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State tax rates 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. State tax rates You must be an eligible individual to qualify for an HSA. State tax rates No permission or authorization from the IRS is necessary to establish an HSA. State tax rates You set up an HSA with a trustee. State tax rates 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. State tax rates The HSA can be established through a trustee that is different from your health plan provider. State tax rates Your employer may already have some information on HSA trustees in your area. State tax rates If you have an Archer MSA, you can generally roll it over into an HSA tax free. State tax rates See Rollovers, later. State tax rates What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. State tax rates 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. State tax rates Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. State tax rates The contributions remain in your account until you use them. State tax rates The interest or other earnings on the assets in the account are tax free. State tax rates Distributions may be tax free if you pay qualified medical expenses. State tax rates See Qualified medical expenses , later. State tax rates An HSA is “portable. State tax rates ” It stays with you if you change employers or leave the work force. State tax rates Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. State tax rates You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. State tax rates You have no other health coverage except what is permitted under Other health coverage , later. State tax rates You are not enrolled in Medicare. State tax rates You cannot be claimed as a dependent on someone else's 2013 tax return. State tax rates 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). State tax rates 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. State tax rates If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. State tax rates This is true even if the other person does not actually claim your exemption. State tax rates Each spouse who is an eligible individual who wants an HSA must open a separate HSA. State tax rates You cannot have a joint HSA. State tax rates High deductible health plan (HDHP). State tax rates   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. State tax rates Out-of-pocket expenses include copayments and other amounts, but do not include premiums. State tax rates   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. State tax rates Preventive care includes, but is not limited to, the following. State tax rates Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. State tax rates Routine prenatal and well-child care. State tax rates Child and adult immunizations. State tax rates Tobacco cessation programs. State tax rates Obesity weight-loss programs. State tax rates Screening services. State tax rates This includes screening services for the following: Cancer. State tax rates Heart and vascular diseases. State tax rates Infectious diseases. State tax rates Mental health conditions. State tax rates Substance abuse. State tax rates Metabolic, nutritional, and endocrine conditions. State tax rates Musculoskeletal disorders. State tax rates Obstetric and gynecological conditions. State tax rates Pediatric conditions. State tax rates Vision and hearing disorders. State tax rates For more information on screening services, see Notice 2004-23, 2004-15 I. State tax rates R. State tax rates B. State tax rates 725 available at www. State tax rates irs. State tax rates gov/irb/2004-15_IRB/ar10. State tax rates html. State tax rates     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. State tax rates      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. State tax rates Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. State tax rates    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. State tax rates      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. State tax rates Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. State tax rates   Self-only HDHP coverage is an HDHP covering only an eligible individual. State tax rates 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). State tax rates Example. State tax rates An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. State tax rates This is family HDHP coverage. State tax rates Family plans that do not meet the high deductible rules. State tax rates   There are some family plans that have deductibles for both the family as a whole and for individual family members. State tax rates 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. State tax rates 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. State tax rates Example. State tax rates You have family health insurance coverage in 2013. State tax rates The annual deductible for the family plan is $3,500. State tax rates This plan also has an individual deductible of $1,500 for each family member. State tax rates 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. State tax rates Other health coverage. State tax rates   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. State tax rates However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. State tax rates    You can have additional insurance that provides benefits only for the following items. State tax rates Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. State tax rates A specific disease or illness. State tax rates A fixed amount per day (or other period) of hospitalization. State tax rates   You can also have coverage (whether provided through insurance or otherwise) for the following items. State tax rates Accidents. State tax rates Disability. State tax rates Dental care. State tax rates Vision care. State tax rates Long-term care. State tax rates    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. State tax rates 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. State tax rates Prescription drug plans. State tax rates   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. State tax rates If you can receive benefits before that deductible is met, you are not an eligible individual. State tax rates Other employee health plans. State tax rates   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. State tax rates Health FSAs and HRAs are discussed later. State tax rates   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. State tax rates Limited-purpose health FSA or HRA. State tax rates These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. State tax rates Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. State tax rates Suspended HRA. State tax rates Before the beginning of an HRA coverage period, you can elect to suspend the HRA. State tax rates 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. State tax rates When the suspension period ends, you are no longer eligible to make contributions to an HSA. State tax rates Post-deductible health FSA or HRA. State tax rates These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. State tax rates 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. State tax rates Retirement HRA. State tax rates This arrangement pays or reimburses only those medical expenses incurred after retirement. State tax rates After retirement you are no longer eligible to make contributions to an HSA. State tax rates Health FSA – grace period. State tax rates   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. State tax rates See Flexible Spending Arrangements (FSAs) , later. State tax rates Contributions to an HSA Any eligible individual can contribute to an HSA. State tax rates For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. State tax rates For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. State tax rates Family members or any other person may also make contributions on behalf of an eligible individual. State tax rates Contributions to an HSA must be made in cash. State tax rates Contributions of stock or property are not allowed. State tax rates 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. State tax rates For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. State tax rates If you have family HDHP coverage, you can contribute up to $6,450. State tax rates For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. State tax rates If you have family HDHP coverage you can contribute up to $6,550. State tax rates 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. State tax rates 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. State tax rates 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. State tax rates Last-month rule. State tax rates   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. State tax rates You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. State tax rates Testing period. State tax rates   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. State tax rates 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. State tax rates For example, December 1, 2013, through December 31, 2014. State tax rates   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. State tax rates You include this amount in your income in the year in which you fail to be an eligible individual. State tax rates This amount is also subject to a 10% additional tax. State tax rates The income and additional tax are shown on Form 8889, Part III. State tax rates Example 1. State tax rates Chris, age 53, becomes an eligible individual on December 1, 2013. State tax rates He has family HDHP coverage on that date. State tax rates Under the last-month rule, he contributes $6,450 to his HSA. State tax rates Chris fails to be an eligible individual in June 2014. State tax rates 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. State tax rates Chris uses the worksheet in the Form 8889 instructions to determine this amount. State tax rates 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. State tax rates 00 Total for all months $6,450. State tax rates 00 Limitation. State tax rates Divide the total by 12 $537. State tax rates 50 Chris would include $5,912. State tax rates 50 ($6,450. State tax rates 00 – $537. State tax rates 50) in his gross income on his 2014 tax return. State tax rates Also, a 10% additional tax applies to this amount. State tax rates Example 2. State tax rates Erika, age 39, has self-only HDHP coverage on January 1, 2013. State tax rates Erika changes to family HDHP coverage on November 1, 2013. State tax rates Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. State tax rates Erika fails to be an eligible individual in March 2014. State tax rates 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. State tax rates Erika uses the worksheet in the Form 8889 instructions to determine this amount. State tax rates January $3,250. State tax rates 00 February $3,250. State tax rates 00 March $3,250. State tax rates 00 April $3,250. State tax rates 00 May $3,250. State tax rates 00 June $3,250. State tax rates 00 July $3,250. State tax rates 00 August $3,250. State tax rates 00 September $3,250. State tax rates 00 October $3,250. State tax rates 00 November $6,450. State tax rates 00 December $6,450. State tax rates 00 Total for all months $45,400. State tax rates 00 Limitation. State tax rates Divide the total by 12 $3,783. State tax rates 34 Erika would include $2,666. State tax rates 67 ($6,450 – $3,783. State tax rates 34) in her gross income on her 2014 tax return. State tax rates Also, a 10% additional tax applies to this amount. State tax rates Additional contribution. State tax rates   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. State tax rates 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). State tax rates However, see Enrolled in Medicare , later. State tax rates If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. State tax rates Reduction of contribution limit. State tax rates   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. State tax rates A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. State tax rates Rules for married people. State tax rates   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. State tax rates If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. State tax rates You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. State tax rates After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. State tax rates The rules for married people apply only if both spouses are eligible individuals. State tax rates If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. State tax rates If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. State tax rates Each spouse must make the additional contribution to his or her own HSA. State tax rates Example. State tax rates For 2013, Mr. State tax rates Auburn and his wife are both eligible individuals. State tax rates They each have family coverage under separate HDHPs. State tax rates Mr. State tax rates Auburn is 58 years old and Mrs. State tax rates Auburn is 53. State tax rates Mr. State tax rates and Mrs. State tax rates Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. State tax rates If they split it equally, Mr. State tax rates Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. State tax rates Auburn can contribute $3,225 to an HSA. State tax rates Employer contributions. State tax rates   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. State tax rates This includes amounts contributed to your account by your employer through a cafeteria plan. State tax rates Enrolled in Medicare. State tax rates   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. State tax rates Example. State tax rates You turned age 65 in July 2013 and enrolled in Medicare. State tax rates You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. State tax rates Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). State tax rates Qualified HSA funding distribution. State tax rates   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. State tax rates This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. State tax rates 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. State tax rates   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. State tax rates The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. State tax rates The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. State tax rates The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. State tax rates   You can make only one qualified HSA funding distribution during your lifetime. State tax rates 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. State tax rates 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. State tax rates Example. State tax rates In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. State tax rates You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). State tax rates Funding distribution – testing period. State tax rates   You must remain an eligible individual during the testing period. State tax rates 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. State tax rates 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. State tax rates   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. State tax rates You include this amount in income in the year in which you fail to be an eligible individual. State tax rates This amount is also subject to a 10% additional tax. State tax rates The income and the additional tax are shown on Form 8889, Part III. State tax rates   Each qualified HSA funding distribution allowed has its own testing period. State tax rates For example, you are an eligible individual, age 45, with self-only HDHP coverage. State tax rates On June 18, 2013, you make a qualified HSA funding distribution of $3,250. State tax rates 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. State tax rates Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. State tax rates Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. State tax rates   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. State tax rates 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. State tax rates Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. State tax rates Archer MSAs and other HSAs. State tax rates   You can roll over amounts from Archer MSAs and other HSAs into an HSA. State tax rates You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. State tax rates Rollover contributions do not need to be in cash. State tax rates Rollovers are not subject to the annual contribution limits. State tax rates   You must roll over the amount within 60 days after the date of receipt. State tax rates You can make only one rollover contribution to an HSA during a 1-year period. State tax rates Note. State tax rates 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. State tax rates There is no limit on the number of these transfers. State tax rates Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. State tax rates When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. State tax rates 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. State tax rates Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. State tax rates Your employer must notify you and the trustee of your HSA that the contribution is for 2013. State tax rates The contribution will be reported on your 2014 Form W-2. State tax rates Reporting Contributions on Your Return Contributions made by your employer are not included in your income. State tax rates 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. State tax rates 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. State tax rates Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. State tax rates The contributions are treated as a distribution of money and are not included in the partner's gross income. State tax rates 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. State tax rates In both situations, the partner can deduct the contribution made to the partner's HSA. State tax rates 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. State tax rates The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. State tax rates Form 8889. State tax rates   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. State tax rates You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. State tax rates Contributions made by your employer and qualified HSA funding distributions are also shown on the form. State tax rates   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. State tax rates Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. State tax rates Follow the instructions for Form 8889. State tax rates Report your HSA deduction on Form 1040 or Form 1040NR. State tax rates Excess contributions. State tax rates   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. State tax rates Excess contributions are not deductible. State tax rates Excess contributions made by your employer are included in your gross income. State tax rates 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. State tax rates   Generally, you must pay a 6% excise tax on excess contributions. State tax rates See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. State tax rates The excise tax applies to each tax year the excess contribution remains in the account. State tax rates   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. State tax rates You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. State tax rates 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. State tax rates 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. State tax rates If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. State tax rates Deducting an excess contribution in a later year. State tax rates   You may be able to deduct excess contributions for previous years that are still in your HSA. State tax rates The excess contribution you can deduct for the current year is the lesser of the following two amounts. State tax rates Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. State tax rates The total excess contributions in your HSA at the beginning of the year. State tax rates   Amounts contributed for the year include contributions by you, your employer, and any other person. State tax rates They also include any qualified HSA funding distribution made to your HSA. State tax rates Any excess contribution remaining at the end of a tax year is subject to the excise tax. State tax rates See Form 5329. State tax rates 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. State tax rates 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. State tax rates 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. State tax rates 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. State tax rates You do not have to make distributions from your HSA each year. State tax rates If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. State tax rates Generally, a distribution is money you get from your health savings account. State tax rates 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. State tax rates 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. State tax rates Qualified medical expenses. State tax rates   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. State tax rates These are explained in Publication 502, Medical and Dental Expenses. State tax rates   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. State tax rates 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. State tax rates   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. State tax rates State law determines when an HSA is established. State tax rates 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. State tax rates   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. State tax rates   Qualified medical expenses are those incurred by the following persons. State tax rates You and your spouse. State tax rates All dependents you claim on your tax return. State tax rates 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. State tax rates    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. State tax rates 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. State tax rates Insurance premiums. State tax rates   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. State tax rates Health care continuation coverage (such as coverage under COBRA). State tax rates Health care coverage while receiving unemployment compensation under federal or state law. State tax rates Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). State tax rates   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. State tax rates See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). State tax rates   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. State tax rates 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. State tax rates Health coverage tax credit. State tax rates   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. State tax rates See Publication 502 for more information on this credit. State tax rates Deemed distributions from HSAs. State tax rates   The following situations result in deemed taxable distributions from your HSA. State tax rates You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. State tax rates 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. State tax rates You used any portion of any of your HSAs as security for a loan at any time in 2013. State tax rates You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. State tax rates   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. State tax rates   Any deemed distribution will not be treated as used to pay qualified medical expenses. State tax rates These distributions are included in your income and are subject to the additional 20% tax, discussed later. State tax rates Recordkeeping. State tax rates 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. State tax rates Do not send these records with your tax return. State tax rates Keep them with your tax records. State tax rates 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). State tax rates 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. State tax rates 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. State tax rates Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. State tax rates If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. State tax rates Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. State tax rates You may have to pay an additional 20% tax on your taxable distribution. State tax rates HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. State tax rates Additional tax. State tax rates   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. State tax rates Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. State tax rates Exceptions. State tax rates   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. State tax rates Balance in an HSA An HSA is generally exempt from tax. State tax rates 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. State tax rates Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). State tax rates Earnings on amounts in an HSA are not included in your income while held in the HSA. State tax rates Death of HSA Holder You should choose a beneficiary when you set up your HSA. State tax rates What happens to that HSA when you die depends on whom you designate as the beneficiary. State tax rates Spouse is the designated beneficiary. State tax rates   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. State tax rates Spouse is not the designated beneficiary. State tax rates   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. State tax rates If your estate is the beneficiary, the value is included on your final income tax return. State tax rates 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. State tax rates 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. State tax rates You must file the form even if only your employer or your spouse's employer made contributions to the HSA. State tax rates 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. State tax rates Enter “statement” at the top of each Form 8889 and complete the form as instructed. State tax rates Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. State tax rates Attach the statements to your tax return after the controlling Form 8889. State tax rates Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. State tax rates Unlike the previous discussions, “you” refers to the employer and not to the employee. State tax rates Health plan. State tax rates   If you want your employees to be able to have an HSA, they must have an HDHP. State tax rates You can provide no additional coverage other than those exceptions listed previously under Other health coverage . State tax rates Contributions. State tax rates   You can make contributions to your employees' HSAs. State tax rates You deduct the contributions on your business income tax return for the year in which you make the contributions. State tax rates If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. State tax rates   For more information on employer contributions, see Notice 2008-59, 2008-29 I. State tax rates R. State tax rates B. State tax rates 123, questions 23 through 27, available at www. State tax rates irs. State tax rates gov/irb/2008-29_IRB/ar11. State tax rates html. State tax rates Comparable contributions. State tax rates   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. State tax rates 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. State tax rates The comparability rules do not apply to contributions made through a cafeteria plan. State tax rates Comparable participating employees. State tax rates   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). State tax rates   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. State tax rates   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. State tax rates 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. State tax rates For a sample of the notice, see Regulation 54. State tax rates 4980G-4 A-14(c). State tax rates 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. State tax rates Note. State tax rates For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. State tax rates Excise tax. State tax rates   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. State tax rates Employment taxes. State tax rates   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. State tax rates You must report the contributions in box 12 of the Form W-2 you file for each employee. State tax rates This includes the amounts the employee elected to contribute through a cafeteria plan. State tax rates Enter code “W” in box 12. State tax rates 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). State tax rates 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. State tax rates 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. State tax rates Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. State tax rates S. State tax rates financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. State tax rates What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. State tax rates You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. State tax rates The interest or other earnings on the assets in your Archer MSA are tax free. State tax rates Distributions may be tax free if you pay qualified medical expenses. State tax rates See Qualified medical expenses , later. State tax rates The contributions remain in your Archer MSA from year to year until you use them. State tax rates An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. State tax rates Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. State tax rates 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). State tax rates A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. State tax rates You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. State tax rates You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. State tax rates If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. State tax rates This is true even if the other person does not actually claim your exemption. State tax rates Small employer. State tax rates   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. State tax rates The definition of small employer is modified for new employers and growing employers. State tax rates Growing employer. State tax rates   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. State tax rates 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. State tax rates Changing employers. State tax rates   If you change employers, your Archer MSA moves with you. State tax rates However, you may not make additional contributions unless you are otherwise eligible. State tax rates High deductible health plan (HDHP). State tax rates   To be eligible for an Archer MSA, you must be covered under an HDHP. State tax rates 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. State tax rates Limits. State tax rates   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. State tax rates   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. State tax rates   There are some family plans that have deductibles for both the family as a whole and for individual family members. State tax rates 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. State tax rates 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. State tax rates Example. State tax rates You have family health insurance coverage in 2013. State tax rates The annual deductible for the family plan is $5,500. State tax rates This plan also has an individual deductible of $2,000 for each family member. State tax rates 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. State tax rates Other health coverage. State tax rates   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. State tax rates However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. State tax rates However, you can have additional insurance that provides benefits only for the following items. State tax rates Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. State tax rates A specific disease or illness. State tax rates A fixed amount per day (or other period) of hospitalization. State tax rates You can also have coverage (whether provided through insurance or otherwise) for the following items. State tax rates Accidents. State tax rates Disability. State tax rates Dental care. State tax rates Vision care. State tax rates Long-term care. State tax rates Contributions to an MSA Contributions to an Archer MSA must be made in cash. State tax rates You cannot contribute stock or other property to an Archer MSA. State tax rates Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. State tax rates (You do not pay tax on these contributions. State tax rates ) 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. State tax rates Both you and your employer cannot make contributions to your Archer MSA in the same year. State tax rates You do not have to make contributions to your Archer MSA every year. State tax rates    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. State tax rates Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. State tax rates An income limit. State tax rates Annual deductible limit. State tax rates   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. State tax rates You must have the HDHP all year to contribute the full amount. State tax rates 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. State tax rates Example 1. State tax rates You have an HDHP for your family all year in 2013. State tax rates The annual deductible is $5,000. State tax rates You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. State tax rates Example 2. State tax rates You have an HDHP for your family for the entire months of July through December 2013 (6 months). State tax rates The annual deductible is $5,000. State tax rates You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. State tax rates 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. State tax rates The contribution limit is split equally between you unless you agree on a different division. State tax rates Income limit. State tax rates   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. State tax rates   If you are self-employed, you cannot contribute more than your net self-employment income. State tax rates This is your income from self-employment minus expenses (including the deductible part of self-employment tax). State tax rates Example 1. State tax rates Noah Paul earned $25,000 from ABC Company in 2013. State tax rates Through ABC, he had an HDHP for his family for the entire year. State tax rates The annual deductible was $5,000. State tax rates He can contribute up to $3,750 to his Archer MSA (75% × $5,000). State tax rates He can contribute the full amount because he earned more than $3,750 at ABC. State tax rates Example 2. State tax rates Westley Lawrence is self-employed. State tax rates He had an HDHP for his family for the entire year in 2013. State tax rates The annual deductible was $5,000. State tax rates Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). State tax rates However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. State tax rates Therefore, he is limited to a contribution of $2,500. State tax rates Individuals enrolled in Medicare. State tax rates   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. State tax rates However, you may be eligible for a Medicare Advantage MSA, discussed later. State tax rates When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. State tax rates 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. State tax rates You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. State tax rates 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. State tax rates Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. State tax rates Follow the instructions for Form 8853 and complete the worksheet in the instructions. State tax rates Report your Archer MSA deduction on Form 1040 or Form 1040NR. State tax rates Excess contributions. State tax rates   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. State tax rates Excess contributions are not deductible. State tax rates Excess contributions made by your employer are included in your gross income. State tax rates 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. State tax rates   Generally, you must pay a 6% excise tax on excess contributions. State tax rates See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. State tax rates The excise tax applies to each tax year the excess contribution remains in the account. State tax rates   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. State tax rates You withdraw the excess contributions by the due date, including extensions, of your tax return. State tax rates 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. State tax rates Deducting an excess contribution in a later year. State tax rates   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. State tax rates The excess contribution you can deduct in the current year is the lesser of the following two amounts. State tax rates Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. State tax rates The total excess contributions in your Archer MSA at the beginning of the year. State tax rates   Any excess contributions remaining at the end of a tax year are subject to the excise tax. State tax rates See Form 5329. State tax rates 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. State tax rates 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. State tax rates You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). State tax rates 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. State tax rates You do not have to make withdrawals from your Archer MSA each year. State tax rates If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. State tax rates A distribution is money you get from your Archer MSA. State tax rates 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. State tax rates Qualified medical expenses. State tax rates   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. State tax rates These are explained in Publication 502. State tax rates   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. State tax rates 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. State tax rates   Qualified medical expenses are those incurred by the following persons. State tax rates You and your spouse. State tax rates All dependents you claim on your tax return. State tax rates 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. State tax rates    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. State tax rates    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. State tax rates Special rules for insurance premiums. State tax rates   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. State tax rates 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. State tax rates Health coverage tax credit. State tax rates   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. State tax rates See Publication 502 for information on this credit. State tax rates Deemed distributions from Archer MSAs. State tax rates   The following situations result in deemed taxable distributions from your Archer MSA. State tax rates You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. State tax rates 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. State tax rates You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. State tax rates You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. State tax rates   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. State tax rates   Any deemed distribution will not be treated as used to pay qualified medical expenses. State tax rates These distributions are included in your income and are subject to the additional 20% tax, discussed later. State tax rates Recordkeeping. State tax rates 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. State tax rates Do not send these records with your tax return. State tax rates Keep them with your tax records. State tax rates 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). State tax rates 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. State tax rates Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. State tax rates If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. State tax rates Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. State tax rates You may have to pay an additional 20% tax, discussed later, on your taxable distribution. State tax rates 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. State tax rates Rollovers. State tax rates   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. State tax rates An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. State tax rates See the Form 8853 instructions for more information. State tax rates Additional tax. State tax rates   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. State tax rates Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. State tax rates Report the additional tax in the total on Form 1040 or Form 1040NR. State tax rates Exceptions. State tax rates   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. State tax rates Balance in an Archer MSA An Archer MSA is generally exempt from tax. State tax rates 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. State tax rates Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). State tax rates Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. State tax rates Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. State tax rates What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. State tax rates Spouse is the designated beneficiary. State tax rates   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. State tax rates Spouse is not the designated beneficiary. State tax rates   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. State tax rates   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. State tax rates 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. State tax rates 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. State tax rates You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. State tax rates 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. State tax rates Enter “statement” at the top of each Form 8853 and complete the form as instructed. State tax rates Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. State tax rates Attach the statements to your tax return after the controlling Form 8853. State tax rates Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. State tax rates Unlike the previous discussions, “you” refers to the employer and not to the employee. State tax rates Health plan. State tax rates   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. State tax rates You can provide no additional coverage other than those exceptions listed previously under Other health coverage . State tax rates Contributions. State tax rates   You can make contributions to your employees' Archer MSAs. State tax rates 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. State tax rates If you are filing Form 1040, Schedule C, this is Part II, line 14. State tax rates Comparable contributions. State tax rates   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. State tax rates 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. State tax rates Comparable participating employees. State tax rates   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). State tax rates Excise tax. State tax rates   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. State tax rates Employment taxes. State tax rates   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. State tax rates You must report the contributions in box 12 of the Form W-2 you file for each employee. State tax rates Enter code “R” in box 12. State tax rates 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. State tax rates 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. State tax rates 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. State tax rates The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. State tax rates An HDHP is a special health insurance policy that has a high deductible. State tax rates You choose the policy you want to use as part of your Medicare Advantage MSA plan. State tax rates However, the policy must be approved by the Medicare program. State tax rates Medicare Advantage MSAs are administered through the federal Medicare program. State tax rates You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. State tax rates medicare. State tax rates gov. State tax rates Note. State tax rates You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. State tax rates Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. State tax rates FSAs are usually funded through voluntary salary reduction agreements with your employer. State tax rates No employment or federal income taxes are deducted from your contribution. State tax rates The employer may also contribute. State tax rates Note. State tax rates 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. State tax rates For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. State tax rates What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. State tax rates Contributions made by your employer can be excluded from your gross income. State tax rates No employment or federal income taxes are deducted from the contributions. State tax rates Withdrawals may be tax free if you pay qualified medical expenses. State tax rates See Qualified medical expenses , later. State tax rates You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. State tax rates Qualifying for an FSA Health FSAs are employer-established benefit plans. State tax rates These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. State tax rates Employers have complete flexibility to offer various combinations of benefits in designing their plan. State tax rates You do not have to be covered under any other health care plan to participate. State tax rates Self-employed persons are not eligible for an FSA. State tax rates Certain limitations may apply if you are a highly compensated participant or a key employee. State tax rates Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. State tax rates This is sometimes called a salary reduction agreement. State tax rates The employer may also contribute to your FSA if specified in the plan. State tax rates You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. State tax rates However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. State tax rates When To Contribute At the
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State tax rates 4. State tax rates   Filing U. State tax rates S. State tax rates Tax Returns Table of Contents Who Must FileFiling Requirement if Possession Income Is Excluded When To FileExtension of Time To File Where To File Special Rules for Completing Your U. State tax rates S. State tax rates Tax ReturnU. State tax rates S. State tax rates Armed Forces. State tax rates Deductions if Possession Income Is Excluded Foreign Tax Credit if Possession Income Is Excluded Self-Employment Tax Additional Medicare Tax Net Investment Income Tax Paying Your TaxesEstimated Tax Double TaxationCompetent Authority Assistance The information in chapter 3 will tell you if a U. State tax rates S. State tax rates income tax return is required for your situation. State tax rates If a U. State tax rates S. State tax rates return is required, your next step is to see if you meet the filing requirements. State tax rates If you do meet the filing requirements, the information presented in this chapter will help you understand the special procedures involved. State tax rates This chapter discusses: Filing requirements, When to file your return, Where to send your return, How to adjust your deductions and credits if you are excluding income from American Samoa or Puerto Rico, How to make estimated tax payments and pay self-employment tax, and How to request assistance in resolving instances of double taxation. State tax rates Who Must File If you are not required to file a possession tax return that includes your worldwide income, you must generally file a U. State tax rates S. State tax rates income tax return if your gross income is at least the amount shown in Table 4-1, later, for your filing status and age. State tax rates If you were a bona fide resident of American Samoa or Puerto Rico and are able to exclude your possession income from your U. State tax rates S. State tax rates tax return, your filing requirement may be less than the amount in Table 4-1. State tax rates For details, see the information under Filing Requirement if Possession Income Is Excluded , later. State tax rates Some individuals (such as those who can be claimed as a dependent on another person's return or who owe certain taxes, such as self-employment tax) must file a tax return even though the gross income is less than the amount shown in Table 4-1 for their filing status and age. State tax rates For more information, see the Form 1040 instructions. State tax rates Filing Requirement if Possession Income Is Excluded If you were a bona fide resident of American Samoa or Puerto Rico and qualify to exclude possession income on your U. State tax rates S. State tax rates tax return, you must determine your adjusted filing requirement. State tax rates Generally, your filing requirement is based on the total of your (and your spouse's if filing a joint return) personal exemption(s) plus your standard deduction. State tax rates Personal exemption. State tax rates   When figuring your filing requirement, your personal exemption is allowed in full. State tax rates Do not reduce it for this purpose. State tax rates Do not include exemptions for your dependents. State tax rates Allowable standard deduction. State tax rates   Unless your filing status is married filing separately, the minimum income level at which you must file a return is based, in part, on the standard deduction for your filing status and age. State tax rates Because the standard deduction applies to all types of income, it must be divided between your excluded income and income from other sources. State tax rates Multiply the regular standard deduction for your filing status and age (this is zero if you are married filing a separate return; all others, see Form 1040 instructions) by the following fraction:      Gross income subject to U. State tax rates S. State tax rates income tax     Gross income from all sources (including excluded possession income)   Example. State tax rates Barbara Spruce, a U. State tax rates S. State tax rates citizen, is single, under 65, and a bona fide resident of American Samoa. State tax rates During 2013, she received $20,000 of income from American Samoa sources (qualifies for exclusion) and $8,000 of income from sources outside the possession (subject to U. State tax rates S. State tax rates income tax). State tax rates Her allowable standard deduction for 2013 is figured as follows:   $8,000 $28,000 × $6,100 (regular standard deduction) = $1,743   Adjusted filing requirement. State tax rates   Figure your adjusted filing requirement by adding the amount of your allowable standard deduction to the amount of your personal exemption. State tax rates You must file a U. State tax rates S. State tax rates income tax return if your gross income is at least the amount shown on line 3 of the following worksheet. State tax rates    1. State tax rates Enter the allowable standard deduction you figured earlier under Allowable standard deduction . State tax rates If your filing status is married filing separately, enter -0-   2. State tax rates Personal exemption. State tax rates If your filing status is married filing jointly, enter $7,800; if someone can claim you as a dependent, enter -0-; otherwise, enter $3,900   3. State tax rates Add lines 1 and 2. State tax rates You must file a U. State tax rates S. State tax rates income tax return if your gross income from sources outside the relevant possession is at least this amount   Table 4-1. State tax rates 2013 Filing Requirements Chart for Most Taxpayers IF your filing status is. State tax rates . State tax rates . State tax rates AND at the end of 2013 you were*. State tax rates . State tax rates . State tax rates THEN file a return if your gross income** was at least. State tax rates . State tax rates . State tax rates single under 65 $10,000 65 or older $11,500 married filing jointly*** under 65 (both spouses) $20,000 65 or older (one spouse) $21,200 65 or older (both spouses) $22,400 married filing separately any age $3,900 head of household under 65 $12,850 65 or older $14,350 qualifying widow(er)  with dependent child under 65 $16,100 65 or older $17,300 * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. State tax rates ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States (even if you can exclude part or all of it). State tax rates Do not include social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2013, or (b) one-half of your social security benefits plus your other gross income is more than $25,000 ($32,000 if married filing jointly). State tax rates If (a) or (b) applies, see the instructions for Form 1040 or Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure the taxable part of social security benefits you must include in gross income. State tax rates *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900 you must file a return regardless of your age. State tax rates Example 1. State tax rates James and Joan Thompson, one over 65, are U. State tax rates S. State tax rates citizens and bona fide residents of Puerto Rico during the entire tax year. State tax rates They file a joint income tax return. State tax rates During 2013, they received $35,000 of income from Puerto Rico sources (qualifies for exclusion) and $6,000 of income from sources outside Puerto Rico (subject to U. State tax rates S. State tax rates income tax). State tax rates Their allowable standard deduction for 2013 is figured as follows:   $6,000 $41,000 × $13,400 ( standard deduction for 65 or older (one spouse) ) = $1,961   The Thompsons do not have to file a U. State tax rates S. State tax rates income tax return because their gross income subject to U. State tax rates S. State tax rates tax ($6,000) is less than their allowable standard deduction plus their personal exemptions ($1,961+ $7,800= $9,761). State tax rates Example 2. State tax rates Barbara Spruce (see Example under Allowable standard deduction, earlier), however, must file a U. State tax rates S. State tax rates income tax return because her gross income subject to U. State tax rates S. State tax rates tax ($8,000) is more than her allowable standard deduction plus her personal exemption ($1,743 + $3,900 = $5,643). State tax rates If you must file a U. State tax rates S. State tax rates income tax return, you may be able to file a paperless return using IRS e-file. State tax rates See your form instructions or visit our website at IRS. State tax rates gov. State tax rates When To File If you file on a calendar year basis, the due date for filing your U. State tax rates S. State tax rates income tax return is April 15 following the end of your tax year. State tax rates If you use a fiscal year (a year ending on the last day of a month other than December), the due date is the 15th day of the 4th month after the end of your fiscal year. State tax rates If any due date falls on a Saturday, Sunday, or legal holiday, your tax return is due on the next business day. State tax rates For your 2013 tax return, the due date is April 15, 2014. State tax rates If you mail your federal tax return, it is considered timely if it bears an official postmark dated on or before the due date, including any extensions. State tax rates If you use a private delivery service designated by the IRS, generally the postmark date is the date the private delivery service records in its database or marks on the mailing label. State tax rates See your form instructions for a list of designated private delivery services. State tax rates Extension of Time To File You can get an extension of time to file your U. State tax rates S. State tax rates income tax return. State tax rates Special rules apply for those living outside the United States. State tax rates Automatic 6-Month Extension If you cannot file your 2013 return by the due date, you can get an automatic 6-month extension of time to file. State tax rates Example. State tax rates If your return must be filed by April 15, 2014, you will have until October 15, 2014, to file. State tax rates Although you are not required to make a payment of the tax you estimate as due, Form 4868 does not extend the time to pay taxes. State tax rates If you do not pay the amount due by the regular due date (generally April 15), you will owe interest on any unpaid tax from the original due date to the date you pay the tax. State tax rates You may also be charged penalties (see the Instructions for Form 4868). State tax rates How to get the automatic extension. State tax rates   You can get the automatic 6-month extension if you do one of the following by the due date for filing your return. State tax rates E-file Form 4868 using your personal computer or a tax professional. State tax rates E-file and pay by credit or debit card. State tax rates Your payment must be at least $1. State tax rates You may pay by phone or over the Internet. State tax rates Do not file Form 4868. State tax rates File a paper Form 4868. State tax rates If you are a fiscal year taxpayer, you must file a paper Form 4868. State tax rates See Form 4868 for information on getting an extension using these options. State tax rates When to file. State tax rates   You must request the automatic extension by the due date for your return. State tax rates You can file your return any time before the 6-month extension period ends. State tax rates When you file your return. State tax rates   Enter any payment you made related to the extension of time to file on Form 1040, line 68. State tax rates If you file Form 1040A, U. State tax rates S. State tax rates Individual Income Tax Return, or Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, include that payment in your total payments on Form 1040A, line 41, or Form 1040EZ, line 9. State tax rates Also enter “Form 4868” and the amount paid in the space to the left of the entry space for line 41 or line 9. State tax rates You cannot ask the Internal Revenue Service to figure your tax if you use the extension of time to file. State tax rates Individuals Outside the United States and Puerto Rico You are allowed an automatic 2-month extension (until June 16, 2014, if you use the calendar year) to file your 2013 return and pay any federal income tax due if: You are a U. State tax rates S. State tax rates citizen or resident, and On the due date of your return: You are living outside of the United States and Puerto Rico, and your main place of business or post of duty is outside the United States and Puerto Rico, or You are in military or naval service on duty outside the United States and Puerto Rico. State tax rates However, if you pay the tax due after the regular due date (generally April 15), interest will be charged from April 15 until the date the tax is paid. State tax rates If you serve in a combat zone or qualified hazardous duty area, you may be eligible for a longer extension of time to file. State tax rates For more information, see Publication 3, Armed Forces' Tax Guide. State tax rates Married taxpayers. State tax rates   If you file a joint return, only one spouse has to qualify for this automatic extension. State tax rates However, if you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies. State tax rates How to get the extension. State tax rates   To use this special automatic extension, you must attach a statement to your return explaining what situation qualified you for the extension. State tax rates (See the situations listed under (2), earlier. State tax rates ) Extension beyond 2 months. State tax rates   If you cannot file your 2013 return within the automatic 2-month extension period, you can get an additional 4-month extension, for a total of 6 months. State tax rates File Form 4868 by the end of the automatic extension period (June 16, 2014 for calendar year taxpayers). State tax rates Be sure to check the box on Form 4868, line 8, if appropriate. State tax rates   In addition to this 6-month extension, taxpayers who are out of the country (as defined under (2) earlier) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). State tax rates   To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. State tax rates Send the letter by the extended due date (October 15 for calendar year taxpayers) to:  Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 USA   You will not receive any notification from the IRS unless your request is denied for being untimely. State tax rates Where To File Use the addresses listed below if you have to file Form 1040 with the United States and you are excluding possession income from American Samoa or Puerto Rico. State tax rates If you are not including a check or a money order, send your U. State tax rates S. State tax rates tax return and all attachments to:   Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 USA If you are including a check or a money order, send your U. State tax rates S. State tax rates tax return and all attachments to:  Internal Revenue Service P. State tax rates O. State tax rates Box 1303 Charlotte, NC 28201-1303 USA Also send your U. State tax rates S. State tax rates return to these addresses if you are attaching Form 5074 or Form 8689. State tax rates If you are not in either of the above categories, send your return to the address shown in the Form 1040 instructions for the possession or state in which you reside. State tax rates Special Rules for Completing Your U. State tax rates S. State tax rates Tax Return If you are not excluding possession income from your U. State tax rates S. State tax rates tax return, follow the instructions for the specific forms you file. State tax rates However, you may not qualify to claim the earned income credit (EIC). State tax rates Earned income credit. State tax rates   Even if you maintain a household in one of the possessions discussed in this publication that is your main home and the home of your qualifying child, you cannot claim the earned income credit on your U. State tax rates S. State tax rates tax return. State tax rates This credit is available only if you maintain the household in the United States or you are serving on extended active duty in the U. State tax rates S. State tax rates Armed Forces. State tax rates U. State tax rates S. State tax rates Armed Forces. State tax rates   U. State tax rates S. State tax rates military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. State tax rates Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. State tax rates Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. State tax rates Income from American Samoa or Puerto Rico excluded. State tax rates   You will not be allowed to take deductions and credits that apply to the excluded income. State tax rates The additional information you need follows. State tax rates Deductions if Possession Income Is Excluded Deductions that specifically apply to your excluded possession income, such as employee business expenses, are not allowable on your U. State tax rates S. State tax rates income tax return. State tax rates Deductions that do not specifically apply to any particular type of income must be divided between your excluded income from sources in the relevant possession and income from all other sources to find the part that you can deduct on your U. State tax rates S. State tax rates tax return. State tax rates Examples of such deductions are alimony payments, the standard deduction, and certain itemized deductions (such as medical expenses, charitable contributions, real estate taxes, and mortgage interest on your home). State tax rates Figuring the deduction. State tax rates   To find the part of a deduction that is allowable, multiply the deduction by the following fraction. State tax rates   Gross income subject to U. State tax rates S. State tax rates income tax     Gross income from all sources (including excluded possession income)   Adjustments to Income Your adjusted gross income equals your gross income minus certain deductions (adjustments). State tax rates Moving expense deduction. State tax rates   Generally, expenses of a move to a possession are directly attributable to wages, salaries, and other earned income from that possession. State tax rates Likewise, the expenses of a move back to the United States are generally attributable to U. State tax rates S. State tax rates earned income. State tax rates   If you are claiming expenses for a move to a relevant possession, how and where you will deduct the expenses depends on your status as a bona fide resident and if any of your possession income is excluded on your U. State tax rates S. State tax rates tax return. State tax rates For more information, see Moving expense deduction in chapter 3 under the name of the relevant possession. State tax rates   If you are claiming expenses for a move from a U. State tax rates S. State tax rates possession to the United States, use Form 3903 to figure your deductible expenses and enter the amount on Form 1040, line 26. State tax rates For purposes of deducting moving expenses, the possessions are considered part of the United States. State tax rates See Publication 521, Moving Expenses, for information about what expenses are deductible. State tax rates Self-employment tax deduction. State tax rates   Generally, if you are reporting self-employment income on your U. State tax rates S. State tax rates return, you can include the deductible part of your self-employment tax on Form 1040, line 27. State tax rates This is an income tax deduction only; it is not a deduction in figuring net earnings from self-employment (for self-employment tax). State tax rates   However, if you are a bona fide resident of American Samoa or Puerto Rico and you exclude all of your self-employment income from gross income, you cannot take the deduction on Form 1040, line 27, because the deduction is related to excluded income. State tax rates   If only part of your self-employment income is excluded, the part of the deduction that is based on the nonexcluded income is allowed. State tax rates This would happen if, for instance, you have two businesses and only the income from one of them is excludable. State tax rates   For purposes of the deduction only, figure the self-employment tax on the nonexcluded income by multiplying your total self-employment tax (from Schedule SE (Form 1040)), Self-Employment Tax) by the following fraction. State tax rates   Self-employment income subject to U. State tax rates S. State tax rates income tax     Total self-employment income (including excluded possession income)   The result is your self-employment tax on nonexcluded income. State tax rates Include the deductible part of this amount on Form 1040, line 27. State tax rates Individual retirement arrangement (IRA) deduction. State tax rates   Do not take excluded income into account when figuring your deductible IRA contribution. State tax rates Standard Deduction The standard deduction is composed of the regular standard deduction amount and the additional standard deduction for taxpayers who are blind or age 65 or over. State tax rates To find the amount you can claim on Form 1040, line 40, first figure your full standard deduction according to the Instructions for Form 1040. State tax rates Then multiply your full standard deduction by the following fraction. State tax rates   Gross income subject to U. State tax rates S. State tax rates income tax     Gross income from all sources (including excluded possession income)   In the space above line 40, enter “Standard deduction modified due to income excluded under section 931 (if American Samoa) or section 933 (if Puerto Rico). State tax rates ” This calculation may not be the same as the one you used to determine if you need to file a U. State tax rates S. State tax rates tax return. State tax rates Itemized Deductions Most itemized deductions do not apply to a particular type of income. State tax rates However, itemized deductions can be divided into three categories. State tax rates Those that apply specifically to excluded income, such as employee business expenses, are not deductible. State tax rates Those that apply specifically to income subject to U. State tax rates S. State tax rates income tax, which might also be employee business expenses, are fully allowable under the Instructions for Schedule A (Form 1040), Itemized Deductions. State tax rates Those that do not apply to specific income must be allocated between your gross income subject to U. State tax rates S. State tax rates income tax and your total gross income from all sources. State tax rates The example given later shows how to figure the deductible part of each type of expense that is not related to specific income. State tax rates Example. State tax rates In 2013, you and your spouse are both under 65 and U. State tax rates S. State tax rates citizens who are bona fide residents of Puerto Rico during the entire tax year. State tax rates You file a joint income tax return. State tax rates During 2013, you earned $20,000 from Puerto Rican sources (excluded from U. State tax rates S. State tax rates gross income) and your spouse earned $60,000 from the U. State tax rates S. State tax rates Government. State tax rates You have $16,000 of itemized deductions that do not apply to any specific type of income. State tax rates These are medical expenses of $4,000, real estate taxes of $5,000, home mortgage interest of $6,000, and charitable contributions of $1,000 (cash contributions). State tax rates You determine the amount of each deduction that you can claim on your Schedule A (Form 1040), Itemized Deductions, by multiplying the deduction by the fraction shown under Figuring the deduction , earlier under Deductions if Possession Income is Excluded. State tax rates   Medical Expenses   $60,000$80,000 × $4,000 = $3,000  (enter on line 1  of Schedule A)     Real Estate Taxes   $60,000$80,000 × $5,000 = $3,750  (enter on line 6  of Schedule A)     Home Mortgage Interest   $60,000$80,000 × $6,000 = $4,500  (enter on line 10 or 11 of  Schedule A)     Charitable Contributions (cash contributions)   $60,000$80,000 × $1,000 = $750  (enter on line 16 of Schedule A)   Enter on Schedule A (Form 1040) only the allowable portion of each deduction. State tax rates Overall limitation on itemized deductions. State tax rates   If your adjusted gross income (discussed earlier) is over $300,000 if married filing jointly or qualifying widow(er); $275,000 if head of household; $250,000 if single; or $150,000 if married filing separately; see the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040), to figure your itemized deductions. State tax rates Personal Exemptions Personal exemptions are allowed in full even if excluding possession income. State tax rates However, depending upon your adjusted gross income and filing status, the amount you can deduct may be reduced. State tax rates See the Deduction for Exemptions Worksheet—Line 42 in the instructions for Form 1040. State tax rates Foreign Tax Credit if Possession Income Is Excluded If you must report American Samoa or Puerto Rico source income on your U. State tax rates S. State tax rates tax return, you can claim a foreign tax credit for income taxes paid to the possession on that income. State tax rates However, you cannot claim a foreign tax credit for taxes paid on possession income that is excluded on your U. State tax rates S. State tax rates tax return. State tax rates The foreign tax credit is generally figured on Form 1116. State tax rates If you have income, such as U. State tax rates S. State tax rates Government wages, that is not excludable, and you also have possession source income that is excludable, you must figure the credit by reducing your foreign taxes paid or accrued by the taxes based on the excluded income. State tax rates You make this reduction for each separate income category. State tax rates To find the amount of this reduction, use the following formula for each income category. State tax rates Excluded income from possession sources less deductible expenses based on that income x Tax paid or accrued to the possession = Reduction in foreign taxes Total income subject to possession tax less deductible expenses based on that income Enter the amount of the reduction on Form 1116, line 12. State tax rates For more information on the foreign tax credit, see Publication 514. State tax rates Example. State tax rates Jason and Lynn Reddy are U. State tax rates S. State tax rates citizens who were bona fide residents of Puerto Rico during all of 2013. State tax rates They file a joint tax return. State tax rates The following table shows their excludable and taxable income for U. State tax rates S. State tax rates federal income tax purposes. State tax rates   Taxable   Excludable Jason's wages from  U. State tax rates S. State tax rates Government $25,000     Lynn's wages from Puerto Rico  corp. State tax rates     $15,000 Dividend from Puerto Rico corp. State tax rates doing business in Puerto Rico     200 Dividend from U. State tax rates S. State tax rates  corp. State tax rates doing business  in U. State tax rates S. State tax rates * 1,000     Totals $26,000   $15,200 * Income from sources outside Puerto Rico is taxable. State tax rates   Jason and Lynn must file 2013 income tax returns with both Puerto Rico and the United States. State tax rates They have gross income of $26,000 for U. State tax rates S. State tax rates tax purposes. State tax rates They paid taxes to Puerto Rico of $4,000 ($3,980 on their wages and $20 on the dividend from the Puerto Rico corporation). State tax rates They figure their foreign tax credit on two Forms 1116, which they must attach to their U. State tax rates S. State tax rates return. State tax rates They fill out one Form 1116 for wages and one Form 1116 for the dividend. State tax rates Jason and Lynn figure the Puerto Rico taxes on excluded income as follows. State tax rates   Wages: ($15,000 ÷ $40,000) × $3,980 = $1,493   Dividend: ($200 ÷ $200) × $20 = $20 They enter $1,493 on Form 1116, line 12, for wages and $20 on the second Form 1116, line 12, for the dividend. State tax rates Self-Employment Tax Self-employment tax includes both social security and Medicare taxes for individuals who are self-employed. State tax rates A U. State tax rates S. State tax rates citizen or resident alien who is self-employed must pay self-employment tax on net self-employment earnings of $400 or more. State tax rates This rule applies whether or not the earnings are excludable from gross income (or whether or not a U. State tax rates S. State tax rates income tax return must otherwise be filed). State tax rates Bona fide residents of the possessions discussed in this publication are considered U. State tax rates S. State tax rates residents for this purpose and are subject to the self-employment tax. State tax rates Forms to file. State tax rates   If you have net self-employment income and are subject to self-employment tax, file one of the following with the United States. State tax rates If you are required to file Form 1040 with the United States, complete Schedule SE (Form 1040) and attach it to your Form 1040. State tax rates If you are not required to file Form 1040 with the United States and you are a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI, file Form 1040-SS. State tax rates If you are a resident of Puerto Rico, you can file the Spanish-language Form 1040-PR instead. State tax rates Do not file forms 1040-SS or 1040-PR with Form 1040. State tax rates If you are required to pay Additional Medicare Tax (discussed later) on your self-employment income, attach Form 8959, Additional Medicare Tax to Form 1040, Form 1040-SS, or Form 1040-PR, as applicable. State tax rates Chapter 11 Bankruptcy cases. State tax rates   While you are a debtor in a chapter 11 bankruptcy case, your net profit or loss from self-employment will be included on the income tax return (Form 1041, U. State tax rates S. State tax rates Income Tax Return for Estates and Trusts) of the bankruptcy estate. State tax rates However, you—not the bankruptcy estate—are responsible for paying self-employment tax on your net earnings from self-employment. State tax rates   Use Schedule SE (Form 1040), Form 1040-SS, or Form 1040-PR, as determined above, to figure your correct amount of self-employment tax. State tax rates   For other reporting requirements, see Chapter 11 Bankruptcy Cases in the Instructions for Form 1040. State tax rates Additional Medicare Tax Beginning in 2013, a 0. State tax rates 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 if single, head of household, or qualifying widow(er). State tax rates Medicare wages and self-employment income are combined to determine if income exceeds the threshold. State tax rates A self-employment loss should not be considered for purposes of this tax. State tax rates RRTA compensation should be separately compared to the threshold. State tax rates Your employer is responsible for withholding the 0. State tax rates 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000. State tax rates You should consider this withholding, if applicable, in determining whether you need to make estimated tax payments. State tax rates There are no special rules for U. State tax rates S. State tax rates citizens and nonresident aliens living abroad for purposes of this provision. State tax rates Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. State tax rates For more information, see Form 8959, Additional Medicare Tax, and its instructions or visit www. State tax rates irs. State tax rates gov and enter the following words in the search box: Additional Medicare Tax. State tax rates You cannot include the Additional Medicare Tax as a deductible part of your self-employment tax. State tax rates Net Investment Income Tax Beginning in 2013, the Net Investment Income Tax (NIIT) imposes a 3. State tax rates 8% tax on the lesser of an individual’s net investment income or the excess of the individual’s modified adjusted gross income over a specified threshold amount. State tax rates Bona fide residents of Puerto Rico and American Samoa who may have a federal income tax return filing obligation may be liable for the NIIT if the taxpayer’s modified adjusted gross income from non-territory sources exceeds a specified threshold amount. State tax rates The NIIT does not apply to any individual who is a nonresident alien with respect to the United States. State tax rates Bona fide residents must take into account any additional tax liability associated with the NIIT when calculating your estimated tax payments. State tax rates Forms to file. State tax rates   If you are a bona fide resident of American Samoa and Puerto Rico and you are required to pay the NIIT, you must file Form 1040 with the United States and attach Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts. State tax rates For more information, see Form 8960 and its instructions. State tax rates Paying Your Taxes You may find that not all of your income tax has been paid through withholding by either the United States or the possession. State tax rates This is often true if you have income that is not subject to withholding, such as self-employment, interest, or rental income. State tax rates In this situation, you may need to make estimated tax payments. State tax rates Estimated Tax If your estimated income tax obligation is to the United States, use the worksheet in the Form 1040-ES package to figure your estimated tax, including self-employment tax. State tax rates Include the Additional Medicare Tax and Net Investment Income Tax if applicable. State tax rates If you are paying by check or money order, use the payment vouchers in the Form 1040-ES package. State tax rates Or, you can make your payments electronically and not have to file any paper forms. State tax rates See the Form 1040-ES instructions for information on making payments. State tax rates Double Taxation Mutual agreement procedures exist to settle issues where there is inconsistent tax treatment between the IRS and the taxing authorities of the following possessions. State tax rates American Samoa. State tax rates The Commonwealth of Puerto Rico. State tax rates The Commonwealth of the Northern Mariana Islands. State tax rates Guam. State tax rates The U. State tax rates S. State tax rates Virgin Islands. State tax rates These issues usually involve allocations of income, deductions, credits, or allowances between related persons; determinations of residency; and determinations of the source of income and related expenses. State tax rates Competent Authority Assistance The tax coordination agreements between the United States and the possession tax departments contain provisions allowing the competent authorities of the United States and the relevant possession to resolve, by mutual agreement, inconsistent tax treatment by the two jurisdictions. State tax rates How to make your request. State tax rates   Your request for competent authority assistance must include all the information listed in Revenue Procedure 2006-23, 2006-20 I. State tax rates R. State tax rates B. State tax rates 900 available at www. State tax rates irs. State tax rates gov/pub/irs-irbs/irb06-49. State tax rates pdf. State tax rates    Also, see Notice 2013-78, which provides proposed updates to the procedures for requesting U. State tax rates S. State tax rates competent authority assistance under tax treaties. State tax rates As noted, an update to Revenue Procedure 2006-23 will be published in the future. State tax rates   Your request must be in the form of a letter addressed to the Deputy Commissioner (International) LB&I. State tax rates It must contain a statement that competent authority assistance is requested under the mutual agreement procedure with the possession. State tax rates You (or a person having authority to sign your federal return) must sign and date the request. State tax rates    Send your written request for U. State tax rates S. State tax rates assistance under this procedure to:   Deputy Commissioner (International) Large Business and International Division Internal Revenue Service 1111 Constitution Avenue, N. State tax rates W. State tax rates  Routing: M4-365 Washington, DC 20224 (Attention: TAIT) Nonresident aliens generally must present their initial request for assistance to the relevant possession tax agency. State tax rates Credit or Refund In addition to the tax assistance request, if you seek a credit or refund of any overpayment of U. State tax rates S. State tax rates tax paid on the income in question, you should file a claim on Form 1040X, Amended U. State tax rates S. State tax rates Individual Income Tax Return. State tax rates Indicate on the form that a request for assistance under the mutual agreement procedure with the possession has been filed. State tax rates Attach a copy of the request to the form. State tax rates Also, you should take whatever steps must be taken under the possession tax code to prevent the expiration of the statutory period for filing a claim for credit or refund of a possession tax. State tax rates See Revenue Procedure 2006-54 (or its successor), section 9, for complete information. State tax rates Prev  Up  Next   Home   More Online Publications