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Ez Form

Ez form Other Methods of Depreciation Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: How To Figure the DeductionBasis Useful Life Salvage Value Methods To UseStraight Line Method Declining Balance Method Income Forecast Method How To Change Methods DispositionsSale or exchange. Ez form Property not disposed of or abandoned. Ez form Special rule for normal retirements from item accounts. Ez form Abandoned property. Ez form Single item accounts. Ez form Multiple property account. Ez form Topics - This chapter discusses: How to figure the deduction Methods to use How to change methods Dispositions Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 551 Basis of Assets 583 Starting a Business and Keeping Records 946 How To Depreciate Property Form (and Instructions) 3115 Application for Change in Accounting Method 4562 Depreciation and Amortization Schedule C (Form 1040) Profit or Loss From Business If your property is being depreciated under ACRS, you must continue to use rules for depreciation that applied when you placed the property in service. Ez form If your property qualified for MACRS, you must depreciate it under MACRS. Ez form See Publication 946. Ez form However, you cannot use MACRS for certain property because of special rules that exclude it from MACRS. Ez form Also, you can elect to exclude certain property from being depreciated under MACRS. Ez form Property that you cannot depreciate using MACRS includes: Intangible property, Property you can elect to exclude from MACRS that you properly depreciate under a method that is not based on a term of years, Certain public utility property, Any motion picture film or video tape, Any sound recording, and Certain real and personal property placed in service before 1987. Ez form Intangible property. Ez form   You cannot depreciate intangible property under ACRS or MACRS. Ez form You depreciate intangible property using any other reasonable method, usually, the straight line method. Ez form Note. Ez form The cost of certain intangible property that you acquire after August 10, 1993, must be amortized over a 15-year period. Ez form For more information, see chapter 12 of Publication 535. Ez form Public utility property. Ez form   The law excludes from MACRS any public utility property for which the taxpayer does not use a normalization method of accounting. Ez form This type of property is subject to depreciation under a special rule. Ez form Videocassettes. Ez form   If you are in the videocassette rental business, you can depreciate those videocassettes purchased for rental. Ez form You can depreciate the cost less salvage value of those videocassettes that have a useful life over one year using either: The straight line method, or The income forecast method. Ez form The straight line method, salvage value, and useful life are discussed later under Methods To Use. Ez form You can deduct in the year of purchase as a business expense the cost of any cassette that has a useful life of one year or less. Ez form How To Figure the Deduction Two other reasonable methods can be used to figure your deduction for property not covered under ACRS or MACRS. Ez form These methods are straight line and declining balance. Ez form To figure depreciation using these methods, you must generally determine three things about the property you intend to depreciate. Ez form They are: The basis, The useful life, and The estimated salvage value at the end of its useful life. Ez form The amount of the deduction in any year also depends on which method of depreciation you choose. Ez form Basis To deduct the proper amount of depreciation each year, first determine your basis in the property you intend to depreciate. Ez form The basis used for figuring depreciation is the same as the basis that would be used for figuring the gain on a sale. Ez form Your original basis is usually the purchase price. Ez form However, if you acquire property in some other way, such as inheriting it, getting it as a gift, or building it yourself, you have to figure your original basis in a different way. Ez form Adjusted basis. Ez form   Events will often change the basis of property. Ez form When this occurs, the changed basis is called the adjusted basis. Ez form Some events, such as improvements you make, increase basis. Ez form Events such as deducting casualty losses and depreciation decrease basis. Ez form If basis is adjusted, the depreciation deduction may also have to be changed, depending on the reason for the adjustment and the method of depreciation you are using. Ez form   Publication 551 explains how to figure basis for property acquired in different ways. Ez form It also discusses what items increase and decrease basis, how to figure adjusted basis, and how to allocate cost if you buy several pieces of property at one time. Ez form Useful Life The useful life of a piece of property is an estimate of how long you can expect to use it in your trade or business, or to produce income. Ez form It is the length of time over which you will make yearly depreciation deductions of your basis in the property. Ez form It is how long it will continue to be useful to you, not how long the property will last. Ez form Many things affect the useful life of property, such as: Frequency of use, Age when acquired, Your repair policy, and Environmental conditions. Ez form The useful life can also be affected by technological improvements, progress in the arts, reasonably foreseeable economic changes, shifting of business centers, prohibitory laws, and other causes. Ez form Consider all these factors before you arrive at a useful life for your property. Ez form The useful life of the same type of property varies from user to user. Ez form When you determine the useful life of your property, keep in mind your own experience with similar property. Ez form You can use the general experience of the industry you are in until you are able to determine a useful life of your property from your own experience. Ez form Change in useful life. Ez form   You base your estimate of useful life on certain facts. Ez form If these facts change significantly, you can adjust your estimate of the remaining useful life. Ez form However, you redetermine the estimated useful life only when the change is substantial and there is a clear reason for making the change. Ez form Salvage Value It is important for you to accurately determine the correct salvage value of the property you want to depreciate. Ez form You generally cannot depreciate property below a reasonable salvage value. Ez form Determining salvage value. Ez form   Salvage value is the estimated value of property at the end of its useful life. Ez form It is what you expect to get for the property if you sell it after you can no longer use it productively. Ez form You must estimate the salvage value of a piece of property when you first acquire it. Ez form   Salvage value is affected both by how you use the property and how long you use it. Ez form If it is your policy to dispose of property that is still in good operating condition, the salvage value can be relatively large. Ez form However, if your policy is to use property until it is no longer usable, its salvage value can be its junk value. Ez form Changing salvage value. Ez form   Once you determine the salvage value for property, you should not change it merely because prices have changed. Ez form However, if you redetermine the useful life of property, as discussed earlier under Change in useful life, you can also redetermine the salvage value. Ez form When you redetermine the salvage value, take into account the facts that exist at the time. Ez form Net salvage. Ez form   Net salvage is the salvage value of property minus what it costs to remove it when you dispose of it. Ez form You can choose either salvage value or net salvage when you figure depreciation. Ez form You must consistently use the one you choose and the treatment of the costs of removal must be consistent with the practice adopted. Ez form However, if the cost to remove the property is more than the estimated salvage value, then net salvage is zero. Ez form Your salvage value can never be less than zero. Ez form Ten percent rule. Ez form   If you acquire personal property that has a useful life of 3 years or more, you can use an amount for salvage value that is less than your actual estimate. Ez form You can subtract from your estimate of salvage value an amount equal to 10% of your basis in the property. Ez form If salvage value is less than 10% of basis, you can ignore salvage value when you figure depreciation. Ez form Methods To Use Two methods of depreciation are the straight line and declining balance methods. Ez form If ACRS or MACRS does not apply, you can use one of these methods. Ez form The straight line and declining balance methods discussed in this section are not figured in the same way as straight line or declining balance methods under MACRS. Ez form Straight Line Method Before 1981, you could use any reasonable method for every kind of depreciable property. Ez form One of these methods was the straight line method. Ez form This method was also used for intangible property. Ez form It lets you deduct the same amount of depreciation each year. Ez form To figure your deduction, determine the adjusted basis of your property, its salvage value, and its estimated useful life. Ez form Subtract the salvage value, if any, from the adjusted basis. Ez form The balance is the total amount of depreciation you can take over the useful life of the property. Ez form Divide the balance by the number of years remaining in the useful life. Ez form This gives you the amount of your yearly depreciation deduction. Ez form Unless there is a big change in adjusted basis, or useful life, this amount will stay the same throughout the time you depreciate the property. Ez form If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use. Ez form Example. Ez form In April 1994, Frank bought a franchise for $5,600. Ez form It expires in 10 years. Ez form This property is intangible property that cannot be depreciated under MACRS. Ez form Frank depreciates the franchise under the straight line method, using a 10-year useful life and no salvage value. Ez form He takes the $5,600 basis and divides that amount by 10 years ($5,600 ÷ 10 = $560, a full year's use). Ez form He must prorate the $560 for his 9 months of use in 1994. Ez form This gives him a deduction of $420 ($560 ÷ 9/12). Ez form In 1995, Frank can deduct $560 for the full year. Ez form Declining Balance Method The declining balance method allows you to recover a larger amount of the cost of the property in the early years of your use of the property. Ez form The rate cannot be more than twice the straight line rate. Ez form Rate of depreciation. Ez form   Under this method, you must determine your declining balance rate of depreciation. Ez form The initial step is to: Divide the number 1 by the useful life of your property to get a straight line rate. Ez form (For example, if property has a useful life of 5 years, its normal straight line rate of depreciation is ⅕, or 20%. Ez form ) Multiply this straight line rate by a number that is more than 1 but not more than 2 to determine the declining balance rate. Ez form Unless there is a change in the useful life during the time you depreciate the property, the rate of depreciation generally will not change. Ez form Depreciation deductions. Ez form   After you determine the rate of depreciation, multiply the adjusted basis of the property by it. Ez form This gives you the amount of your deduction. Ez form For example, if your adjusted basis at the beginning of the first year is $10,000, and your declining balance rate is 20%, your depreciation deduction for the first year is $2,000 ($10,000 ÷ 20%). Ez form To figure your depreciation deduction in the second year, you must first adjust the basis for the amount of depreciation you deducted in the first year. Ez form Subtract the previous year's depreciation from your basis ($10,000 - $2,000 = $8,000). Ez form Multiply this amount by the rate of depreciation ($8,000 ÷ 20% = $1,600). Ez form Your depreciation deduction for the second year is $1,600. Ez form   As you can see from this example, your adjusted basis in the property gets smaller each year. Ez form Also, under this method, deductions are larger in the earlier years and smaller in the later years. Ez form You can make a change to the straight line method without consent. Ez form Salvage value. Ez form   Do not subtract salvage value when you figure your yearly depreciation deductions under the declining balance method. Ez form However, you cannot depreciate the property below its reasonable salvage value. Ez form Determine salvage value using the rules discussed earlier, including the special 10% rule. Ez form Example. Ez form If your adjusted basis has been decreased to $1,000 and the rate of depreciation is 20%, your depreciation deduction should be $200. Ez form But if your estimate of salvage value was $900, you can only deduct $100. Ez form This is because $100 is the amount that would lower your adjusted basis to equal salvage value. Ez form Income Forecast Method The income forecast method requires income projections for each videocassette or group of videocassettes. Ez form You can group the videocassettes by title for making this projection. Ez form You determine the depreciation by applying a fraction to the cost less salvage value of the cassette. Ez form The numerator is the income from the videocassette for the tax year and the denominator is the total projected income for the cassette. Ez form For more information on the income forecast method, see Revenue Ruling 60-358 in Cumulative Bulletin 1960, Volume 2, on page 68. Ez form How To Change Methods In some cases, you may change your method of depreciation for property depreciated under a reasonable method. Ez form If you change your method of depreciation, it is generally a change in your method of accounting. Ez form You must get IRS consent before making the change. Ez form However, you do not need permission for certain changes in your method of depreciation. Ez form The rules discussed in this section do not apply to property depreciated under ACRS or MACRS. Ez form For information on ACRS elections,see Revocation of election, in chapter 1 under Alternate ACRS Method. Ez form Change to the straight line method. Ez form   You can change from the declining balance method to the straight line method at any time during the useful life of your property without IRS consent. Ez form However, if you have a written agreement with the IRS that prohibits a change, you must first get IRS permission. Ez form When the change is made, figure depreciation based on your adjusted basis in the property at that time. Ez form Your adjusted basis takes into account all previous depreciation deductions. Ez form Use the estimated remaining useful life of your property at the time of change and its estimated salvage value. Ez form   You can change from the declining balance method to straight line only on the original tax return for the year you first use the straight line method. Ez form You cannot make the change on an amended return filed after the due date of the original return (including extensions). Ez form   When you make the change, attach a statement to your tax return showing: When you acquired the property, Its original cost or other original basis, The total amount claimed for depreciation and other allowances since you acquired it, Its salvage value and remaining useful life, and A description of the property and its use. Ez form   After you change to straight line, you cannot change back to the declining balance method or to any other method for a period of 10 years without written permission from the IRS. Ez form Changes that require permission. Ez form   For most other changes in method of depreciation, you must get permission from the IRS. Ez form To request a change in method of depreciation, file Form 3115. Ez form File the application within the first 180 days of the tax year the change is to become effective. Ez form In most cases, there is a user fee that must accompany Form 3115. Ez form See the instructions for Form 3115 to determine if a fee is required. Ez form Changes granted automatically. Ez form   The IRS automatically approves certain changes of a method of depreciation. Ez form But, you must file Form 3115 for these automatic changes. Ez form   However, IRS can deny permission if Form 3115 is not filed on time. Ez form For more information on automatic changes, see Revenue Procedure 74-11, 1974-1 C. Ez form B. Ez form 420. Ez form Changes for which approval is not automatic. Ez form   The automatic change procedures do not apply to: Property or an account where you made a change in depreciation within the last 10 tax years (unless the change was made under the Class Life System), Class Life Asset Depreciation Range System, and Public utility property. Ez form   You must request and receive permission for these changes. Ez form To make the request, file Form 3115 during the first 180 days of the tax year for which you want the change to be effective. Ez form Change from an improper method. Ez form   If the IRS disallows the method you are using, you do not need permission to change to a proper method. Ez form You can adopt the straight line method, or any other method that would have been permitted if you had used it from the beginning. Ez form If you file your tax return using an improper method, but later file an amended return, you can use a proper method on the amended return without getting IRS permission. Ez form However, you must file the amended return before the filing date for the next tax year. Ez form Dispositions Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. Ez form You can do this by selling, exchanging, or abandoning the item of property. Ez form You can also withdraw it from use without disposing of it. Ez form For example, you could place it in a supplies or scrap account. Ez form Retirements can be either normal or abnormal depending on all facts and circumstances. Ez form The rules discussed next do not apply to MACRS and ACRS property. Ez form Normal retirement. Ez form   A normal retirement is a permanent withdrawal of depreciable property from use if the following apply: The retirement is made within the useful life you estimated originally, and The property has reached a condition at which you customarily retire or would retire similar property from use. Ez form A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property. Ez form Abnormal retirement. Ez form   A retirement can be abnormal if you withdraw the property early or under other circumstances. Ez form For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless. Ez form Gain or loss on retirement. Ez form   There are special rules for figuring the gain or loss on retirement of property. Ez form The gain or loss will depend on several factors. Ez form These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. Ez form A single property account contains only one item of property. Ez form A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account. Ez form Sale or exchange. Ez form   If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. Ez form See Publication 544. Ez form Property not disposed of or abandoned. Ez form   If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. Ez form You are allowed a loss in such a case, but only if the retirement is: An abnormal retirement, A normal retirement from a single property account in which you determined the life of each item of property separately, or A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. Ez form However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account. Ez form   To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis. Ez form Special rule for normal retirements from item accounts. Ez form   You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if: You account for each one in a separate account, and You use the average useful life to figure depreciation. Ez form However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives. Ez form   If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts. Ez form Abandoned property. Ez form   If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. Ez form However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition. Ez form Basis of property retired. Ez form   The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions. Ez form Single item accounts. Ez form   If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. Ez form This is generally the cost or other basis of the item of property less depreciation. Ez form See Publication 551. Ez form Multiple property account. Ez form   For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. Ez form If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired. Ez form   You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. Ez form The method of depreciation used for the multiple property account is used. Ez form You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account. Ez form Prev  Up  Next   Home   More Online Publications
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2012 ITIN Review Frequently Asked Questions

What are the interim changes to the ITIN application requirements?
The IRS is revising its procedures for issuing new Individual Taxpayer Identification Numbers (ITINs) as part of a comprehensive review of the ITIN processing procedures. Forms W-7, Application for IRS Individual Taxpayer Identification Number, submitted during the interim period beginning June 22, 2012 through the end of the year must include original documentation such as passports and birth certificates, or copies of these documents certified by the issuing agency. During this interim period, notarized copies of documentation will not be accepted.

Are there any applicants who are exempt from these new requirements?
Some categories of applicants are not impacted by these interim changes, including spouses and dependents of U.S. military personnel who need ITINs. People who should follow the current procedures outlined in the Form W-7 instructions include:

  • Military spouses and dependents without an SSN who need an ITIN (Military spouses use box "e" on Form W-7 and military dependents use box "d"). Exceptions to the new interim document standards will be made for military family members satisfying the documentation requirements by providing a copy of the spouse or parent's U.S. military identification, or applying from an overseas APO/FPO address.
  • Nonresident aliens applying for ITINs for the purpose of claiming tax treaty benefits (use boxes "a" and "h" on Form W-7). Non-resident alien applicants generally need ITINs for reasons besides filing a U.S. tax return. This is necessary for nonresident aliens who may be subject to third-party withholding for various income, such as certain gambling winnings or pension income, or need an ITIN for information reporting purposes. While existing documentation standards will be maintained only for these applicants, scrutiny of the documents will be heightened. ITIN applications of this category that are accompanied by a U.S. tax return will be subject to the new interim document standards.

What is the difference between a "certified" and a "notarized" document?
A certified document is one that the original issuing agency provides and certifies as an exact copy of the original document and contains an official stamped seal from the Agency. These documents will be accepted. A notarized document is one that the taxpayer provides to a public notary who bears witness to the signing of the official document and affixes a seal assuring that the document is legitimate. These documents will not be accepted for ITIN applications. Note there are some applicants who are exempt from this change. This exemption is described in a previous question.

Why is IRS changing the ITIN program procedures?
The IRS is instituting these interim changes while conducting a review of the program designed to strengthen and protect the integrity of the ITIN process.

Is this a temporary change to the program? If so, how long will it be in effect?
These are interim changes that have been put in place during a comprehensive review of ITIN processing procedures. Any permanent changes will be issued before the start of the 2013 filing season when most requests for ITINs come in.

When will the interim changes be effective?
These changes will be effective for all new applications submitted on or after June 22, 2012 and will remain in effect until the final rules are issued later this year.

If a taxpayer had a pending application on file with IRS before June 22, 2012, will processing continue with the notarized copies already submitted?
Yes, the IRS is analyzing the existing inventory of ITIN applications. Some taxpayers who have already filed applications may be required to furnish additional documentation directly to the IRS. However, no additional action is required for people who have already filed ITIN requests unless they are contacted by the IRS.

If a taxpayer had a pending application on file with IRS before June 22, 2012, that included original or certified documents, will the taxpayer need to take any additional action?
No. IRS will continue to process pending applications that include original or certified documentation.

Will Publications 1915, 4520 or 4327, or tax forms and instructions change to reflect this new requirement? If so, when will they change and when will they be available to the public?
Since these are interim changes, publications, forms and instructions will not change. Once IRS has determined the appropriate changes, these and other appropriate instructions will be updated to reflect the new policy.

Will taxpayers be able to submit Form W-7 applications (with original documents) at IRS Taxpayer Assistance Centers?
During this interim period, IRS Taxpayer Assistance Centers will accept original documentation or copies of these documents certified by the issuing agency and forward the documents to the Austin Submission Processing Center. 

Which documents are acceptable?
See the instructions for Form W-7. These instructions list 13 acceptable documents.

Will the IRS return my original documents to me? How long will it take to get them back?
The IRS currently receives original documents with some applications and we have a process in place to ensure that documents are returned to applicants.  The original and certified documents will be returned to applicants using the mailing address on the application via postage paid standard U.S. mail within 60 days of receipt and processing of the Form W-7.

Whom should I contact if I do not receive the documents within the allotted period?
If you do not receive your original documents within 65 days of mailing to the IRS, allowing 5 days for postal mail receipt, you may call 1-800-908-9982 (U.S. only) or for international, call 1-267-941-1000 (this is not a toll free number).

Are there any alternative options for me if I cannot get the original documents I need?
Unless you are one of the exempt applicants described above, this change requires the submission of original or certified copies of documentation from the issuing agency in order to obtain an ITIN. You may be able to request a certified copy of your passport or similar international identification (e.g., Matricula Card) at your local consulate's office.

If I cannot get the documents I need to apply for an ITIN, can I apply for a Social Security number instead?
If you qualify for a social security number, you should not be applying for an ITIN.

Can my consulate or embassy certify my documents?
You may be able to request a certified copy of documents at an embassy or consulate.  However, services may vary between countries, so we recommend that you contact the appropriate consulate or embassy for specific information.

My consulate or embassy wants to know why I need a certified copy of my passport.  What should I provided them as proof of requirement?
We recommend that you refer the consulate or embassy to the information on www.IRS.gov or that you download and copy that information and provide it to them.

Will the IRS accept an apostille document?
During this interim period, the IRS is only accepting original documentation or copies of documents certified by the issuing country or agency.  An apostille does not meet these requirements since it is similar to the U.S. Notary, which we are currently not accepting.  You may be able to request a certified copy of identification documents at the applicant’s embassy or consulate. However, services may vary between countries so we recommend that you contact the appropriate consulate or embassy for that information.  

As a reminder, some categories of applicants are exempt from the requirement to provide original or certified copies including U.S. Military spouses (box “e” on Form W-7), U.S. Military dependents (box “d” on Form W-7), and non-resident aliens applying for ITINs to claim tax treaty benefits (box “a” and ”h” on Form W-7).

 

Additional Information For Certifying Acceptance Agents (CAAs) and Acceptance Agents (AAs)

Can CAAs and AAs still submit Forms W-7 to the IRS for taxpayers?
Yes, CAAs and AAs can still submit Forms W-7 on behalf of their clients but must provide the original documents or certified copies from the issuing agency along with Form 14194, Certificate of Accuracy, unless the applicant is exempt as described above. If the applicant is exempt, CAAs and AAs must still provide identification documents along with the Form 14194, however, notarized copies of those documents will be accepted.

As a CAA or AA, is there anything I need to do differently when submitting my client's W-7 application for an ITIN?
As a CAA or AA you will be required to include original documentation or certified copies from the issuing agency along with your client's Form W-7 application. While using Form 14194, Certificate of Accuracy, in lieu of original documents is no longer appropriate, the IRS still requires that you submit it with the applications and necessary documents. IRS will make the determination of whether applicants qualify for an ITIN based on the documentation submitted. Note the exempt applicants described above.

Will IRS continue to process applications to become an AA or CAA?
IRS will not process any applications during this interim review period but those interested in being an AA or CAA should still submit their applications during the open season that runs through August 31, 2012.

Page Last Reviewed or Updated: 03-Jun-2013

The Ez Form

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