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2009 Tax FormsHow Do I File 2009 Taxes OnlineTax Form 1040ezEfile ComE-file State Return For Free2014 Ez Tax FormState Taxes FormsDownload 1040x FormPreparing Form 1040xFile State Tax FreeIrs Gov 2011 Tax FormsFree Irs Extension1040x Tax Form 2012Amend TaxCopy 2011 TaxesTax Form 1040xIrs 1040ez OnlineHr Block 2005 Taxes1040ez Form 2013Form 1040 EsFreetaxusa 2011Tax Filing TipsH And R Block FreeTax 2010Tax Credit For MilitaryWhere Can I File My Taxes Electronically For FreeFile 1040Military Pay ScaleIrs Ammended ReturnTax Form 1040ez InstructionsHow Do I Ammend My TaxesFile 1040ez Online IrsForm 1040x 2011Free Taxes For StudentsNeed Do 2011 TaxesIrsfreefileWww Irs Gov FormspubsH&r Block Free Taxes2010 1040ez FormHighest State Taxes

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Free electronic tax filing Publication 537 - Introductory Material Table of Contents Future Developments Reminder IntroductionOrdering forms and publications. Free electronic tax filing Tax questions. Free electronic tax filing Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 537, such as legislation enacted after it was published, go to www. Free electronic tax filing irs. Free electronic tax filing gov/pub537. Free electronic tax filing Reminder Photographs of missing children. Free electronic tax filing  The Internal Revenue Service (IRS) is a proud partner with the National Center for Missing and Exploited Children. Free electronic tax filing Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free electronic tax filing You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free electronic tax filing Introduction Note. Free electronic tax filing Section references within this publication are to the Internal Revenue Code and regulation references are to the Income Tax Regulations under the Code. Free electronic tax filing An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Free electronic tax filing If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. Free electronic tax filing This method of reporting gain is called the installment method. Free electronic tax filing You cannot use the installment method to report a loss. Free electronic tax filing You can choose to report all of your gain in the year of sale. Free electronic tax filing This publication discusses the general rules that apply to using the installment method. Free electronic tax filing It also discusses more complex rules that apply only when certain conditions exist or certain types of property are sold. Free electronic tax filing If you sell your home or other nonbusiness property under an installment plan, you may need to read only the General Rules . Free electronic tax filing If you sell business or rental property or have a like-kind exchange or other complex situation, also see the appropriate discussion under Other Rules . Free electronic tax filing Comments and suggestions. Free electronic tax filing   We welcome your comments about this publication and your suggestions for future editions. Free electronic tax filing   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free electronic tax filing NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free electronic tax filing Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free electronic tax filing   You can send your comments from www. Free electronic tax filing irs. Free electronic tax filing gov/formspubs/. Free electronic tax filing Click on “More Information” and then on “Comment on Tax Forms and Publications. Free electronic tax filing ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free electronic tax filing Ordering forms and publications. Free electronic tax filing   Visit www. Free electronic tax filing irs. Free electronic tax filing gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free electronic tax filing Internal Revenue Service 1201 N. Free electronic tax filing Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free electronic tax filing   If you have a tax question, check the information available on IRS. Free electronic tax filing gov or call 1-800-829-1040. Free electronic tax filing We cannot answer tax questions sent to either of the above addresses. Free electronic tax filing Useful Items - You may want to see: Publication 523 Selling Your Home 541 Partnerships 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 4895 Tax Treatment of Property Acquired From a Decedent Dying in 2010 Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income  See How To Get Tax Help near the end of this publication for information about getting publications and forms. Free electronic tax filing Prev  Up  Next   Home   More Online Publications
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Credits & Deductions for Individuals

EITC Home Page--It’s easier than ever to find out if you qualify for EITC
If you worked but earned less than $51,567 during 2013, you may qualify for EITC. The Earned Income Tax Credit, sometimes called EIC is a tax credit to help you keep more of what you earned. You must file a return and claim the credit to receive it. Find out more about EITC and links to helpful tools and resources.

The Health Coverage Tax Credit (HCTC) Program
The Health Coverage Tax Credit helps make health insurance more affordable for eligible individuals and their families by paying 72.5% of health insurance premiums. Find out if you're eligible for this tax credit, and how you can receive it.

Adoption Credit
Taxpayers who adopt an eligible child may qualify for the adoption tax credit.

Deducting Business Expenses
Find out what qualifies as a deductible business expense, including depreciation.

Page Last Reviewed or Updated: 05-Mar-2014

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