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

If you have limited Internet expertise, you may want to start with one of the well-known ISPs. They usually offer user-friendly startup software. This software often includes features such as a browser, instant messaging, parental controls, and pop-up blockers. Many also offer 24-hour technical support. Of course, all of this convenience results in higher monthly user fees. Once you are comfortable with how the Internet works, you may discover you don't need all the "extras" and can switch to a lower-cost ISP.

Consider these factors when selecting a provider:

  • Speed. If all you want to do is check e-mail and read web pages, a dial-up connection may be enough. But if you want to download music or television shows or watch videos, you will need a faster connection with broadband access, such as a digital subscriber line (DSL), a cable modem, or satellite
  • Availability.. Which companies offer service in your area?
  • Wireless access. Can you get a wireless connection for other computers in your home?
  • E-mail. Do e-mail accounts come with the service? What will be the storage limit on your mailbox?
  • Software. Is any software required to activate the service?
  • Support. What kinds of support are available: phone, e-mail, chat, etc.? Is the support free?
  • Special Features. What services are provided for spam blocking, virus protection, instant messaging and chat rooms?
  • Terms of Service. Is there a limit to the amount of data you can use per month?
  • Cost. What is the monthly fee for the service? Are there fees for renting a modem or set up?

Bundling and Other Promotions

Do you want to get Internet, telephone, and TV service from the same provider? Buying a bundle of services from one provider can be a good deal, but could make it more difficult to change providers for any one service if you're tied into a long-term contract.

Special promotions such as introductory pricing may be enticing, but read the fine print. The promotion price probably does not include taxes or the cost of extra equipment or fees. Get all promises in writing. Ask when the special promotions end and what the post-promotion cost will be. Also find out whether you have to install any special equipment and whether the provider will help troubleshoot on the phone if you have any problems.

Some deals are available only online or by phone. Even if you have to order online, call the provider first to ask questions. When you are online, review any frequently asked questions, minimum system requirements, and fine-print terms and conditions. Read the entire customer service agreement and print a copy for your records. For help deciding on the best values from telephone, TV, and Internet service providers; filing a complaint; or learning more about consumer protections, contact the Federal Communications Commission.

The Tax Preparation Online

Tax preparation online Index A Abatement of interest (see Interest, abatement) Appeal rights, Appeal Rights, Appeals to the Courts, Tax Court, District Court and Court of Federal Claims (see also Tax Court) Assistance (see Tax help) Authorization, third party, Third party authorization. Tax preparation online B Burden of proof, Burden of proof. Tax preparation online C Civil action (see Waivers, tax suits, civil action) Claim for refund, Claims for Refund Disallowance, Explanation of Any Claim for Refund Disallowance Estates on installment method, Claim for refund by estates electing the installment method of payment. Tax preparation online Periods of financial disability, Periods of financial disability. Tax preparation online Comments on publication, Comments and suggestions. Tax preparation online Communications, privileged, Confidentiality privilege. Tax preparation online , Confidentiality privilege. Tax preparation online Confidentiality, Confidentiality privilege. Tax preparation online , Confidentiality privilege. Tax preparation online D Disability (see Financial disability, periods of) Disaster areas, abatement of interest, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions E Employment status, Tax Court review of, Jurisdiction for determination of employment status. Tax preparation online Estates Claim for refund, Claim for refund by estates electing the installment method of payment. Tax preparation online Examination of returns, Examination of Returns F Fast track mediation, Fast track mediation. Tax preparation online Financial disability, periods of Claim for refund, Periods of financial disability. Tax preparation online Form 8379, Injured spouse exception. Tax preparation online 8857, Form 8857. Tax preparation online Free tax services, Free help with your tax return. Tax preparation online H Help (see Tax help) I Injured spouse, Injured spouse exception. Tax preparation online Innocent spouse relief, Tax Court review of request for relief from joint and several liability on a joint return. Tax preparation online , Relief from joint and several liability on a joint return. Tax preparation online Installment agreement, Installment Agreement Request Installment method Estates, claim for refund by, Claim for refund by estates electing the installment method of payment. Tax preparation online Interest Abatement Disaster areas, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Error or delay by IRS, Abatement of Interest Due to Error or Delay by the IRS Terrorist attacks, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Netting, overlapping underpayments and overpayments, Interest Netting Suspended, Suspension of interest and penalties. Tax preparation online J Joint and several liability, relief from, Tax Court review of request for relief from joint and several liability on a joint return. Tax preparation online , Relief from joint and several liability on a joint return. Tax preparation online L Losses Disaster area, Disaster area claims for refund. Tax preparation online Low Income Taxpayer Clinics, Low Income Taxpayer Clinics. Tax preparation online M Mediation, fast track, Fast track mediation. Tax preparation online More information, Useful Items - You may want to see: N Notice of deficiency Timely mailing, Suspension of interest and penalties. Tax preparation online Notices Third party contacts, Notice of IRS contact of third parties. Tax preparation online O Offer in compromise, Offer in Compromise Overpayments Offsets against state tax, Offset of past-due state income tax obligations against overpayments. Tax preparation online P Penalties, suspended, Suspension of interest and penalties. Tax preparation online Practitioners, federally authorized Confidential communications, Confidentiality privilege. Tax preparation online , Confidentiality privilege. Tax preparation online Presidentially declared disaster, Disaster area claims for refund. Tax preparation online Publications (see Tax help) R Refund, Claims for Refund, Periods of financial disability. Tax preparation online , Offset of past-due state income tax obligations against overpayments. Tax preparation online Reduced, Reduced Refund Refund deadline postponement, Postponed refund deadlines. Tax preparation online Refund or credit before court decision, Refund or Credit of Overpayments Before Final Determination Rights Communications, privileged, Confidentiality privilege. Tax preparation online , Confidentiality privilege. Tax preparation online Requests to waive, Prohibition on requests to taxpayers to give up rights to bring civil action. Tax preparation online S Suggestions for publication, Comments and suggestions. Tax preparation online T Tax Court, Appeals to the Courts, Tax Court Employment status, review of, Jurisdiction for determination of employment status. Tax preparation online Innocent spouse relief, review of request for, Tax Court review of request for relief from joint and several liability on a joint return. Tax preparation online Refund or credit before decision, Refund or Credit of Overpayments Before Final Determination Tax help, How To Get Tax Help Taxpayer Advocate, Taxpayer Advocate Service. Tax preparation online Taxpayer Advocate Service, Taxpayer Advocate Service. Tax preparation online Terrorist attacks, abatement of interest, Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Third party authorization, Third party authorization. Tax preparation online TTY/TDD information, How To Get Tax Help W Waivers Tax suits, civil action, Prohibition on requests to taxpayers to give up rights to bring civil action. Tax preparation online Z Zero rate, overlapping periods of interest (see Interest, netting) Prev  Up     Home   More Online Publications