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H&r Block Free File Review

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H&r Block Free File Review

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

H&r block free file review Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. H&r block free file review Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. H&r block free file review An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. H&r block free file review In general, an executor and an administrator perform the same duties and have the same responsibilities. H&r block free file review For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. H&r block free file review It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. H&r block free file review Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. H&r block free file review The personal representative also must perform the following duties. H&r block free file review Apply for an employer identification number (EIN) for the estate. H&r block free file review File all tax returns, including income, estate and gift tax returns, when due. H&r block free file review Pay the tax determined up to the date of discharge from duties. H&r block free file review Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. H&r block free file review If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. H&r block free file review Penalty. H&r block free file review   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. H&r block free file review Reliance on an agent (attorney, accountant, etc. H&r block free file review ) is not reasonable cause for late filing. H&r block free file review It is the personal representative's duty to file the returns for the decedent and the estate when due. H&r block free file review Identification number. H&r block free file review   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. H&r block free file review You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. H&r block free file review You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. H&r block free file review   You can get an EIN by applying online at www. H&r block free file review irs. H&r block free file review gov (click on "Apply for an EIN Online" under the Tools heading). H&r block free file review Generally, if you apply online, you will receive your EIN immediately upon completing the application. H&r block free file review You can also apply using Form SS-4, Application for Employer Identification Number. H&r block free file review Generally, if you apply by mail, it takes about 4 weeks to get your EIN. H&r block free file review See the form instructions for other ways to apply. H&r block free file review   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. H&r block free file review After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. H&r block free file review As the personal representative handling the estate, you must furnish this identification number to the payer. H&r block free file review For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. H&r block free file review If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. H&r block free file review   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). H&r block free file review Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. H&r block free file review    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. H&r block free file review Also do not use it to make estimated tax payments for a tax year after the year of death. H&r block free file review Penalty. H&r block free file review   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. H&r block free file review You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. H&r block free file review Notice of fiduciary relationship. H&r block free file review   The term fiduciary means any person acting for another person. H&r block free file review It applies to persons who have positions of trust on behalf of others. H&r block free file review A personal representative for a decedent's estate is a fiduciary. H&r block free file review Form 56. H&r block free file review   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. H&r block free file review Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. H&r block free file review See the Instructions for Form 56 for filing requirements and other information. H&r block free file review   File Form 56 as soon as all the necessary information (including the EIN) is available. H&r block free file review It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. H&r block free file review The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. H&r block free file review Termination of fiduciary relationship. H&r block free file review   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. H&r block free file review See Form 56 and its instructions for more information. H&r block free file review   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. H&r block free file review See below for a discussion of these forms. H&r block free file review Request for prompt assessment (charge) of tax. H&r block free file review   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. H&r block free file review However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. H&r block free file review This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. H&r block free file review This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. H&r block free file review This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. H&r block free file review Form 4810. H&r block free file review   Form 4810 can be used for making this request. H&r block free file review It must be filed separately from any other document. H&r block free file review   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. H&r block free file review You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. H&r block free file review This applies even though the returns were filed before the decedent's death. H&r block free file review Failure to report income. H&r block free file review   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. H&r block free file review However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. H&r block free file review Request for discharge from personal liability for tax. H&r block free file review   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. H&r block free file review The request must be made after the returns for those taxes are filed. H&r block free file review To make the request, file Form 5495. H&r block free file review For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. H&r block free file review   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. H&r block free file review If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. H&r block free file review If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. H&r block free file review    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. H&r block free file review Insolvent estate. H&r block free file review   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. H&r block free file review Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. H&r block free file review The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. H&r block free file review The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. H&r block free file review Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. H&r block free file review Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. H&r block free file review If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. H&r block free file review If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. H&r block free file review If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. H&r block free file review Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. H&r block free file review A surviving spouse, under certain circumstances, may have to file the returns for the decedent. H&r block free file review See Joint Return, later. H&r block free file review Return for preceding year. H&r block free file review   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. H&r block free file review The return for that year will be a regular return and the personal representative must file it. H&r block free file review Example. H&r block free file review Samantha Smith died on March 21, 2013, before filing her 2012 tax return. H&r block free file review Her personal representative must file her 2012 return by April 15, 2013. H&r block free file review Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. H&r block free file review Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. H&r block free file review If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. H&r block free file review If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. H&r block free file review Third party designee. H&r block free file review   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. H&r block free file review This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. H&r block free file review It also allows the designee to perform certain actions. H&r block free file review See the Instructions for Form 1040 for details. H&r block free file review Signature. H&r block free file review   If a personal representative has been appointed, that person must sign the return. H&r block free file review If it is a joint return, the surviving spouse must also sign it. H&r block free file review If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. H&r block free file review ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. H&r block free file review ” Paid preparer. H&r block free file review   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. H&r block free file review See the Form 1040 instructions for details. H&r block free file review When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. H&r block free file review A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. H&r block free file review However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. H&r block free file review The tax return must be prepared for the year of death regardless of when during the year death occurred. H&r block free file review Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. H&r block free file review A tax return for a decedent can be electronically filed. H&r block free file review A personal representative may also obtain an income tax filing extension on behalf of a decedent. H&r block free file review Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. H&r block free file review Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. H&r block free file review It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. H&r block free file review In general, filing status depends on whether the decedent was considered single or married at the time of death. H&r block free file review See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. H&r block free file review Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. H&r block free file review Also, the decedent may be entitled to other credits that result in a refund. H&r block free file review These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. H&r block free file review Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. H&r block free file review   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. H&r block free file review   If the personal representative is filing a claim for refund on Form 1040X, Amended U. H&r block free file review S. H&r block free file review Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. H&r block free file review Example. H&r block free file review Edward Green died before filing his tax return. H&r block free file review You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. H&r block free file review You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. H&r block free file review    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. H&r block free file review Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. H&r block free file review A new check will be issued in your name and mailed to you. H&r block free file review Death certificate. H&r block free file review   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. H&r block free file review Instead, keep it for your records and provide it if requested. H&r block free file review Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. H&r block free file review S. H&r block free file review Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. H&r block free file review See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. H&r block free file review Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. H&r block free file review However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. H&r block free file review This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. H&r block free file review The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. H&r block free file review A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. H&r block free file review The filing status of the decedent in this instance is married filing a separate return. H&r block free file review For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. H&r block free file review Personal representative may revoke joint return election. H&r block free file review   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. H&r block free file review This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). H&r block free file review The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. H&r block free file review Relief from joint liability. H&r block free file review   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. H&r block free file review If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. H&r block free file review For information on requesting this relief, see Publication 971, Innocent Spouse Relief. H&r block free file review Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. H&r block free file review The method of accounting regularly used by the decedent before death also determines the income includible on the final return. H&r block free file review This section explains how some types of income are reported on the final return. H&r block free file review For more information about accounting methods, see Publication 538, Accounting Periods and Methods. H&r block free file review Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. H&r block free file review Constructive receipt of income. H&r block free file review   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. H&r block free file review Include the interest income on the final return. H&r block free file review   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. H&r block free file review If the corporation customarily mailed its dividend checks, the dividend was includible when received. H&r block free file review If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. H&r block free file review Do not include the dividend in the final return. H&r block free file review Accrual Method Generally, under an accrual method of accounting, income is reported when earned. H&r block free file review If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. H&r block free file review Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. H&r block free file review A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. H&r block free file review You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. H&r block free file review For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). H&r block free file review For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. H&r block free file review If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. H&r block free file review See U. H&r block free file review S. H&r block free file review savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. H&r block free file review How to report. H&r block free file review   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. H&r block free file review Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. H&r block free file review Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. H&r block free file review Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. H&r block free file review   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. H&r block free file review    Note. H&r block free file review If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. H&r block free file review See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. H&r block free file review Partnership Income The death of a partner closes the partnership's tax year for that partner. H&r block free file review Generally, it does not close the partnership's tax year for the remaining partners. H&r block free file review The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. H&r block free file review To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. H&r block free file review On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. H&r block free file review The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). H&r block free file review The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. H&r block free file review Example. H&r block free file review Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. H&r block free file review The partnership uses a tax year ending June 30. H&r block free file review Mary died August 31, 2013, and her estate established its tax year through August 31. H&r block free file review The distributive share of partnership items based on the decedent's partnership interest is reported as follows. H&r block free file review Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). H&r block free file review Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. H&r block free file review S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. H&r block free file review The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). H&r block free file review The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. H&r block free file review Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. H&r block free file review For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. H&r block free file review For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. H&r block free file review Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. H&r block free file review For more information, see Publication 555, Community Property. H&r block free file review HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. H&r block free file review If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. H&r block free file review The estate tax deduction, discussed later, does not apply to this amount. H&r block free file review If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. H&r block free file review For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. H&r block free file review Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. H&r block free file review The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. H&r block free file review If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. H&r block free file review The estate tax deduction, discussed later, does not apply to this amount. H&r block free file review If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. H&r block free file review The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. H&r block free file review This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. H&r block free file review For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. H&r block free file review Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. H&r block free file review These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. H&r block free file review Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. H&r block free file review For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. H&r block free file review Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. H&r block free file review Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. H&r block free file review This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. H&r block free file review See Medical Expenses, later. H&r block free file review Exemptions You can claim the decedent's personal exemption on the final income tax return. H&r block free file review If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. H&r block free file review Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. H&r block free file review For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. H&r block free file review Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. H&r block free file review This includes expenses for the decedent, as well as for the decedent's spouse and dependents. H&r block free file review Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. H&r block free file review In that case medical expenses exceeding 7. H&r block free file review 5% of AGI may be deducted. H&r block free file review Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. H&r block free file review Election for decedent's expenses. H&r block free file review   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). H&r block free file review However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. H&r block free file review   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). H&r block free file review You can deduct expenses incurred in the year of death on the final income tax return. H&r block free file review You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. H&r block free file review   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. H&r block free file review 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). H&r block free file review Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. H&r block free file review Making the election. H&r block free file review   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. H&r block free file review The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. H&r block free file review This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. H&r block free file review Example. H&r block free file review Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. H&r block free file review Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. H&r block free file review Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. H&r block free file review Richard itemized his deductions when he filed his 2012 income tax return. H&r block free file review The personal representative of the estate paid the entire $800 liability in August 2013. H&r block free file review The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. H&r block free file review 5% limit. H&r block free file review The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. H&r block free file review 5% limit. H&r block free file review The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. H&r block free file review Medical expenses not paid by estate. H&r block free file review   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. H&r block free file review If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. H&r block free file review Insurance reimbursements. H&r block free file review   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. H&r block free file review The reimbursements are also includible in the decedent's gross estate. H&r block free file review No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. H&r block free file review These expenses may be deductible for estate tax purposes on Form 706. H&r block free file review Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. H&r block free file review A net operating loss on the decedent's final income tax return can be carried back to prior years. H&r block free file review (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. H&r block free file review ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. H&r block free file review At-risk loss limits. H&r block free file review   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. H&r block free file review   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. H&r block free file review An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. H&r block free file review An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. H&r block free file review The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. H&r block free file review For more information, see Publication 925, Passive Activity and At-Risk Rules. H&r block free file review Passive activity rules. H&r block free file review   A passive activity is any trade or business activity in which the taxpayer does not materially participate. H&r block free file review To determine material participation, see Publication 925. H&r block free file review Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. H&r block free file review   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. H&r block free file review Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. H&r block free file review   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. H&r block free file review Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. H&r block free file review The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. H&r block free file review   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. H&r block free file review For more information, see Publication 925. H&r block free file review Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. H&r block free file review Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. H&r block free file review Some of these credits are discussed next. H&r block free file review Earned income credit. H&r block free file review   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. H&r block free file review If the allowable credit is more than the tax liability for the year, the excess is refunded. H&r block free file review   For more information, see Publication 596, Earned Income Credit (EIC). H&r block free file review Credit for the elderly or the disabled. H&r block free file review   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. H&r block free file review The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. H&r block free file review   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. H&r block free file review Child tax credit. H&r block free file review   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. H&r block free file review You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. H&r block free file review For more information, see the Instructions for Form 1040. H&r block free file review Adoption credit. H&r block free file review   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. H&r block free file review   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. H&r block free file review See Form 8839, Qualified Adoption Expenses, and its instructions for more details. H&r block free file review General business tax credit. H&r block free file review   The general business credit available to a taxpayer is limited. H&r block free file review Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. H&r block free file review Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. H&r block free file review   After the carryforward period, a deduction may be allowed for any unused business credit. H&r block free file review If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. H&r block free file review   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. H&r block free file review Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. H&r block free file review Self-employment tax. H&r block free file review   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. H&r block free file review 28 or more. H&r block free file review Alternative minimum tax (AMT). H&r block free file review   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. H&r block free file review The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. H&r block free file review In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. H&r block free file review Form 6251. H&r block free file review    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. H&r block free file review See the form instructions for information on when you must attach Form 6251 to Form 1040. H&r block free file review Form 8801. H&r block free file review   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. H&r block free file review See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. H&r block free file review Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. H&r block free file review Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. H&r block free file review Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. H&r block free file review For this purpose, a qualified hazardous duty area is treated as a combat zone. H&r block free file review If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. H&r block free file review If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. H&r block free file review Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. H&r block free file review If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. H&r block free file review Also, if any tax was collected after the date of death, that amount will be credited or refunded. H&r block free file review The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. H&r block free file review This is true even if death actually occurred earlier. H&r block free file review For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. H&r block free file review Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. H&r block free file review S. H&r block free file review employee, and In a military or terrorist action. H&r block free file review The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. H&r block free file review Example. H&r block free file review The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. H&r block free file review S. H&r block free file review employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. H&r block free file review Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. H&r block free file review Military or terrorist action defined. H&r block free file review   A military or terrorist action means the following. H&r block free file review Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. H&r block free file review Any military action involving the U. H&r block free file review S. H&r block free file review Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. H&r block free file review   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. H&r block free file review Military action does not include training exercises. H&r block free file review Any multinational force in which the United States is participating is treated as an ally of the United States. H&r block free file review Determining if a terrorist activity or military action has occurred. H&r block free file review   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. H&r block free file review Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. H&r block free file review Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. H&r block free file review The April 19, 1995, terrorist attack on the Alfred P. H&r block free file review Murrah Federal Building (Oklahoma City). H&r block free file review The September 11, 2001, terrorist attacks. H&r block free file review The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. H&r block free file review The Act also exempts from federal income tax the following types of income. H&r block free file review Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. H&r block free file review Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. H&r block free file review Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. H&r block free file review Payments from the September 11th Victim Compensation Fund 2001. H&r block free file review The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. H&r block free file review See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. H&r block free file review Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. H&r block free file review The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. H&r block free file review For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. H&r block free file review However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). H&r block free file review For more information on the Act, see Publication 3920. H&r block free file review Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. H&r block free file review If any tax is still due, it will be canceled. H&r block free file review The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. H&r block free file review If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. H&r block free file review Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. H&r block free file review This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. H&r block free file review Filing a claim. H&r block free file review   Use the following procedures to file a claim. H&r block free file review If a U. H&r block free file review S. H&r block free file review individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. H&r block free file review Form W-2, Wage and Tax Statement, must accompany all returns. H&r block free file review If a U. H&r block free file review S. H&r block free file review individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. H&r block free file review You must file a separate Form 1040X for each year in question. H&r block free file review   You must file these returns and claims at the following address for regular mail (U. H&r block free file review S. H&r block free file review Postal Service). H&r block free file review    Internal Revenue Service 333 W. H&r block free file review Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. H&r block free file review On the applicable return, write the same phrase on the line for total tax. H&r block free file review If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. H&r block free file review   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. H&r block free file review On joint returns, make an allocation of the tax as described below under Joint returns. H&r block free file review If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. H&r block free file review   You must attach Form 1310 to all returns and claims for refund. H&r block free file review However, for exceptions to filing Form 1310, see Form 1310. H&r block free file review Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. H&r block free file review   You must also attach proof of death that includes a statement that the individual was a U. H&r block free file review S. H&r block free file review employee on the date of injury and on the date of death and died as the result of a military or terrorist action. H&r block free file review For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. H&r block free file review For other U. H&r block free file review S. H&r block free file review civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. H&r block free file review For other U. H&r block free file review S. H&r block free file review civilian employees killed overseas, attach a certification from the Department of State. H&r block free file review   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. H&r block free file review Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. H&r block free file review Joint returns. H&r block free file review   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. H&r block free file review Determine the decedent's tax liability as follows. H&r block free file review Figure the income tax for which the decedent would have been liable if a separate return had been filed. H&r block free file review Figure the income tax for which the spouse would have been liable if a separate return had been filed. H&r block free file review Multiply the joint tax liability by a fraction. H&r block free file review The numerator of the fraction is the amount in (1), above. H&r block free file review The denominator of the fraction is the total of (1) and (2). H&r block free file review   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. H&r block free file review Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. H&r block free file review Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. H&r block free file review If a personal representative has been appointed, the personal representative must sign the return. H&r block free file review If it is a joint return, the surviving spouse must also sign it. H&r block free file review If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. H&r block free file review If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. H&r block free file review ” To claim a refund for the decedent, do the following. H&r block free file review If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. H&r block free file review If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. H&r block free file review (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. H&r block free file review ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). H&r block free file review If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. H&r block free file review Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. H&r block free file review Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. H&r block free file review Joint return by surviving spouse. H&r block free file review   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. H&r block free file review Decedent as your dependent. H&r block free file review   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. H&r block free file review   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. H&r block free file review To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. H&r block free file review To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. H&r block free file review Qualifying widows and widowers. H&r block free file review   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. H&r block free file review Requirements. H&r block free file review   Generally, you qualify for this special benefit if you meet all of the following requirements. H&r block free file review You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. H&r block free file review You did not remarry before the end of the current tax year. H&r block free file review You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. H&r block free file review You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. H&r block free file review Example. H&r block free file review William Burns' wife died in 2010. H&r block free file review William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. H&r block free file review For 2010, he was entitled to file a joint return for himself and his deceased wife. H&r block free file review For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. H&r block free file review For later years, he may qualify to file as a head of household. H&r block free file review Figuring your tax. H&r block free file review   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. H&r block free file review Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. H&r block free file review   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. H&r block free file review Joint return filing rules. H&r block free file review   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. H&r block free file review See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. H&r block free file review Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. H&r block free file review If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. H&r block free file review This exclusion does not apply to certain income. H&r block free file review For more information, see Publication 3920. H&r block free file review How To Report Income in respect of a decedent must be included in the income of one of the following. H&r block free file review The decedent's estate, if the estate receives it. H&r block free file review The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. H&r block free file review Any person to whom the estate properly distributes the right to receive it. H&r block free file review If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. H&r block free file review See Estate Tax Deduction, later. H&r block free file review Example 1. H&r block free file review Frank Johnson owned and operated an apple orchard. H&r block free file review He used the cash method of accounting. H&r block free file review He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. H&r block free file review The proceeds from the sale are income in respect of a decedent. H&r block free file review When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. H&r block free file review When Frank's widow collects the $2,000, she must include that amount in her return. H&r block free file review It is not reported on the final return of the decedent or on the return of the estate. H&r block free file review Example 2. H&r block free file review Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. H&r block free file review The amount accrued from the sale of the apples would be included on his final return. H&r block free file review Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. H&r block free file review Example 3. H&r block free file review On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. H&r block free file review His adjusted basis in the tractor was $2,000. H&r block free file review George died on February 15, before receiving payment. H&r block free file review The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. H&r block free file review In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. H&r block free file review Example 4. H&r block free file review Cathy O'Neil was entitled to a large salary payment at the date of her death. H&r block free file review The amount was to be paid in five annual installments. H&r block free file review The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. H&r block free file review The payments are income in respect of a decedent. H&r block free file review None of the payments were includible on Cathy's final return. H&r block free file review The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. H&r block free file review Example 5. H&r block free file review You inherited the right to receive renewal commissions on life insurance sold by your father before his death. H&r block free file review You inherited the right from your mother, who acquired it by bequest from your father. H&r block free file review Your mother died before she received all the commissions she had the right to receive, so you received the rest. H&r block free file review The commissions are income in respect of a decedent. H&r block free file review None of these commissions were includible in your father's final return. H&r block free file review The commissions received by your mother were included in her income. H&r block free file review The commissions you received are not includible in your mother's income, even on her final return. H&r block free file review You must include them in your income. H&r block free file review Character of income. H&r block free file review   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. H&r block free file review If the income would have been a capital gain to the decedent, it will be a capital gain to you. H&r block free file review Transfer of right to income. H&r block free file review   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. H&r block free file review   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. H&r block free file review   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. H&r block free file review See Installment obligations, later. H&r block free file review Transfer defined. H&r block free file review   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. H&r block free file review Installment obligations. H&r block free file review   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. H&r block free file review Include in your income the same profit the decedent would have included had death not occurred. H&r block free file review For more information, see Publication 537, Installment Sales. H&r block free file review   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. H&r block free file review Transfer to obligor. H&r block free file review   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). H&r block free file review A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. H&r block free file review An obligation that becomes unenforceable is treated as having been canceled. H&r block free file review   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. H&r block free file review The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. H&r block free file review   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. H&r block free file review Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. H&r block free file review Wages. H&r block free file review   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. H&r block free file review The income is not reduced by any amounts withheld by the employer. H&r block free file review If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. H&r block free file review   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. H&r block free file review However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. H&r block free file review These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. H&r block free file review These wages are not included in box 1 of Form W-2. H&r block free file review   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe