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Understanding Your CP163 Notice

You received this notice to remind you of the amount you owe in tax, penalty and interest.


What you need to do

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Answers to Common Questions

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Page Last Reviewed or Updated: 26-Mar-2014

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The Irs Gov Efile

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