. Hr block free military Example 1. Hr block free military You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Hr block free military The bond was issued to you and your spouse as co-owners. Hr block free military You both postpone reporting interest on the bond. Hr block free military You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Hr block free military At that time neither you nor your spouse has to report the interest earned to the date of reissue. Hr block free military Example 2. Hr block free military You bought a $1,000 series EE savings bond entirely with your own funds. Hr block free military The bond was issued to you and your spouse as co-owners. Hr block free military You both postpone reporting interest on the bond. Hr block free military You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Hr block free military You must report half the interest earned to the date of reissue. Hr block free military Transfer to a trust. Hr block free military   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Hr block free military However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Hr block free military You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Hr block free military   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Hr block free military See Savings bonds traded , later. Hr block free military Decedents. Hr block free military   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Hr block free military This is explained in chapter 1 of Publication 550. Hr block free military Savings bonds traded. Hr block free military   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Hr block free military (You cannot trade series I bonds for series HH bonds. Hr block free military After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Hr block free military ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Hr block free military When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Hr block free military Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Hr block free military Example. Hr block free military You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Hr block free military You reported the $223 as taxable income on your tax return. Hr block free military At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Hr block free military You hold the series HH bonds until maturity, when you receive $2,500. Hr block free military You must report $300 as interest income in the year of maturity. Hr block free military This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Hr block free military (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Hr block free military ) Choice to report interest in year of trade. Hr block free military   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Hr block free military If you made this choice, it is treated as a change from method 1. Hr block free military See Change from method 1 under Series EE and series I bonds, earlier. Hr block free military Form 1099-INT for U. Hr block free military S. Hr block free military savings bonds interest. Hr block free military   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Hr block free military Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Hr block free military However, your Form 1099-INT may show more interest than you have to include on your income tax return. Hr block free military For example, this may happen if any of the following are true. Hr block free military You chose to report the increase in the redemption value of the bond each year. Hr block free military The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Hr block free military You received the bond from a decedent. Hr block free military The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Hr block free military Ownership of the bond was transferred. Hr block free military The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Hr block free military You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Hr block free military The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Hr block free military (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Hr block free military ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Hr block free military The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Hr block free military (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Hr block free military , for the year of distribution. Hr block free military )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Hr block free military Publication 550 includes examples showing how to report these amounts. Hr block free military    Interest on U. Hr block free military S. Hr block free military savings bonds is exempt from state and local taxes. Hr block free military The Form 1099-INT you receive will indicate the amount that is for U. Hr block free military S. Hr block free military savings bond interest in box 3. Hr block free military Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Hr block free military S. Hr block free military savings bonds during the year if you pay qualified higher educational expenses during the same year. Hr block free military This exclusion is known as the Education Savings Bond Program. Hr block free military You do not qualify for this exclusion if your filing status is married filing separately. Hr block free military Form 8815. Hr block free military   Use Form 8815 to figure your exclusion. Hr block free military Attach the form to your Form 1040 or Form 1040A. Hr block free military Qualified U. Hr block free military S. Hr block free military savings bonds. Hr block free military   A qualified U. Hr block free military S. Hr block free military savings bond is a series EE bond issued after 1989 or a series I bond. Hr block free military The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Hr block free military You must be at least 24 years old before the bond's issue date. Hr block free military For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Hr block free military    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Hr block free military Beneficiary. Hr block free military   You can designate any individual (including a child) as a beneficiary of the bond. Hr block free military Verification by IRS. Hr block free military   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Hr block free military Qualified expenses. Hr block free military   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Hr block free military   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Hr block free military   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Hr block free military Eligible educational institutions. Hr block free military   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. Hr block free military S. Hr block free military Department of Education. Hr block free military Reduction for certain benefits. Hr block free military   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Hr block free military Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Hr block free military Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Hr block free military Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Hr block free military Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Hr block free military Any expense used in figuring the American Opportunity and lifetime learning credits. Hr block free military Amount excludable. Hr block free military   If the total proceeds (interest and principal) from the qualified U. Hr block free military S. Hr block free military savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Hr block free military If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Hr block free military   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Hr block free military The numerator of the fraction is the qualified higher educational expenses you paid during the year. Hr block free military The denominator of the fraction is the total proceeds you received during the year. Hr block free military Example. Hr block free military In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Hr block free military S. Hr block free military savings bond they bought in April 1997. Hr block free military They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Hr block free military In 2013, they paid $4,000 of their daughter's college tuition. Hr block free military They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Hr block free military They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Hr block free military They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Hr block free military Modified adjusted gross income limit. Hr block free military   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Hr block free military You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Hr block free military   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Hr block free military   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Hr block free military If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Hr block free military   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Hr block free military Recordkeeping. Hr block free military If you claim the interest exclusion, you must keep a written record of the qualified U. Hr block free military S. Hr block free military savings bonds you redeem. Hr block free military Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Hr block free military You can use Form 8818 to record this information. Hr block free military You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Hr block free military U. Hr block free military S. Hr block free military Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Hr block free military S. Hr block free military Government. Hr block free military Taxation of interest. Hr block free military   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Hr block free military You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Hr block free military   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Hr block free military Treasury bills. Hr block free military   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Hr block free military They are generally issued at a discount in the amount of $100 and multiples of $100. Hr block free military The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Hr block free military Generally, you report this interest income when the bill is paid at maturity. Hr block free military If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Hr block free military Treasury notes and bonds. Hr block free military   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Hr block free military Maturity periods for Treasury bonds are longer than 10 years. Hr block free military Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Hr block free military Generally, you report this interest for the year paid. Hr block free military For more information, see U. Hr block free military S. Hr block free military Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Hr block free military For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Hr block free military O. Hr block free military Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Hr block free military treasurydirect. Hr block free military gov/indiv/indiv. Hr block free military htm. Hr block free military For information on series EE, series I, and series HH savings bonds, see U. Hr block free military S. Hr block free military Savings Bonds , earlier. Hr block free military Treasury inflation-protected securities (TIPS). Hr block free military   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Hr block free military For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Hr block free military Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Hr block free military You must report that part of the sales price as interest income for the year of sale. Hr block free military If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Hr block free military When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Hr block free military See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Hr block free military Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Hr block free military But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Hr block free military For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Hr block free military Annuity. Hr block free military   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Hr block free military See chapter 10 for information on pension and annuity income from nonqualified plans. Hr block free military State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Hr block free military Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Hr block free military Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Hr block free military For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Hr block free military Information reporting requirement. Hr block free military   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Hr block free military This is an information reporting requirement only. Hr block free military It does not change tax-exempt interest to taxable interest. Hr block free military Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Hr block free military You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Hr block free military A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Hr block free military OID is the difference between the stated redemption price at maturity and the issue price. Hr block free military All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Hr block free military Zero coupon bonds are one example of these instruments. Hr block free military The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Hr block free military See Discount on Short-Term Obligations in chapter 1 of Publication 550. Hr block free military De minimis OID. Hr block free military   You can treat the discount as zero if it is less than one-fourth of 1% (. Hr block free military 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Hr block free military This small discount is known as “de minimis” OID. Hr block free military Example 1. Hr block free military You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Hr block free military One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Hr block free military Because the $20 discount is less than $25, the OID is treated as zero. Hr block free military (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Hr block free military ) Example 2. Hr block free military The facts are the same as in Example 1, except that the bond was issued at $950. Hr block free military The OID is $50. Hr block free military Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Hr block free military Debt instrument bought after original issue. Hr block free military   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Hr block free military If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Hr block free military See Market Discount Bonds in chapter 1 of Publication 550. Hr block free military Exceptions to reporting OID. Hr block free military   The OID rules discussed in this chapter do not apply to the following debt instruments. Hr block free military Tax-exempt obligations. Hr block free military (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Hr block free military U. Hr block free military S. Hr block free military savings bonds. Hr block free military Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Hr block free military Obligations issued by an individual before March 2, 1984. Hr block free military Loans between individuals if all the following are true. Hr block free military The lender is not in the business of lending money. Hr block free military The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Hr block free military Avoiding any federal tax is not one of the principal purposes of the loan. Hr block free military Form 1099-OID. Hr block free military   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Hr block free military Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Hr block free military It also will show, in box 2, the stated interest you must include in your income. Hr block free military A copy of Form 1099-OID will be sent to the IRS. Hr block free military Do not file your copy with your return. Hr block free military Keep it for your records. Hr block free military   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Hr block free military But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Hr block free military Form 1099-OID not received. Hr block free military   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Hr block free military gov that list total OID on certain debt instruments and have information that will help you figure OID. Hr block free military For the latest OID tables, go to www. Hr block free military irs. Hr block free military gov and enter “OID tables” in the Search box. Hr block free military If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Hr block free military Nominee. Hr block free military   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Hr block free military Refiguring OID shown on Form 1099-OID. Hr block free military   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Hr block free military You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Hr block free military The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Hr block free military For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Hr block free military Refiguring periodic interest shown on Form 1099-OID. Hr block free military   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Hr block free military Certificates of deposit (CDs). Hr block free military   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Hr block free military   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Hr block free military , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Hr block free military Bearer CDs. Hr block free military   CDs issued after 1982 generally must be in registered form. Hr block free military Bearer CDs are CDs not in registered form. Hr block free military They are not issued in the depositor's name and are transferable from one individual to another. Hr block free military   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Hr block free military More information. Hr block free military   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Hr block free military When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Hr block free military Cash method. Hr block free military   Most individual taxpayers use the cash method. Hr block free military If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Hr block free military However, there are special rules for reporting the discount on certain debt instruments. Hr block free military See U. Hr block free military S. Hr block free military Savings Bonds and Original Issue Discount (OID) , earlier. Hr block free military Example. Hr block free military On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Hr block free military You are not in the business of lending money. Hr block free military The note stated that principal and interest would be due on August 31, 2013. Hr block free military In 2013, you received $2,508. Hr block free military 80 ($2,000 principal and $508. Hr block free military 80 interest). Hr block free military If you use the cash method, you must include in income on your 2013 return the $508. Hr block free military 80 interest you received in that year. Hr block free military Constructive receipt. Hr block free military   You constructively receive income when it is credited to your account or made available to you. Hr block free military You do not need to have physical possession of it. Hr block free military For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Hr block free military This is true even if they are not yet entered in your passbook. Hr block free military   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Hr block free military Accrual method. Hr block free military   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Hr block free military Interest is earned over the term of the debt instrument. Hr block free military Example. Hr block free military If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Hr block free military You would report the interest as follows: 2011, $80; 2012, $249. Hr block free military 60; and 2013, $179. Hr block free military 20. Hr block free military Coupon bonds. Hr block free military   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Hr block free military It does not matter when you mail the coupon for payment. Hr block free military How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Hr block free military You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Hr block free military Instead, you must use Form 1040A or Form 1040. Hr block free military Form 1040A. Hr block free military   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Hr block free military Your taxable interest income is more than $1,500. Hr block free military You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Hr block free military You received interest from a seller-financed mortgage, and the buyer used the property as a home. Hr block free military You received a Form 1099-INT for U. Hr block free military S. Hr block free military savings bond interest that includes amounts you reported before 2013. Hr block free military You received, as a nominee, interest that actually belongs to someone else. Hr block free military You received a Form 1099-INT for interest on frozen deposits. Hr block free military You are reporting OID in an amount less than the amount shown on Form 1099-OID. Hr block free military You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Hr block free military You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Hr block free military List each payer's name and the amount of interest income received from each payer on line 1. Hr block free military If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Hr block free military   You cannot use Form 1040A if you must use Form 1040, as described next. Hr block free military Form 1040. Hr block free military   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Hr block free military Schedule B (Form 1040A or 1040). Hr block free military   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Hr block free military Your taxable interest income is more than $1,500. Hr block free military You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Hr block free military You received interest from a seller-financed mortgage, and the buyer used the property as a home. Hr block free military You received a Form 1099-INT for U. Hr block free military S. Hr block free military savings bond interest that includes amounts you reported before 2013. Hr block free military You received, as a nominee, interest that actually belongs to someone else. Hr block free military You received a Form 1099-INT for interest on frozen deposits. Hr block free military You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Hr block free military You are reporting OID in an amount less than the amount shown on Form 1099-OID. Hr block free military Statement (2) in the preceding list under Form 1040 is true. Hr block free military In Part I, line 1, list each payer's name and the amount received from each. Hr block free military If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Hr block free military Reporting tax-exempt interest. Hr block free military   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Hr block free military Add these amounts to any other tax-exempt interest you received. Hr block free military Report the total on line 8b of Form 1040A or 1040. Hr block free military   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Hr block free military Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Hr block free military   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Hr block free military These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Hr block free military Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Hr block free military    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Hr block free military Form 1099-INT. Hr block free military   Your taxable interest income, except for interest from U. Hr block free military S. Hr block free military savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Hr block free military Add this amount to any other taxable interest income you received. Hr block free military You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Hr block free military Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Hr block free military Your identifying number may be truncated on any paper Form 1099-INT you receive. Hr block free military   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Hr block free military See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Hr block free military   Box 3 of Form 1099-INT shows the interest income you received from U. Hr block free military S. Hr block free military savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Hr block free military Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Hr block free military If part of the amount shown in box 3 was previously included in your interest income, see U. Hr block free military S. Hr block free military savings bond interest previously reported , later. Hr block free military   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Hr block free military Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Hr block free military   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Hr block free military See chapter 28 for more information about investment expenses. Hr block free military   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Hr block free military You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Hr block free military To take the credit, you may have to file Form 1116, Foreign Tax Credit. Hr block free military For more information, see Publication 514, Foreign Tax Credit for Individuals. Hr block free military U. Hr block free military S. Hr block free military savings bond interest previously reported. Hr block free military   If you received a Form 1099-INT for U. Hr block free military S. Hr block free military savings bond interest, the form may show interest you do not have to report. Hr block free military See Form 1099-INT for U. Hr block free military S. Hr block free military savings bonds interest , earlier, under U. Hr block free military S. Hr block free military Savings Bonds. Hr block free military   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Hr block free military Then follow these steps. Hr block free military Several lines above line 2, enter a subtotal of all interest listed on line 1. Hr block free military Below the subtotal enter “U. Hr block free military S. Hr block free military Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Hr block free military Subtract these amounts from the subtotal and enter the result on line 2. Hr block free military More information. Hr block free military   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. Hr block free military Prev  Up  Next   Home   More Online Publications