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Do state taxes for free 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. Do state taxes for free You must be an eligible individual to qualify for an HSA. Do state taxes for free No permission or authorization from the IRS is necessary to establish an HSA. Do state taxes for free You set up an HSA with a trustee. Do state taxes for free 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. Do state taxes for free The HSA can be established through a trustee that is different from your health plan provider. Do state taxes for free Your employer may already have some information on HSA trustees in your area. Do state taxes for free If you have an Archer MSA, you can generally roll it over into an HSA tax free. Do state taxes for free See Rollovers, later. Do state taxes for free What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. Do state taxes for free 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. Do state taxes for free Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. Do state taxes for free The contributions remain in your account until you use them. Do state taxes for free The interest or other earnings on the assets in the account are tax free. Do state taxes for free Distributions may be tax free if you pay qualified medical expenses. Do state taxes for free See Qualified medical expenses , later. Do state taxes for free An HSA is “portable. Do state taxes for free ” It stays with you if you change employers or leave the work force. Do state taxes for free Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. Do state taxes for free You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. Do state taxes for free You have no other health coverage except what is permitted under Other health coverage , later. Do state taxes for free You are not enrolled in Medicare. Do state taxes for free You cannot be claimed as a dependent on someone else's 2013 tax return. Do state taxes for free 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). Do state taxes for free 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. Do state taxes for free If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. Do state taxes for free This is true even if the other person does not actually claim your exemption. Do state taxes for free Each spouse who is an eligible individual who wants an HSA must open a separate HSA. Do state taxes for free You cannot have a joint HSA. Do state taxes for free High deductible health plan (HDHP). Do state taxes for free   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. Do state taxes for free Out-of-pocket expenses include copayments and other amounts, but do not include premiums. Do state taxes for free   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. Do state taxes for free Preventive care includes, but is not limited to, the following. Do state taxes for free Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. Do state taxes for free Routine prenatal and well-child care. Do state taxes for free Child and adult immunizations. Do state taxes for free Tobacco cessation programs. Do state taxes for free Obesity weight-loss programs. Do state taxes for free Screening services. Do state taxes for free This includes screening services for the following: Cancer. Do state taxes for free Heart and vascular diseases. Do state taxes for free Infectious diseases. Do state taxes for free Mental health conditions. Do state taxes for free Substance abuse. Do state taxes for free Metabolic, nutritional, and endocrine conditions. Do state taxes for free Musculoskeletal disorders. Do state taxes for free Obstetric and gynecological conditions. Do state taxes for free Pediatric conditions. Do state taxes for free Vision and hearing disorders. Do state taxes for free For more information on screening services, see Notice 2004-23, 2004-15 I. Do state taxes for free R. Do state taxes for free B. Do state taxes for free 725 available at www. Do state taxes for free irs. Do state taxes for free gov/irb/2004-15_IRB/ar10. Do state taxes for free html. Do state taxes for free     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. Do state taxes for free      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. Do state taxes for free Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Do state taxes for free    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. Do state taxes for free      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. Do state taxes for free Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Do state taxes for free   Self-only HDHP coverage is an HDHP covering only an eligible individual. Do state taxes for free 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). Do state taxes for free Example. Do state taxes for free An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. Do state taxes for free This is family HDHP coverage. Do state taxes for free Family plans that do not meet the high deductible rules. Do state taxes for free   There are some family plans that have deductibles for both the family as a whole and for individual family members. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Example. Do state taxes for free You have family health insurance coverage in 2013. Do state taxes for free The annual deductible for the family plan is $3,500. Do state taxes for free This plan also has an individual deductible of $1,500 for each family member. Do state taxes for free 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. Do state taxes for free Other health coverage. Do state taxes for free   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Do state taxes for free However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Do state taxes for free    You can have additional insurance that provides benefits only for the following items. Do state taxes for free Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. Do state taxes for free A specific disease or illness. Do state taxes for free A fixed amount per day (or other period) of hospitalization. Do state taxes for free   You can also have coverage (whether provided through insurance or otherwise) for the following items. Do state taxes for free Accidents. Do state taxes for free Disability. Do state taxes for free Dental care. Do state taxes for free Vision care. Do state taxes for free Long-term care. Do state taxes for free    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. Do state taxes for free 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. Do state taxes for free Prescription drug plans. Do state taxes for free   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. Do state taxes for free If you can receive benefits before that deductible is met, you are not an eligible individual. Do state taxes for free Other employee health plans. Do state taxes for free   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. Do state taxes for free Health FSAs and HRAs are discussed later. Do state taxes for free   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. Do state taxes for free Limited-purpose health FSA or HRA. Do state taxes for free These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Do state taxes for free Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. Do state taxes for free Suspended HRA. Do state taxes for free Before the beginning of an HRA coverage period, you can elect to suspend the HRA. Do state taxes for free 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. Do state taxes for free When the suspension period ends, you are no longer eligible to make contributions to an HSA. Do state taxes for free Post-deductible health FSA or HRA. Do state taxes for free These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. Do state taxes for free 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. Do state taxes for free Retirement HRA. Do state taxes for free This arrangement pays or reimburses only those medical expenses incurred after retirement. Do state taxes for free After retirement you are no longer eligible to make contributions to an HSA. Do state taxes for free Health FSA – grace period. Do state taxes for free   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. Do state taxes for free See Flexible Spending Arrangements (FSAs) , later. Do state taxes for free Contributions to an HSA Any eligible individual can contribute to an HSA. Do state taxes for free For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. Do state taxes for free For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. Do state taxes for free Family members or any other person may also make contributions on behalf of an eligible individual. Do state taxes for free Contributions to an HSA must be made in cash. Do state taxes for free Contributions of stock or property are not allowed. Do state taxes for free 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. Do state taxes for free For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. Do state taxes for free If you have family HDHP coverage, you can contribute up to $6,450. Do state taxes for free For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. Do state taxes for free If you have family HDHP coverage you can contribute up to $6,550. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Last-month rule. Do state taxes for free   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. Do state taxes for free You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. Do state taxes for free Testing period. Do state taxes for free   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. Do state taxes for free 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. Do state taxes for free For example, December 1, 2013, through December 31, 2014. Do state taxes for free   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. Do state taxes for free You include this amount in your income in the year in which you fail to be an eligible individual. Do state taxes for free This amount is also subject to a 10% additional tax. Do state taxes for free The income and additional tax are shown on Form 8889, Part III. Do state taxes for free Example 1. Do state taxes for free Chris, age 53, becomes an eligible individual on December 1, 2013. Do state taxes for free He has family HDHP coverage on that date. Do state taxes for free Under the last-month rule, he contributes $6,450 to his HSA. Do state taxes for free Chris fails to be an eligible individual in June 2014. Do state taxes for free 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. Do state taxes for free Chris uses the worksheet in the Form 8889 instructions to determine this amount. Do state taxes for free 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. Do state taxes for free 00 Total for all months $6,450. Do state taxes for free 00 Limitation. Do state taxes for free Divide the total by 12 $537. Do state taxes for free 50 Chris would include $5,912. Do state taxes for free 50 ($6,450. Do state taxes for free 00 – $537. Do state taxes for free 50) in his gross income on his 2014 tax return. Do state taxes for free Also, a 10% additional tax applies to this amount. Do state taxes for free Example 2. Do state taxes for free Erika, age 39, has self-only HDHP coverage on January 1, 2013. Do state taxes for free Erika changes to family HDHP coverage on November 1, 2013. Do state taxes for free Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. Do state taxes for free Erika fails to be an eligible individual in March 2014. Do state taxes for free 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. Do state taxes for free Erika uses the worksheet in the Form 8889 instructions to determine this amount. Do state taxes for free January $3,250. Do state taxes for free 00 February $3,250. Do state taxes for free 00 March $3,250. Do state taxes for free 00 April $3,250. Do state taxes for free 00 May $3,250. Do state taxes for free 00 June $3,250. Do state taxes for free 00 July $3,250. Do state taxes for free 00 August $3,250. Do state taxes for free 00 September $3,250. Do state taxes for free 00 October $3,250. Do state taxes for free 00 November $6,450. Do state taxes for free 00 December $6,450. Do state taxes for free 00 Total for all months $45,400. Do state taxes for free 00 Limitation. Do state taxes for free Divide the total by 12 $3,783. Do state taxes for free 34 Erika would include $2,666. Do state taxes for free 67 ($6,450 – $3,783. Do state taxes for free 34) in her gross income on her 2014 tax return. Do state taxes for free Also, a 10% additional tax applies to this amount. Do state taxes for free Additional contribution. Do state taxes for free   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. Do state taxes for free 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). Do state taxes for free However, see Enrolled in Medicare , later. Do state taxes for free If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. Do state taxes for free Reduction of contribution limit. Do state taxes for free   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. Do state taxes for free A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. Do state taxes for free Rules for married people. Do state taxes for free   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. Do state taxes for free If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. Do state taxes for free You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. Do state taxes for free After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. Do state taxes for free The rules for married people apply only if both spouses are eligible individuals. Do state taxes for free If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. Do state taxes for free If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. Do state taxes for free Each spouse must make the additional contribution to his or her own HSA. Do state taxes for free Example. Do state taxes for free For 2013, Mr. Do state taxes for free Auburn and his wife are both eligible individuals. Do state taxes for free They each have family coverage under separate HDHPs. Do state taxes for free Mr. Do state taxes for free Auburn is 58 years old and Mrs. Do state taxes for free Auburn is 53. Do state taxes for free Mr. Do state taxes for free and Mrs. Do state taxes for free Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. Do state taxes for free If they split it equally, Mr. Do state taxes for free Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. Do state taxes for free Auburn can contribute $3,225 to an HSA. Do state taxes for free Employer contributions. Do state taxes for free   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. Do state taxes for free This includes amounts contributed to your account by your employer through a cafeteria plan. Do state taxes for free Enrolled in Medicare. Do state taxes for free   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. Do state taxes for free Example. Do state taxes for free You turned age 65 in July 2013 and enrolled in Medicare. Do state taxes for free You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Do state taxes for free Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). Do state taxes for free Qualified HSA funding distribution. Do state taxes for free   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. Do state taxes for free This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. Do state taxes for free 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. Do state taxes for free   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. Do state taxes for free The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. Do state taxes for free The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. Do state taxes for free The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. Do state taxes for free   You can make only one qualified HSA funding distribution during your lifetime. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Example. Do state taxes for free In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. Do state taxes for free You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). Do state taxes for free Funding distribution – testing period. Do state taxes for free   You must remain an eligible individual during the testing period. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free   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. Do state taxes for free You include this amount in income in the year in which you fail to be an eligible individual. Do state taxes for free This amount is also subject to a 10% additional tax. Do state taxes for free The income and the additional tax are shown on Form 8889, Part III. Do state taxes for free   Each qualified HSA funding distribution allowed has its own testing period. Do state taxes for free For example, you are an eligible individual, age 45, with self-only HDHP coverage. Do state taxes for free On June 18, 2013, you make a qualified HSA funding distribution of $3,250. Do state taxes for free 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. Do state taxes for free Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. Do state taxes for free Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. Do state taxes for free   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. Do state taxes for free 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. Do state taxes for free Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. Do state taxes for free Archer MSAs and other HSAs. Do state taxes for free   You can roll over amounts from Archer MSAs and other HSAs into an HSA. Do state taxes for free You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Do state taxes for free Rollover contributions do not need to be in cash. Do state taxes for free Rollovers are not subject to the annual contribution limits. Do state taxes for free   You must roll over the amount within 60 days after the date of receipt. Do state taxes for free You can make only one rollover contribution to an HSA during a 1-year period. Do state taxes for free Note. Do state taxes for free 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. Do state taxes for free There is no limit on the number of these transfers. Do state taxes for free Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. Do state taxes for free When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. Do state taxes for free 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. Do state taxes for free Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. Do state taxes for free Your employer must notify you and the trustee of your HSA that the contribution is for 2013. Do state taxes for free The contribution will be reported on your 2014 Form W-2. Do state taxes for free Reporting Contributions on Your Return Contributions made by your employer are not included in your income. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Do state taxes for free The contributions are treated as a distribution of money and are not included in the partner's gross income. Do state taxes for free 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. Do state taxes for free In both situations, the partner can deduct the contribution made to the partner's HSA. Do state taxes for free 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. Do state taxes for free The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Do state taxes for free Form 8889. Do state taxes for free   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. Do state taxes for free You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. Do state taxes for free Contributions made by your employer and qualified HSA funding distributions are also shown on the form. Do state taxes for free   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. Do state taxes for free Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Do state taxes for free Follow the instructions for Form 8889. Do state taxes for free Report your HSA deduction on Form 1040 or Form 1040NR. Do state taxes for free Excess contributions. Do state taxes for free   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Do state taxes for free Excess contributions are not deductible. Do state taxes for free Excess contributions made by your employer are included in your gross income. Do state taxes for free 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. Do state taxes for free   Generally, you must pay a 6% excise tax on excess contributions. Do state taxes for free See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Do state taxes for free The excise tax applies to each tax year the excess contribution remains in the account. Do state taxes for free   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. Do state taxes for free You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. Do state taxes for free Deducting an excess contribution in a later year. Do state taxes for free   You may be able to deduct excess contributions for previous years that are still in your HSA. Do state taxes for free The excess contribution you can deduct for the current year is the lesser of the following two amounts. Do state taxes for free Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. Do state taxes for free The total excess contributions in your HSA at the beginning of the year. Do state taxes for free   Amounts contributed for the year include contributions by you, your employer, and any other person. Do state taxes for free They also include any qualified HSA funding distribution made to your HSA. Do state taxes for free Any excess contribution remaining at the end of a tax year is subject to the excise tax. Do state taxes for free See Form 5329. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free You do not have to make distributions from your HSA each year. Do state taxes for free If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Do state taxes for free Generally, a distribution is money you get from your health savings account. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Qualified medical expenses. Do state taxes for free   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Do state taxes for free These are explained in Publication 502, Medical and Dental Expenses. Do state taxes for free   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. Do state taxes for free 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. Do state taxes for free   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. Do state taxes for free State law determines when an HSA is established. Do state taxes for free 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. Do state taxes for free   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. Do state taxes for free   Qualified medical expenses are those incurred by the following persons. Do state taxes for free You and your spouse. Do state taxes for free All dependents you claim on your tax return. Do state taxes for free 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. Do state taxes for free    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. Do state taxes for free 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. Do state taxes for free Insurance premiums. Do state taxes for free   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. Do state taxes for free Health care continuation coverage (such as coverage under COBRA). Do state taxes for free Health care coverage while receiving unemployment compensation under federal or state law. Do state taxes for free Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Do state taxes for free   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. Do state taxes for free See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). Do state taxes for free   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. Do state taxes for free 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. Do state taxes for free Health coverage tax credit. Do state taxes for free   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. Do state taxes for free See Publication 502 for more information on this credit. Do state taxes for free Deemed distributions from HSAs. Do state taxes for free   The following situations result in deemed taxable distributions from your HSA. Do state taxes for free You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. Do state taxes for free 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. Do state taxes for free You used any portion of any of your HSAs as security for a loan at any time in 2013. Do state taxes for free You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Do state taxes for free   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. Do state taxes for free   Any deemed distribution will not be treated as used to pay qualified medical expenses. Do state taxes for free These distributions are included in your income and are subject to the additional 20% tax, discussed later. Do state taxes for free Recordkeeping. Do state taxes for free 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. Do state taxes for free Do not send these records with your tax return. Do state taxes for free Keep them with your tax records. Do state taxes for free 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). Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Do state taxes for free If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. Do state taxes for free Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. Do state taxes for free You may have to pay an additional 20% tax on your taxable distribution. Do state taxes for free HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. Do state taxes for free Additional tax. Do state taxes for free   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Do state taxes for free Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. Do state taxes for free Exceptions. Do state taxes for free   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Do state taxes for free Balance in an HSA An HSA is generally exempt from tax. Do state taxes for free 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. Do state taxes for free Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Do state taxes for free Earnings on amounts in an HSA are not included in your income while held in the HSA. Do state taxes for free Death of HSA Holder You should choose a beneficiary when you set up your HSA. Do state taxes for free What happens to that HSA when you die depends on whom you designate as the beneficiary. Do state taxes for free Spouse is the designated beneficiary. Do state taxes for free   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. Do state taxes for free Spouse is not the designated beneficiary. Do state taxes for free   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. Do state taxes for free If your estate is the beneficiary, the value is included on your final income tax return. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free You must file the form even if only your employer or your spouse's employer made contributions to the HSA. Do state taxes for free 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. Do state taxes for free Enter “statement” at the top of each Form 8889 and complete the form as instructed. Do state taxes for free Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. Do state taxes for free Attach the statements to your tax return after the controlling Form 8889. Do state taxes for free Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. Do state taxes for free Unlike the previous discussions, “you” refers to the employer and not to the employee. Do state taxes for free Health plan. Do state taxes for free   If you want your employees to be able to have an HSA, they must have an HDHP. Do state taxes for free You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Do state taxes for free Contributions. Do state taxes for free   You can make contributions to your employees' HSAs. Do state taxes for free You deduct the contributions on your business income tax return for the year in which you make the contributions. Do state taxes for free If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. Do state taxes for free   For more information on employer contributions, see Notice 2008-59, 2008-29 I. Do state taxes for free R. Do state taxes for free B. Do state taxes for free 123, questions 23 through 27, available at www. Do state taxes for free irs. Do state taxes for free gov/irb/2008-29_IRB/ar11. Do state taxes for free html. Do state taxes for free Comparable contributions. Do state taxes for free   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. Do state taxes for free 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. Do state taxes for free The comparability rules do not apply to contributions made through a cafeteria plan. Do state taxes for free Comparable participating employees. Do state taxes for free   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). Do state taxes for free   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. Do state taxes for free   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. Do state taxes for free 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. Do state taxes for free For a sample of the notice, see Regulation 54. Do state taxes for free 4980G-4 A-14(c). Do state taxes for free 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. Do state taxes for free Note. Do state taxes for free For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. Do state taxes for free Excise tax. Do state taxes for free   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. Do state taxes for free Employment taxes. Do state taxes for free   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. Do state taxes for free You must report the contributions in box 12 of the Form W-2 you file for each employee. Do state taxes for free This includes the amounts the employee elected to contribute through a cafeteria plan. Do state taxes for free Enter code “W” in box 12. Do state taxes for free 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). Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. Do state taxes for free S. Do state taxes for free financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. Do state taxes for free What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. Do state taxes for free You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. Do state taxes for free The interest or other earnings on the assets in your Archer MSA are tax free. Do state taxes for free Distributions may be tax free if you pay qualified medical expenses. Do state taxes for free See Qualified medical expenses , later. Do state taxes for free The contributions remain in your Archer MSA from year to year until you use them. Do state taxes for free An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. Do state taxes for free Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. Do state taxes for free 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). Do state taxes for free A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. Do state taxes for free You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. Do state taxes for free You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. Do state taxes for free If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. Do state taxes for free This is true even if the other person does not actually claim your exemption. Do state taxes for free Small employer. Do state taxes for free   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. Do state taxes for free The definition of small employer is modified for new employers and growing employers. Do state taxes for free Growing employer. Do state taxes for free   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. Do state taxes for free 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. Do state taxes for free Changing employers. Do state taxes for free   If you change employers, your Archer MSA moves with you. Do state taxes for free However, you may not make additional contributions unless you are otherwise eligible. Do state taxes for free High deductible health plan (HDHP). Do state taxes for free   To be eligible for an Archer MSA, you must be covered under an HDHP. Do state taxes for free 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. Do state taxes for free Limits. Do state taxes for free   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. Do state taxes for free   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. Do state taxes for free   There are some family plans that have deductibles for both the family as a whole and for individual family members. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free Example. Do state taxes for free You have family health insurance coverage in 2013. Do state taxes for free The annual deductible for the family plan is $5,500. Do state taxes for free This plan also has an individual deductible of $2,000 for each family member. Do state taxes for free 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. Do state taxes for free Other health coverage. Do state taxes for free   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Do state taxes for free However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Do state taxes for free However, you can have additional insurance that provides benefits only for the following items. Do state taxes for free Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. Do state taxes for free A specific disease or illness. Do state taxes for free A fixed amount per day (or other period) of hospitalization. Do state taxes for free You can also have coverage (whether provided through insurance or otherwise) for the following items. Do state taxes for free Accidents. Do state taxes for free Disability. Do state taxes for free Dental care. Do state taxes for free Vision care. Do state taxes for free Long-term care. Do state taxes for free Contributions to an MSA Contributions to an Archer MSA must be made in cash. Do state taxes for free You cannot contribute stock or other property to an Archer MSA. Do state taxes for free Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. Do state taxes for free (You do not pay tax on these contributions. Do state taxes for free ) 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. Do state taxes for free Both you and your employer cannot make contributions to your Archer MSA in the same year. Do state taxes for free You do not have to make contributions to your Archer MSA every year. Do state taxes for free    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. Do state taxes for free Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. Do state taxes for free An income limit. Do state taxes for free Annual deductible limit. Do state taxes for free   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. Do state taxes for free You must have the HDHP all year to contribute the full amount. Do state taxes for free 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. Do state taxes for free Example 1. Do state taxes for free You have an HDHP for your family all year in 2013. Do state taxes for free The annual deductible is $5,000. Do state taxes for free You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. Do state taxes for free Example 2. Do state taxes for free You have an HDHP for your family for the entire months of July through December 2013 (6 months). Do state taxes for free The annual deductible is $5,000. Do state taxes for free You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. Do state taxes for free 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. Do state taxes for free The contribution limit is split equally between you unless you agree on a different division. Do state taxes for free Income limit. Do state taxes for free   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. Do state taxes for free   If you are self-employed, you cannot contribute more than your net self-employment income. Do state taxes for free This is your income from self-employment minus expenses (including the deductible part of self-employment tax). Do state taxes for free Example 1. Do state taxes for free Noah Paul earned $25,000 from ABC Company in 2013. Do state taxes for free Through ABC, he had an HDHP for his family for the entire year. Do state taxes for free The annual deductible was $5,000. Do state taxes for free He can contribute up to $3,750 to his Archer MSA (75% × $5,000). Do state taxes for free He can contribute the full amount because he earned more than $3,750 at ABC. Do state taxes for free Example 2. Do state taxes for free Westley Lawrence is self-employed. Do state taxes for free He had an HDHP for his family for the entire year in 2013. Do state taxes for free The annual deductible was $5,000. Do state taxes for free Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). Do state taxes for free However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. Do state taxes for free Therefore, he is limited to a contribution of $2,500. Do state taxes for free Individuals enrolled in Medicare. Do state taxes for free   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. Do state taxes for free However, you may be eligible for a Medicare Advantage MSA, discussed later. Do state taxes for free When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. Do state taxes for free 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. Do state taxes for free You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. Do state taxes for free 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. Do state taxes for free Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. Do state taxes for free Follow the instructions for Form 8853 and complete the worksheet in the instructions. Do state taxes for free Report your Archer MSA deduction on Form 1040 or Form 1040NR. Do state taxes for free Excess contributions. Do state taxes for free   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. Do state taxes for free Excess contributions are not deductible. Do state taxes for free Excess contributions made by your employer are included in your gross income. Do state taxes for free 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. Do state taxes for free   Generally, you must pay a 6% excise tax on excess contributions. Do state taxes for free See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Do state taxes for free The excise tax applies to each tax year the excess contribution remains in the account. Do state taxes for free   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. Do state taxes for free You withdraw the excess contributions by the due date, including extensions, of your tax return. Do state taxes for free 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. Do state taxes for free Deducting an excess contribution in a later year. Do state taxes for free   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. Do state taxes for free The excess contribution you can deduct in the current year is the lesser of the following two amounts. Do state taxes for free Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. Do state taxes for free The total excess contributions in your Archer MSA at the beginning of the year. Do state taxes for free   Any excess contributions remaining at the end of a tax year are subject to the excise tax. Do state taxes for free See Form 5329. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). Do state taxes for free 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. Do state taxes for free You do not have to make withdrawals from your Archer MSA each year. Do state taxes for free If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Do state taxes for free A distribution is money you get from your Archer MSA. Do state taxes for free 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. Do state taxes for free Qualified medical expenses. Do state taxes for free   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Do state taxes for free These are explained in Publication 502. Do state taxes for free   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. Do state taxes for free 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. Do state taxes for free   Qualified medical expenses are those incurred by the following persons. Do state taxes for free You and your spouse. Do state taxes for free All dependents you claim on your tax return. Do state taxes for free 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. Do state taxes for free    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. Do state taxes for free    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. Do state taxes for free Special rules for insurance premiums. Do state taxes for free   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. Do state taxes for free 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. Do state taxes for free Health coverage tax credit. Do state taxes for free   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. Do state taxes for free See Publication 502 for information on this credit. Do state taxes for free Deemed distributions from Archer MSAs. Do state taxes for free   The following situations result in deemed taxable distributions from your Archer MSA. Do state taxes for free You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. Do state taxes for free 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. Do state taxes for free You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. Do state taxes for free You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Do state taxes for free   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. Do state taxes for free   Any deemed distribution will not be treated as used to pay qualified medical expenses. Do state taxes for free These distributions are included in your income and are subject to the additional 20% tax, discussed later. Do state taxes for free Recordkeeping. Do state taxes for free 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. Do state taxes for free Do not send these records with your tax return. Do state taxes for free Keep them with your tax records. Do state taxes for free 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). Do state taxes for free 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. Do state taxes for free Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Do state taxes for free If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. Do state taxes for free Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. Do state taxes for free You may have to pay an additional 20% tax, discussed later, on your taxable distribution. Do state taxes for free 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. Do state taxes for free Rollovers. Do state taxes for free   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. Do state taxes for free An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. Do state taxes for free See the Form 8853 instructions for more information. Do state taxes for free Additional tax. Do state taxes for free   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. Do state taxes for free Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. Do state taxes for free Report the additional tax in the total on Form 1040 or Form 1040NR. Do state taxes for free Exceptions. Do state taxes for free   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Do state taxes for free Balance in an Archer MSA An Archer MSA is generally exempt from tax. Do state taxes for free 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. Do state taxes for free Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Do state taxes for free Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. Do state taxes for free Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. Do state taxes for free What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. Do state taxes for free Spouse is the designated beneficiary. Do state taxes for free   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. Do state taxes for free Spouse is not the designated beneficiary. Do state taxes for free   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. Do state taxes for free   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. Do state taxes for free 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. Do state taxes for free Enter “statement” at the top of each Form 8853 and complete the form as instructed. Do state taxes for free Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. Do state taxes for free Attach the statements to your tax return after the controlling Form 8853. Do state taxes for free Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. Do state taxes for free Unlike the previous discussions, “you” refers to the employer and not to the employee. Do state taxes for free Health plan. Do state taxes for free   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. Do state taxes for free You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Do state taxes for free Contributions. Do state taxes for free   You can make contributions to your employees' Archer MSAs. Do state taxes for free 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. Do state taxes for free If you are filing Form 1040, Schedule C, this is Part II, line 14. Do state taxes for free Comparable contributions. Do state taxes for free   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. Do state taxes for free 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. Do state taxes for free Comparable participating employees. Do state taxes for free   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). Do state taxes for free Excise tax. Do state taxes for free   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. Do state taxes for free Employment taxes. Do state taxes for free   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. Do state taxes for free You must report the contributions in box 12 of the Form W-2 you file for each employee. Do state taxes for free Enter code “R” in box 12. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free 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. Do state taxes for free The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. Do state taxes for free An HDHP is a special health insurance policy that has a high deductible. Do state taxes for free You choose the policy you want to use as part of your Medicare Advantage MSA plan. Do state taxes for free However, the policy must be approved by the Medicare program. Do state taxes for free Medicare Advantage MSAs are administered through the federal Medicare program. Do state taxes for free You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. Do state taxes for free medicare. Do state taxes for free gov. Do state taxes for free Note. Do state taxes for free You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. Do state taxes for free Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. Do state taxes for free FSAs are usually funded through voluntary salary reduction agreements with your employer. Do state taxes for free No employment or federal income taxes are deducted from your contribution. Do state taxes for free The employer may also contribute. Do state taxes for free Note. Do state taxes for free 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. Do state taxes for free For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. Do state taxes for free What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. Do state taxes for free Contributions made by your employer can be excluded from your gross income. Do state taxes for free No employment or federal income taxes are deducted from the contributions. Do state taxes for free Withdrawals may be tax free if you pay qualified medical expenses. Do state taxes for free See Qualified medical expenses , later. Do state taxes for free You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. Do state taxes for free Qualifying for an FSA Health FSAs are employer-established benefit plans. Do state taxes for free These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Do state taxes for free Employers have complete flexibility to offer various combinations of benefits in designing their plan. Do state taxes for free You do not have to be covered under any other health care plan to participate. Do state taxes for free Self-employed persons are not eligible for an FSA. Do state taxes for free Certain limitations may apply if you are a highly compensated participant or a key employee. Do state taxes for free Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. Do state taxes for free This is sometimes called a salary reduction agreement. Do state taxes for free The employer may also contribute to your FSA if specified in the plan. Do state taxes for free You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. Do state taxes for free However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. Do state taxes for free When To Contribute At the
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Do state taxes for free Some employees may be able to deduct certain work-related expenses. The following facts from the IRS can help you determine which expenses are deductible as an employee business expense. You must be itemizing deductions on IRS Schedule A to qualify. Do state taxes for free Expenses that qualify for an itemized deduction generally include: Do state taxes for free Business travel away from home Do state taxes for free Business use of your car Do state taxes for free Business meals and entertainment Do state taxes for free Travel Do state taxes for free Use of your home Do state taxes for free Education Do state taxes for free Supplies Do state taxes for free Tools Do state taxes for free Miscellaneous expenses Do state taxes for free You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals available on this website, or by calling 1-800-TAX-FORM (800-829-3676). Do state taxes for free If your employer reimburses you under an accountable plan, you should not include the payments in your gross income, and you may not deduct any of the reimbursed amounts. Do state taxes for free An accountable plan must meet three requirements: Do state taxes for free You must have paid or incurred expenses that are deductible while performing services as an employee. Do state taxes for free Do state taxes for free You must adequately account to your employer for these expenses within a reasonable time period. Do state taxes for free Do state taxes for free You must return any excess reimbursement or allowance within a reasonable time period. Do state taxes for free If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses. Do state taxes for free Generally, you report unreimbursed expenses on IRS Form 2106 or IRS Form 2106-EZ and attach it to Form 1040. Deductible expenses are then reported on IRS Schedule A, as a miscellaneous itemized deduction subject to a rule that limits your employee business expenses deduction to the amount that exceeds 2 percent of your adjusted gross income. Do state taxes for free For more information see IRS Publication 529, Miscellaneous Deductions, which is available on this website, or by calling 1-800-TAX-FORM (800-829-3676). Do state taxes for free