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Free taxes online Publication 969 - Main Content Table of Contents Health Savings Accounts (HSAs)Qualifying for an HSA Contributions to an HSA Distributions From an HSA Balance in an HSA Death of HSA Holder Filing Form 8889 Employer Participation Medical Savings Accounts (MSAs)Archer MSAs Contributions to an MSA Distributions From an MSA Balance in an Archer MSA Death of the Archer MSA Holder Filing Form 8853 Employer Participation Medicare Advantage MSAs Flexible Spending Arrangements (FSAs)Qualifying for an FSA Contributions to an FSA Distributions From an FSA Balance in an FSA Employer Participation Health Reimbursement Arrangements (HRAs)Qualifying for an HRA Contributions to an HRA Distributions From an HRA Balance in an HRA Employer Participation How To Get Tax HelpLow Income Taxpayer Clinics Health Savings Accounts (HSAs) A health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. Free taxes online You must be an eligible individual to qualify for an HSA. Free taxes online No permission or authorization from the IRS is necessary to establish an HSA. Free taxes online You set up an HSA with a trustee. Free taxes online A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. Free taxes online The HSA can be established through a trustee that is different from your health plan provider. Free taxes online Your employer may already have some information on HSA trustees in your area. Free taxes online If you have an Archer MSA, you can generally roll it over into an HSA tax free. Free taxes online See Rollovers, later. Free taxes online What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. Free taxes online You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. Free taxes online Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. Free taxes online The contributions remain in your account until you use them. Free taxes online The interest or other earnings on the assets in the account are tax free. Free taxes online Distributions may be tax free if you pay qualified medical expenses. Free taxes online See Qualified medical expenses , later. Free taxes online An HSA is “portable. Free taxes online ” It stays with you if you change employers or leave the work force. Free taxes online Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. Free taxes online You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. Free taxes online You have no other health coverage except what is permitted under Other health coverage , later. Free taxes online You are not enrolled in Medicare. Free taxes online You cannot be claimed as a dependent on someone else's 2013 tax return. Free taxes online Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). Free taxes online If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you. Free taxes online If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. Free taxes online This is true even if the other person does not actually claim your exemption. Free taxes online Each spouse who is an eligible individual who wants an HSA must open a separate HSA. Free taxes online You cannot have a joint HSA. Free taxes online High deductible health plan (HDHP). Free taxes online   An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Free taxes online Out-of-pocket expenses include copayments and other amounts, but do not include premiums. Free taxes online   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. Free taxes online Preventive care includes, but is not limited to, the following. Free taxes online Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. Free taxes online Routine prenatal and well-child care. Free taxes online Child and adult immunizations. Free taxes online Tobacco cessation programs. Free taxes online Obesity weight-loss programs. Free taxes online Screening services. Free taxes online This includes screening services for the following: Cancer. Free taxes online Heart and vascular diseases. Free taxes online Infectious diseases. Free taxes online Mental health conditions. Free taxes online Substance abuse. Free taxes online Metabolic, nutritional, and endocrine conditions. Free taxes online Musculoskeletal disorders. Free taxes online Obstetric and gynecological conditions. Free taxes online Pediatric conditions. Free taxes online Vision and hearing disorders. Free taxes online For more information on screening services, see Notice 2004-23, 2004-15 I. Free taxes online R. Free taxes online B. Free taxes online 725 available at www. Free taxes online irs. Free taxes online gov/irb/2004-15_IRB/ar10. Free taxes online html. Free taxes online     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. Free taxes online      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,250 $12,500 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Free taxes online Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Free taxes online    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. Free taxes online      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,350 $12,700 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Free taxes online Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. Free taxes online   Self-only HDHP coverage is an HDHP covering only an eligible individual. Free taxes online Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual (whether or not that individual is an eligible individual). Free taxes online Example. Free taxes online An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. Free taxes online This is family HDHP coverage. Free taxes online Family plans that do not meet the high deductible rules. Free taxes online   There are some family plans that have deductibles for both the family as a whole and for individual family members. Free taxes online Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. Free taxes online If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. Free taxes online Example. Free taxes online You have family health insurance coverage in 2013. Free taxes online The annual deductible for the family plan is $3,500. Free taxes online This plan also has an individual deductible of $1,500 for each family member. Free taxes online The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($2,500) for family coverage. Free taxes online Other health coverage. Free taxes online   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Free taxes online However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Free taxes online    You can have additional insurance that provides benefits only for the following items. Free taxes online Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. Free taxes online A specific disease or illness. Free taxes online A fixed amount per day (or other period) of hospitalization. Free taxes online   You can also have coverage (whether provided through insurance or otherwise) for the following items. Free taxes online Accidents. Free taxes online Disability. Free taxes online Dental care. Free taxes online Vision care. Free taxes online Long-term care. Free taxes online    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. Free taxes online For example, if your plan provides coverage substantially all of which is for a specific disease or illness, the plan is not an HDHP for purposes of establishing an HSA. Free taxes online Prescription drug plans. Free taxes online   You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan does not provide benefits until the minimum annual deductible of the HDHP has been met. Free taxes online If you can receive benefits before that deductible is met, you are not an eligible individual. Free taxes online Other employee health plans. Free taxes online   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Free taxes online Health FSAs and HRAs are discussed later. Free taxes online   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. Free taxes online Limited-purpose health FSA or HRA. Free taxes online These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Free taxes online Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. Free taxes online Suspended HRA. Free taxes online Before the beginning of an HRA coverage period, you can elect to suspend the HRA. Free taxes online The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. Free taxes online When the suspension period ends, you are no longer eligible to make contributions to an HSA. Free taxes online Post-deductible health FSA or HRA. Free taxes online These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. Free taxes online The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met. Free taxes online Retirement HRA. Free taxes online This arrangement pays or reimburses only those medical expenses incurred after retirement. Free taxes online After retirement you are no longer eligible to make contributions to an HSA. Free taxes online Health FSA – grace period. Free taxes online   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero. Free taxes online See Flexible Spending Arrangements (FSAs) , later. Free taxes online Contributions to an HSA Any eligible individual can contribute to an HSA. Free taxes online For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. Free taxes online For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. Free taxes online Family members or any other person may also make contributions on behalf of an eligible individual. Free taxes online Contributions to an HSA must be made in cash. Free taxes online Contributions of stock or property are not allowed. Free taxes online Limit on Contributions The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. Free taxes online For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. Free taxes online If you have family HDHP coverage, you can contribute up to $6,450. Free taxes online For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. Free taxes online If you have family HDHP coverage you can contribute up to $6,550. Free taxes online If you were, or were considered (under the last-month rule, discussed later), an eligible individual for the entire year and did not change your type of coverage, you can contribute the full amount based on your type of coverage. Free taxes online However, if you were not an eligible individual for the entire year or changed your coverage during the year, your contribution limit is the greater of: The limitation shown on the Line 3 Limitation Chart and Worksheetin the Instructions for Form 8889, Health Savings Accounts (HSAs), or The maximum annual HSA contribution based on your HDHP coverage (self-only or family) on the first day of the last month of your tax year. Free taxes online If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2013 is $6,450 even if you changed coverage during the year. Free taxes online Last-month rule. Free taxes online   Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. Free taxes online You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. Free taxes online Testing period. Free taxes online   If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. Free taxes online For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. Free taxes online For example, December 1, 2013, through December 31, 2014. Free taxes online   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. Free taxes online You include this amount in your income in the year in which you fail to be an eligible individual. Free taxes online This amount is also subject to a 10% additional tax. Free taxes online The income and additional tax are shown on Form 8889, Part III. Free taxes online Example 1. Free taxes online Chris, age 53, becomes an eligible individual on December 1, 2013. Free taxes online He has family HDHP coverage on that date. Free taxes online Under the last-month rule, he contributes $6,450 to his HSA. Free taxes online Chris fails to be an eligible individual in June 2014. Free taxes online Because Chris did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), he must include in his 2014 income the contributions made in 2013 that would not have been made except for the last-month rule. Free taxes online Chris uses the worksheet in the Form 8889 instructions to determine this amount. Free taxes online January -0- February -0- March -0- April -0- May -0- June -0- July -0- August -0- September -0- October -0- November -0- December $6,450. Free taxes online 00 Total for all months $6,450. Free taxes online 00 Limitation. Free taxes online Divide the total by 12 $537. Free taxes online 50 Chris would include $5,912. Free taxes online 50 ($6,450. Free taxes online 00 – $537. Free taxes online 50) in his gross income on his 2014 tax return. Free taxes online Also, a 10% additional tax applies to this amount. Free taxes online Example 2. Free taxes online Erika, age 39, has self-only HDHP coverage on January 1, 2013. Free taxes online Erika changes to family HDHP coverage on November 1, 2013. Free taxes online Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. Free taxes online Erika fails to be an eligible individual in March 2014. Free taxes online Because she did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), she must include in income the contribution made that would not have been made except for the last-month rule. Free taxes online Erika uses the worksheet in the Form 8889 instructions to determine this amount. Free taxes online January $3,250. Free taxes online 00 February $3,250. Free taxes online 00 March $3,250. Free taxes online 00 April $3,250. Free taxes online 00 May $3,250. Free taxes online 00 June $3,250. Free taxes online 00 July $3,250. Free taxes online 00 August $3,250. Free taxes online 00 September $3,250. Free taxes online 00 October $3,250. Free taxes online 00 November $6,450. Free taxes online 00 December $6,450. Free taxes online 00 Total for all months $45,400. Free taxes online 00 Limitation. Free taxes online Divide the total by 12 $3,783. Free taxes online 34 Erika would include $2,666. Free taxes online 67 ($6,450 – $3,783. Free taxes online 34) in her gross income on her 2014 tax return. Free taxes online Also, a 10% additional tax applies to this amount. Free taxes online Additional contribution. Free taxes online   If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. Free taxes online For example, if you have self-only coverage, you can contribute up to $4,250 (the contribution limit for self-only coverage ($3,250) plus the additional contribution of $1,000). Free taxes online However, see Enrolled in Medicare , later. Free taxes online If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. Free taxes online Reduction of contribution limit. Free taxes online   You must reduce the amount that can be contributed (including any additional contribution) to your HSA by the amount of any contribution made to your Archer MSA (including employer contributions) for the year. Free taxes online A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. Free taxes online Rules for married people. Free taxes online   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. Free taxes online If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. Free taxes online You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. Free taxes online After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. Free taxes online The rules for married people apply only if both spouses are eligible individuals. Free taxes online If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. Free taxes online If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. Free taxes online Each spouse must make the additional contribution to his or her own HSA. Free taxes online Example. Free taxes online For 2013, Mr. Free taxes online Auburn and his wife are both eligible individuals. Free taxes online They each have family coverage under separate HDHPs. Free taxes online Mr. Free taxes online Auburn is 58 years old and Mrs. Free taxes online Auburn is 53. Free taxes online Mr. Free taxes online and Mrs. Free taxes online Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. Free taxes online If they split it equally, Mr. Free taxes online Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. Free taxes online Auburn can contribute $3,225 to an HSA. Free taxes online Employer contributions. Free taxes online   You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. Free taxes online This includes amounts contributed to your account by your employer through a cafeteria plan. Free taxes online Enrolled in Medicare. Free taxes online   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. Free taxes online Example. Free taxes online You turned age 65 in July 2013 and enrolled in Medicare. Free taxes online You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Free taxes online Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). Free taxes online Qualified HSA funding distribution. Free taxes online   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. Free taxes online This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. Free taxes online For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. Free taxes online   The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. Free taxes online The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. Free taxes online The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. Free taxes online The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. Free taxes online   You can make only one qualified HSA funding distribution during your lifetime. Free taxes online However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. Free taxes online The total qualified HSA funding distribution cannot be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled. Free taxes online Example. Free taxes online In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. Free taxes online You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). Free taxes online Funding distribution – testing period. Free taxes online   You must remain an eligible individual during the testing period. Free taxes online For a qualified HSA funding distribution, the testing period begins with the month in which the qualified HSA funding distribution is contributed and ends on the last day of the 12th month following that month. Free taxes online For example, if a qualified HSA funding distribution is contributed to your HSA on August 10, 2013, your testing period begins in August 2013, and ends on August 31, 2014. Free taxes online   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the qualified HSA funding distribution. Free taxes online You include this amount in income in the year in which you fail to be an eligible individual. Free taxes online This amount is also subject to a 10% additional tax. Free taxes online The income and the additional tax are shown on Form 8889, Part III. Free taxes online   Each qualified HSA funding distribution allowed has its own testing period. Free taxes online For example, you are an eligible individual, age 45, with self-only HDHP coverage. Free taxes online On June 18, 2013, you make a qualified HSA funding distribution of $3,250. Free taxes online On July 27, 2013, you enroll in family HDHP coverage and on August 17, 2013, you make a qualified HSA funding distribution of $3,200. Free taxes online Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. Free taxes online Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. Free taxes online   The testing period rule that applies under the last-month rule (discussed earlier) does not apply to amounts contributed to an HSA through a qualified HSA funding distribution. Free taxes online If you remain an eligible individual during the entire funding distribution testing period, then no amount of that distribution is included in income and will not be subject to the additional tax for failing to meet the last-month rule testing period. Free taxes online Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. Free taxes online Archer MSAs and other HSAs. Free taxes online   You can roll over amounts from Archer MSAs and other HSAs into an HSA. Free taxes online You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Free taxes online Rollover contributions do not need to be in cash. Free taxes online Rollovers are not subject to the annual contribution limits. Free taxes online   You must roll over the amount within 60 days after the date of receipt. Free taxes online You can make only one rollover contribution to an HSA during a 1-year period. Free taxes online Note. Free taxes online If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer is not considered a rollover. Free taxes online There is no limit on the number of these transfers. Free taxes online Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. Free taxes online When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. Free taxes online If you fail to be an eligible individual during 2013, you can still make contributions, up until April 15, 2014, for the months you were an eligible individual. Free taxes online Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. Free taxes online Your employer must notify you and the trustee of your HSA that the contribution is for 2013. Free taxes online The contribution will be reported on your 2014 Form W-2. Free taxes online Reporting Contributions on Your Return Contributions made by your employer are not included in your income. Free taxes online Contributions to an employee's account by an employer using the amount of an employee's salary reduction through a cafeteria plan are treated as employer contributions. Free taxes online Generally, you can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income. Free taxes online Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Free taxes online The contributions are treated as a distribution of money and are not included in the partner's gross income. Free taxes online Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner's gross income. Free taxes online In both situations, the partner can deduct the contribution made to the partner's HSA. Free taxes online Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. Free taxes online The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Free taxes online Form 8889. Free taxes online   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. Free taxes online You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. Free taxes online Contributions made by your employer and qualified HSA funding distributions are also shown on the form. Free taxes online   You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. Free taxes online Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Free taxes online Follow the instructions for Form 8889. Free taxes online Report your HSA deduction on Form 1040 or Form 1040NR. Free taxes online Excess contributions. Free taxes online   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Free taxes online Excess contributions are not deductible. Free taxes online Excess contributions made by your employer are included in your gross income. Free taxes online If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. Free taxes online   Generally, you must pay a 6% excise tax on excess contributions. Free taxes online See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Free taxes online The excise tax applies to each tax year the excess contribution remains in the account. Free taxes online   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. Free taxes online You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. Free taxes online You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. Free taxes online If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income is not an excess contribution. Free taxes online If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. Free taxes online Deducting an excess contribution in a later year. Free taxes online   You may be able to deduct excess contributions for previous years that are still in your HSA. Free taxes online The excess contribution you can deduct for the current year is the lesser of the following two amounts. Free taxes online Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. Free taxes online The total excess contributions in your HSA at the beginning of the year. Free taxes online   Amounts contributed for the year include contributions by you, your employer, and any other person. Free taxes online They also include any qualified HSA funding distribution made to your HSA. Free taxes online Any excess contribution remaining at the end of a tax year is subject to the excise tax. Free taxes online See Form 5329. Free taxes online Distributions From an HSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. Free taxes online When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA. Free taxes online You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. Free taxes online If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Free taxes online You do not have to make distributions from your HSA each year. Free taxes online If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Free taxes online Generally, a distribution is money you get from your health savings account. Free taxes online Your total distributions include amounts paid with a debit card that restricts payments to health care and amounts withdrawn from the HSA by other individuals that you have designated. Free taxes online The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Free taxes online Qualified medical expenses. Free taxes online   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Free taxes online These are explained in Publication 502, Medical and Dental Expenses. Free taxes online   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. Free taxes online A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. Free taxes online   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. Free taxes online State law determines when an HSA is established. Free taxes online An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established. Free taxes online   If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses. Free taxes online   Qualified medical expenses are those incurred by the following persons. Free taxes online You and your spouse. Free taxes online All dependents you claim on your tax return. Free taxes online Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Free taxes online    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. Free taxes online You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA. Free taxes online Insurance premiums. Free taxes online   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. Free taxes online Health care continuation coverage (such as coverage under COBRA). Free taxes online Health care coverage while receiving unemployment compensation under federal or state law. Free taxes online Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). Free taxes online   The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. Free taxes online See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). Free taxes online   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. Free taxes online For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses. Free taxes online Health coverage tax credit. Free taxes online   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. Free taxes online See Publication 502 for more information on this credit. Free taxes online Deemed distributions from HSAs. Free taxes online   The following situations result in deemed taxable distributions from your HSA. Free taxes online You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. Free taxes online Your account ceases to be an HSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8889. Free taxes online You used any portion of any of your HSAs as security for a loan at any time in 2013. Free taxes online You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Free taxes online   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the HSA, Lending of money between you and the HSA, Furnishing goods, services, or facilities between you and the HSA, and Transfer to or use by you, or for your benefit, of any assets of the HSA. Free taxes online   Any deemed distribution will not be treated as used to pay qualified medical expenses. Free taxes online These distributions are included in your income and are subject to the additional 20% tax, discussed later. Free taxes online Recordkeeping. Free taxes online You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. Free taxes online Do not send these records with your tax return. Free taxes online Keep them with your tax records. Free taxes online Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). Free taxes online If you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8889. Free taxes online However, the distribution of an excess contribution taken out after the due date, including extensions, of your return is subject to tax even if used for qualified medical expenses. Free taxes online Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Free taxes online If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. Free taxes online Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. Free taxes online You may have to pay an additional 20% tax on your taxable distribution. Free taxes online HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. Free taxes online Additional tax. Free taxes online   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Free taxes online Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. Free taxes online Exceptions. Free taxes online   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Free taxes online Balance in an HSA An HSA is generally exempt from tax. Free taxes online You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Free taxes online Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Free taxes online Earnings on amounts in an HSA are not included in your income while held in the HSA. Free taxes online Death of HSA Holder You should choose a beneficiary when you set up your HSA. Free taxes online What happens to that HSA when you die depends on whom you designate as the beneficiary. Free taxes online Spouse is the designated beneficiary. Free taxes online   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. Free taxes online Spouse is not the designated beneficiary. Free taxes online   If your spouse is not the designated beneficiary of your HSA: The account stops being an HSA, and The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. Free taxes online If your estate is the beneficiary, the value is included on your final income tax return. Free taxes online The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. Free taxes online Filing Form 8889 You must file Form 8889 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your HSA during the year. Free taxes online You must file the form even if only your employer or your spouse's employer made contributions to the HSA. Free taxes online If, during the tax year, you are the beneficiary of two or more HSAs or you are a beneficiary of an HSA and you have your own HSA, you must complete a separate Form 8889 for each HSA. Free taxes online Enter “statement” at the top of each Form 8889 and complete the form as instructed. Free taxes online Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. Free taxes online Attach the statements to your tax return after the controlling Form 8889. Free taxes online Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. Free taxes online Unlike the previous discussions, “you” refers to the employer and not to the employee. Free taxes online Health plan. Free taxes online   If you want your employees to be able to have an HSA, they must have an HDHP. Free taxes online You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Free taxes online Contributions. Free taxes online   You can make contributions to your employees' HSAs. Free taxes online You deduct the contributions on your business income tax return for the year in which you make the contributions. Free taxes online If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. Free taxes online   For more information on employer contributions, see Notice 2008-59, 2008-29 I. Free taxes online R. Free taxes online B. Free taxes online 123, questions 23 through 27, available at www. Free taxes online irs. Free taxes online gov/irb/2008-29_IRB/ar11. Free taxes online html. Free taxes online Comparable contributions. Free taxes online   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. Free taxes online Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. Free taxes online The comparability rules do not apply to contributions made through a cafeteria plan. Free taxes online Comparable participating employees. Free taxes online   Comparable participating employees: Are covered by your HDHP and are eligible to establish an HSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (part-time, full-time, or former employees). Free taxes online   To meet the comparability requirements for eligible employees who have not established an HSA by December 31 or have not notified you that they have an HSA, you must meet a notice requirement and a contribution requirement. Free taxes online   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. Free taxes online The notice must state that each eligible employee who, by the last day of February, establishes an HSA and notifies you that they have established an HSA will receive a comparable contribution to the HSA for the prior year. Free taxes online For a sample of the notice, see Regulation 54. Free taxes online 4980G-4 A-14(c). Free taxes online You will meet the contribution requirement for these employees if by April 15, 2014, you contribute comparable amounts plus reasonable interest to the employee's HSA for the prior year. Free taxes online Note. Free taxes online For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. Free taxes online Excise tax. Free taxes online   If you made contributions to your employees' HSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. Free taxes online Employment taxes. Free taxes online   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. Free taxes online You must report the contributions in box 12 of the Form W-2 you file for each employee. Free taxes online This includes the amounts the employee elected to contribute through a cafeteria plan. Free taxes online Enter code “W” in box 12. Free taxes online Medical Savings Accounts (MSAs) Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder's spouse, or the account holder's dependent(s). Free taxes online After December 31, 2007, you cannot be treated as an eligible individual for Archer MSA purposes unless: You were an active participant for any tax year ending before January 1, 2008, or You became an active participant for a tax year ending after December 31, 2007, by reason of coverage under a high deductible health plan (HDHP) of an Archer MSA participating employer. Free taxes online A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare. Free taxes online Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. Free taxes online S. Free taxes online financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. Free taxes online What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. Free taxes online You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. Free taxes online The interest or other earnings on the assets in your Archer MSA are tax free. Free taxes online Distributions may be tax free if you pay qualified medical expenses. Free taxes online See Qualified medical expenses , later. Free taxes online The contributions remain in your Archer MSA from year to year until you use them. Free taxes online An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. Free taxes online Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. Free taxes online An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). Free taxes online A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. Free taxes online You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. Free taxes online You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. Free taxes online If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. Free taxes online This is true even if the other person does not actually claim your exemption. Free taxes online Small employer. Free taxes online   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. Free taxes online The definition of small employer is modified for new employers and growing employers. Free taxes online Growing employer. Free taxes online   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. Free taxes online The employer will continue to meet the requirement for small employers if he or she: Had 50 or fewer employees when the Archer MSAs began, Made a contribution that was excludable or deductible as an Archer MSA for the last year he or she had 50 or fewer employees, and Had an average of 200 or fewer employees each year after 1996. Free taxes online Changing employers. Free taxes online   If you change employers, your Archer MSA moves with you. Free taxes online However, you may not make additional contributions unless you are otherwise eligible. Free taxes online High deductible health plan (HDHP). Free taxes online   To be eligible for an Archer MSA, you must be covered under an HDHP. Free taxes online An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the annual out-of-pocket medical expenses that you must pay for covered expenses. Free taxes online Limits. Free taxes online   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. Free taxes online   Self-only coverage Family coverage Minimum annual deductible $2,150 $4,300 Maximum annual deductible $3,200 $6,450 Maximum annual out-of-pocket expenses $4,300 $7,850 Family plans that do not meet the high deductible rules. Free taxes online   There are some family plans that have deductibles for both the family as a whole and for individual family members. Free taxes online Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. Free taxes online If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. Free taxes online Example. Free taxes online You have family health insurance coverage in 2013. Free taxes online The annual deductible for the family plan is $5,500. Free taxes online This plan also has an individual deductible of $2,000 for each family member. Free taxes online The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($4,300) for family coverage. Free taxes online Other health coverage. Free taxes online   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. Free taxes online However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. Free taxes online However, you can have additional insurance that provides benefits only for the following items. Free taxes online Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. Free taxes online A specific disease or illness. Free taxes online A fixed amount per day (or other period) of hospitalization. Free taxes online You can also have coverage (whether provided through insurance or otherwise) for the following items. Free taxes online Accidents. Free taxes online Disability. Free taxes online Dental care. Free taxes online Vision care. Free taxes online Long-term care. Free taxes online Contributions to an MSA Contributions to an Archer MSA must be made in cash. Free taxes online You cannot contribute stock or other property to an Archer MSA. Free taxes online Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. Free taxes online (You do not pay tax on these contributions. Free taxes online ) If your employer does not make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. Free taxes online Both you and your employer cannot make contributions to your Archer MSA in the same year. Free taxes online You do not have to make contributions to your Archer MSA every year. Free taxes online    If your spouse is covered by your HDHP and an excludable amount is contributed by your spouse's employer to an Archer MSA belonging to your spouse, you cannot make contributions to your own Archer MSA that year. Free taxes online Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. Free taxes online An income limit. Free taxes online Annual deductible limit. Free taxes online   You (or your employer) can contribute up to 75% of the annual deductible of your HDHP (65% if you have a self-only plan) to your Archer MSA. Free taxes online You must have the HDHP all year to contribute the full amount. Free taxes online If you do not qualify to contribute the full amount for the year, determine your annual deductible limit by using the worksheet in the Instructions for Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Free taxes online Example 1. Free taxes online You have an HDHP for your family all year in 2013. Free taxes online The annual deductible is $5,000. Free taxes online You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. Free taxes online Example 2. Free taxes online You have an HDHP for your family for the entire months of July through December 2013 (6 months). Free taxes online The annual deductible is $5,000. Free taxes online You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. Free taxes online If you and your spouse each have a family plan, you are treated as having family coverage with the lower annual deductible of the two health plans. Free taxes online The contribution limit is split equally between you unless you agree on a different division. Free taxes online Income limit. Free taxes online   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. Free taxes online   If you are self-employed, you cannot contribute more than your net self-employment income. Free taxes online This is your income from self-employment minus expenses (including the deductible part of self-employment tax). Free taxes online Example 1. Free taxes online Noah Paul earned $25,000 from ABC Company in 2013. Free taxes online Through ABC, he had an HDHP for his family for the entire year. Free taxes online The annual deductible was $5,000. Free taxes online He can contribute up to $3,750 to his Archer MSA (75% × $5,000). Free taxes online He can contribute the full amount because he earned more than $3,750 at ABC. Free taxes online Example 2. Free taxes online Westley Lawrence is self-employed. Free taxes online He had an HDHP for his family for the entire year in 2013. Free taxes online The annual deductible was $5,000. Free taxes online Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). Free taxes online However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. Free taxes online Therefore, he is limited to a contribution of $2,500. Free taxes online Individuals enrolled in Medicare. Free taxes online   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. Free taxes online However, you may be eligible for a Medicare Advantage MSA, discussed later. Free taxes online When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. Free taxes online Reporting Contributions on Your Return Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040 or Form 1040NR. Free taxes online You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. Free taxes online You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount you (or your employer) contributed during the year. Free taxes online Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. Free taxes online Follow the instructions for Form 8853 and complete the worksheet in the instructions. Free taxes online Report your Archer MSA deduction on Form 1040 or Form 1040NR. Free taxes online Excess contributions. Free taxes online   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. Free taxes online Excess contributions are not deductible. Free taxes online Excess contributions made by your employer are included in your gross income. Free taxes online If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. Free taxes online   Generally, you must pay a 6% excise tax on excess contributions. Free taxes online See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. Free taxes online The excise tax applies to each tax year the excess contribution remains in the account. Free taxes online   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. Free taxes online You withdraw the excess contributions by the due date, including extensions, of your tax return. Free taxes online You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. Free taxes online Deducting an excess contribution in a later year. Free taxes online   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. Free taxes online The excess contribution you can deduct in the current year is the lesser of the following two amounts. Free taxes online Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. Free taxes online The total excess contributions in your Archer MSA at the beginning of the year. Free taxes online   Any excess contributions remaining at the end of a tax year are subject to the excise tax. Free taxes online See Form 5329. Free taxes online Distributions From an MSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. Free taxes online When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your Archer MSA to send you a distribution from your Archer MSA. Free taxes online You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). Free taxes online If you receive distributions for other reasons, the amount will be subject to income tax and may be subject to an additional 20% tax as well. Free taxes online You do not have to make withdrawals from your Archer MSA each year. Free taxes online If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. Free taxes online A distribution is money you get from your Archer MSA. Free taxes online The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Free taxes online Qualified medical expenses. Free taxes online   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. Free taxes online These are explained in Publication 502. Free taxes online   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. Free taxes online A medicine or drug will be a qualified medical expense for MSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. Free taxes online   Qualified medical expenses are those incurred by the following persons. Free taxes online You and your spouse. Free taxes online All dependents you claim on your tax return. Free taxes online Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Free taxes online    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. Free taxes online    You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your Archer MSA. Free taxes online Special rules for insurance premiums. Free taxes online   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. Free taxes online You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law as qualified medical expenses for Archer MSAs. Free taxes online Health coverage tax credit. Free taxes online   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. Free taxes online See Publication 502 for information on this credit. Free taxes online Deemed distributions from Archer MSAs. Free taxes online   The following situations result in deemed taxable distributions from your Archer MSA. Free taxes online You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. Free taxes online Your account ceases to be an Archer MSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8853. Free taxes online You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. Free taxes online You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. Free taxes online   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the Archer MSA, Lending of money between you and the Archer MSA, Furnishing goods, services, or facilities between you and the Archer MSA, and Transfer to or use by you, or for your benefit, of any assets of the Archer MSA. Free taxes online   Any deemed distribution will not be treated as used to pay qualified medical expenses. Free taxes online These distributions are included in your income and are subject to the additional 20% tax, discussed later. Free taxes online Recordkeeping. Free taxes online You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. Free taxes online Do not send these records with your tax return. Free taxes online Keep them with your tax records. Free taxes online Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). Free taxes online If you use a distribution from your Archer MSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. Free taxes online Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. Free taxes online If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. Free taxes online Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. Free taxes online You may have to pay an additional 20% tax, discussed later, on your taxable distribution. Free taxes online If an amount (other than a rollover) is contributed to your Archer MSA this year (by you or your employer), you also must report and pay tax on a distribution you receive from your Archer MSA this year that is used to pay medical expenses of someone who is not covered by an HDHP, or is also covered by another health plan that is not an HDHP, at the time the expenses are incurred. Free taxes online Rollovers. Free taxes online   Generally, any distribution from an Archer MSA that you roll over into another Archer MSA or an HSA is not taxable if you complete the rollover within 60 days. Free taxes online An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. Free taxes online See the Form 8853 instructions for more information. Free taxes online Additional tax. Free taxes online   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. Free taxes online Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. Free taxes online Report the additional tax in the total on Form 1040 or Form 1040NR. Free taxes online Exceptions. Free taxes online   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. Free taxes online Balance in an Archer MSA An Archer MSA is generally exempt from tax. Free taxes online You are permitted to take a distribution from your Archer MSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Free taxes online Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Free taxes online Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. Free taxes online Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. Free taxes online What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. Free taxes online Spouse is the designated beneficiary. Free taxes online   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. Free taxes online Spouse is not the designated beneficiary. Free taxes online   If your spouse is not the designated beneficiary of your Archer MSA: The account stops being an Archer MSA, and The fair market value of the Archer MSA becomes taxable to the beneficiary in the year in which you die. Free taxes online   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. Free taxes online The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. Free taxes online Filing Form 8853 You must file Form 8853 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your Archer MSA during the year. Free taxes online You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. Free taxes online If, during the tax year, you are the beneficiary of two or more Archer MSAs or you are a beneficiary of an Archer MSA and you have your own Archer MSA, you must complete a separate Form 8853 for each MSA. Free taxes online Enter “statement” at the top of each Form 8853 and complete the form as instructed. Free taxes online Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. Free taxes online Attach the statements to your tax return after the controlling Form 8853. Free taxes online Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. Free taxes online Unlike the previous discussions, “you” refers to the employer and not to the employee. Free taxes online Health plan. Free taxes online   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. Free taxes online You can provide no additional coverage other than those exceptions listed previously under Other health coverage . Free taxes online Contributions. Free taxes online   You can make contributions to your employees' Archer MSAs. Free taxes online You deduct the contributions on the “Employee benefit programs” line of your business income tax return for the year in which you make the contributions. Free taxes online If you are filing Form 1040, Schedule C, this is Part II, line 14. Free taxes online Comparable contributions. Free taxes online   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. Free taxes online Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. Free taxes online Comparable participating employees. Free taxes online   Comparable participating employees: Are covered by your HDHP and are eligible to establish an Archer MSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (either part-time or full-time). Free taxes online Excise tax. Free taxes online   If you made contributions to your employees' Archer MSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. Free taxes online Employment taxes. Free taxes online   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. Free taxes online You must report the contributions in box 12 of the Form W-2 you file for each employee. Free taxes online Enter code “R” in box 12. Free taxes online Medicare Advantage MSAs A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. Free taxes online To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have a high deductible health plan (HDHP) that meets the Medicare guidelines. Free taxes online A Medicare Advantage MSA is a tax-exempt trust or custodial savings account that you set up with a financial institution (such as a bank or an insurance company) in which the Medicare program can deposit money for qualified medical expenses. Free taxes online The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. Free taxes online An HDHP is a special health insurance policy that has a high deductible. Free taxes online You choose the policy you want to use as part of your Medicare Advantage MSA plan. Free taxes online However, the policy must be approved by the Medicare program. Free taxes online Medicare Advantage MSAs are administered through the federal Medicare program. Free taxes online You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. Free taxes online medicare. Free taxes online gov. Free taxes online Note. Free taxes online You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. Free taxes online Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. Free taxes online FSAs are usually funded through voluntary salary reduction agreements with your employer. Free taxes online No employment or federal income taxes are deducted from your contribution. Free taxes online The employer may also contribute. Free taxes online Note. Free taxes online Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for FSAs on your income tax return. Free taxes online For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. Free taxes online What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. Free taxes online Contributions made by your employer can be excluded from your gross income. Free taxes online No employment or federal income taxes are deducted from the contributions. Free taxes online Withdrawals may be tax free if you pay qualified medical expenses. Free taxes online See Qualified medical expenses , later. Free taxes online You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. Free taxes online Qualifying for an FSA Health FSAs are employer-established benefit plans. Free taxes online These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Free taxes online Employers have complete flexibility to offer various combinations of benefits in designing their plan. Free taxes online You do not have to be covered under any other health care plan to participate. Free taxes online Self-employed persons are not eligible for an FSA. Free taxes online Certain limitations may apply if you are a highly compensated participant or a key employee. Free taxes online Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. Free taxes online This is sometimes called a salary reduction agreement. Free taxes online The employer may also contribute to your FSA if specified in the plan. Free taxes online You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. Free taxes online However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. Free taxes online When To Contribute At the
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Understanding your CP2501 Notice

You need to contact us. We've received information not reported on your tax return.


What you need to do

  • Read your notice carefully — it explains the information we received.
  • Complete the notice's response form whether or not the information is right or wrong.

You may want to...

  • Contact the business or person reporting the information if it is wrong. Ask them to correct it.
  • Order a transcript of your return.
  • Make sure your earlier returns don't have the same mistake.
  • Fill out the section on the response form to allow someone (such as an accountant) to contact us on your behalf.
  • Contact us with any unanswered questions you have.
  • Keep a copy of your notice for your files.

Answers to Common Questions

Is the notice a bill?
No. It informs you about the information we've received.

What do I need to do?
Complete the notice's response form.

What do I do if the information is wrong?
The response form has instructions on what to do if the new information is wrong. You also may want to contact whoever reported the information and ask them to correct it.

I want to check a copy of my original return. I don't have one. How can I get one?
You can order a transcript of your return. You also can get one by completing and sending us a Form 4506-T, Request for Transcript of Tax Return.

I don't want a transcript of my return. I want a copy. How can I get one?
Did an accountant or some other person prepare your return? You could ask them for a copy.

I can't get a copy of my return from a tax preparer. How else can I get a copy of it?
You can get a copy of your return by completing and sending us a Form 4506, Request for Copy of Tax Return. We charge a fee for return requests.

The information is wrong because someone else is using my name and Social Security number. What can I do?
You can visit our Identity theft information to find out more about what you can do. You also should call us and let us know.

Why did it take you so long to contact me about this matter?
Our computer systems match the information you report on your tax return with information reported by employers, banks, businesses, and others. This matching takes several months to complete.


Tips for next year

You can avoid future problems by:

  • keeping accurate and full records
  • waiting until you get all of your income statements to file your tax return
  • checking the records you get from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they're correct
  • including all your income on your tax return
  • following the instructions on how to report income, expenses and deductions
  • filing an amended tax return for any information you receive after you've filed your return

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about how to file electronically.

Page Last Reviewed or Updated: 28-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Free Taxes Online

Free taxes online Publication 1544 - Introductory Material Table of Contents What's New Introduction What's New Future developments. Free taxes online  For the latest information about developments related to Publication 1544, such as legislation enacted after it was published, go to www. Free taxes online irs. Free taxes online gov/pub1544. Free taxes online Amending a report. Free taxes online  You can amend a prior report by checking box 1a at the top of Form 8300. Free taxes online See Amending a report, later. Free taxes online Introduction If, in a 12-month period, you receive more than $10,000 in cash from one buyer as a result of a transaction in your trade or business, you must report it to the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) on Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Free taxes online This publication explains why, when, and where to report these cash payments. Free taxes online It also discusses the substantial penalties for not reporting them. Free taxes online Some organizations do not have to file Form 8300, including financial institutions who must file FinCEN Form 104 (formerly Form 4789), Currency Transaction Report, and casinos who must file FinCEN Form 103 (formerly Form 8362), Currency Transaction Report by Casinos. Free taxes online They are not discussed in this publication. Free taxes online This publication explains key issues and terms related to Form 8300. Free taxes online You should also read the instructions attached to the form. Free taxes online They explain what to enter on each line. Free taxes online Prev  Up  Next   Home   More Online Publications