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Telefile

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Telefile

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

Telefile 5. Telefile   Ministers and Church Employees Table of Contents Alternative Limit for Church Employees Changes to Includible Compensation for Most Recent Year of ServiceChanges to Includible Compensation Changes to Years of Service Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants. Telefile This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of: Your limit on annual additions, or Your limit on elective deferrals. Telefile For most ministers and church employees, the limit on annual additions is figured without any changes. Telefile This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or Your includible compensation for your most recent year of service. Telefile Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. Telefile This chapter will explain the alternative limit and the changes. Telefile Who is a church employee?   A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches. Telefile Alternative Limit for Church Employees If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions computed under the general rule is less. Telefile Total contributions over your lifetime under this choice cannot be more than $40,000. Telefile Changes to Includible Compensation for Most Recent Year of Service There are two types of changes in determining includible compensation for the most recent year of service. Telefile They are: Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and A change to the years that are counted when figuring the most recent year of service for church employees and self-employed ministers. Telefile Changes to Includible Compensation Includible compensation is figured differently for foreign missionaries and self-employed ministers. Telefile Foreign missionary. Telefile   If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911. Telefile   If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not in excess of $3,000. Telefile   You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements. Telefile You are an employee of a church or convention or association of churches. Telefile You are performing services for the church outside the United States. Telefile Self-employed minister. Telefile   If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. Telefile Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax. Telefile Changes to Years of Service Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions. Telefile Church employees. Telefile   If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Telefile Self-employed minister. Telefile   If you are a self-employed minister, your years of service include full and part years during which you were self-employed. Telefile Prev  Up  Next   Home   More Online Publications