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Tax 1040nr

Tax 1040nr Publication 957 - Main Content Table of Contents 1. Tax 1040nr What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. Tax 1040nr Special Wage PaymentsReporting Special Wage Payments Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments Nonqualified Deferred Compensation and Section 457 Plans Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) PlansSpecial rule for box 11 of Form W-2 (distributions and deferral in the same year). Tax 1040nr 1. Tax 1040nr What is Back Pay? Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). Tax 1040nr For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. Tax 1040nr Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. Tax 1040nr Report all back pay. Tax 1040nr However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute. Tax 1040nr See Back Pay Under a Statute , later, for more information. Tax 1040nr Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. Tax 1040nr However, for income tax purposes, the IRS treats all back pay as wages in the year paid. Tax 1040nr Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. Tax 1040nr The SSA no longer accepts reports on tapes, cartridges, and diskettes. Tax 1040nr Example. Tax 1040nr In 2012, Terry Morris earned wages of $50,000. Tax 1040nr In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 2007 through December 2011. Tax 1040nr Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. Tax 1040nr However, if an employer did not include back pay wages on a previously filed Form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported. Tax 1040nr Example. Tax 1040nr If, in the above example, Terry Morris' employer had prepared her 2012 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. Tax 1040nr A Form W-2c correcting the 2012 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $110,100 for social security wages and $150,000 for Medicare wages. Tax 1040nr SSA treatment of back pay under a statute. Tax 1040nr   Under the law, the SSA credits back pay awarded under a statute to an individual's earnings record in the period(s) the wages should have been paid. Tax 1040nr This is important because wages not credited to the proper year may result in lower social security benefits or failure to meet the requirements for benefits. Tax 1040nr   However, back pay under statute payments will remain posted to the employee's social security earnings record in the year reported on Form W-2 (or Form W-2c) unless the employer or employee notifies the SSA (in a separate, special report) of the back pay under a statute payment. Tax 1040nr Then, the SSA can allocate the statutory back pay to the appropriate periods. Tax 1040nr   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. Tax 1040nr    If employers do notify the SSA of this payment, they should prepare a special report (with the information noted below) and send it to: Social Security Administration Attn: CPS Back Pay Staff 7-B-15 SWT 1500 Woodlawn Drive Baltimore, MD 21241-0001 Be sure to send this special report to the above address because the SSA handles it separately from other reports. Tax 1040nr    If you paid the back pay award in the same tax year to which it applies, report the wages on that year's Form W-2. Tax 1040nr No further action is necessary. Tax 1040nr Example. Tax 1040nr In 2012, Judy Wilson received a salary of $30,000 and a back pay under statute award of $2,000 for the period January through June 2012. Tax 1040nr Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. Tax 1040nr No further action is necessary. Tax 1040nr Information the SSA needs to properly credit back pay under a statute (special report). Tax 1040nr   After you complete the special report, you or the employee should send it to the SSA when or after you submit the Form W-2 (on paper or electronically) to the SSA for the year you pay the statutory back pay to the employee. Tax 1040nr There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. Tax 1040nr The special report must include the following information. Tax 1040nr The employer's name, address, and employer identification number (EIN). Tax 1040nr A signed statement citing the federal or state statute under which the payment was made. Tax 1040nr If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s). Tax 1040nr The name and telephone number of a person to contact. Tax 1040nr The SSA may have additional questions concerning the back pay case or the individual employee's information. Tax 1040nr A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. Tax 1040nr The employee's social security number (SSN). Tax 1040nr The employee's name (as shown on his or her social security card). Tax 1040nr The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. Tax 1040nr The period(s) the back pay award covers (beginning and ending dates—month and year). Tax 1040nr The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero)*. Tax 1040nr Do not include the back pay award shown in that wage report. Tax 1040nr If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. Tax 1040nr The amount to allocate to each reporting period*. Tax 1040nr This includes any amount you want allocated (if applicable) to the tax year of the award payment. Tax 1040nr If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. Tax 1040nr *Note. Tax 1040nr   For periods before January 1, 1978 (before January 1, 1981, for state and local government employers covered by a Section 218 agreement), show the wage amounts for each calendar quarter ending March 31, June 30, September 30, and December 31. Tax 1040nr For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. Tax 1040nr MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. Tax 1040nr For tax years 1991 and later, list the social security and Medicare wages separately. Tax 1040nr If you originally reported the individual's wages under an establishment or payroll record unit number, show the amount of wages to remain in the award year for that number and furnish that number to the SSA along with the EIN. Tax 1040nr Back Pay Under a Statute Back pay awarded under a statute is a payment by an employer following an award, determination, or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages. Tax 1040nr Examples of pertinent statutes include: Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Fair Labor Standards Act, National Labor Relations Act, State minimum wage laws, and State statutes that protect rights to employment and wages. Tax 1040nr Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. Tax 1040nr Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. Tax 1040nr Such awards are not wages for social security coverage purposes. Tax 1040nr If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. Tax 1040nr The payments made in such a settlement may still be back pay and wages under the rules discussed here. Tax 1040nr Nonstatutory Back Pay A payment for back wages negotiated between an employer and employee without an award, determination, or agreement approved or sanctioned by a court or government agency, the payment is not made under a statute. Tax 1040nr Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. Tax 1040nr However, they are not payments made under a statute. Tax 1040nr If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit. Tax 1040nr Format for Report to the SSA Use the format shown in Table 1, later, to send the SSA the information needed to properly credit back pay under a statute. Tax 1040nr In a cover letter, include: Name and address of the employer, Statute under which you paid the back pay, Name and telephone number of the employer contact, and Signature of the reporting official. Tax 1040nr Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. Tax 1040nr If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. Tax 1040nr Read Special Wage Payments, later, for additional reporting instructions. Tax 1040nr Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. Tax 1040nr Exception. Tax 1040nr   If you are a state or local government employer who was covered by an agreement under Section 218 of the Social Security Act before January 1, 1987, and you paid a back pay award before January 1, 1987, which you did not report to the SSA, contact your state Social Security Administrator's office. Tax 1040nr Table 1. Tax 1040nr Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer's EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2012 (1) SSN and Employee Name (2)1 Award Amount and Period(s) (3)2,3 Other Soc. Tax 1040nr Sec. Tax 1040nr /Med. Tax 1040nr Wages Paid In Award Year (4)3 Allocation     Soc. Tax 1040nr Sec. Tax 1040nr Med. Tax 1040nr /MQGE Year Soc. Tax 1040nr Sec. Tax 1040nr Med. Tax 1040nr /MQGE xxx-xx-xxxx HELEN T. Tax 1040nr SMITH $100,000 1/2009 - 12/2012 $40,000 $40,000 2009 2010 2011 2012 $20,000 25,000 27,000 28,000 $20,000 25,000 27,000 28,000 xxx-xx-xxxx SAM W. Tax 1040nr EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. Tax 1040nr ADAMS 15,000 7/80-12/81 -0- -0- 9/80 12/80 1981 3,500 3,500 8,000   1Exclude amounts specifically designated as damages, penalties, etc. Tax 1040nr  2Exclude the amount of back pay, if any, included in that amount. Tax 1040nr  3For periods before January 1, 1978 (and for state and local government (Section 218) employers before January 1, 1981), show the wage amounts by calendar quarters. Tax 1040nr The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. Tax 1040nr (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. Tax 1040nr Sec. Tax 1040nr column. Tax 1040nr ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. Tax 1040nr Explanation of examples. Tax 1040nr Helen T. Tax 1040nr Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. Tax 1040nr In 2012, this employee was also paid $40,000 in other wages. Tax 1040nr (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. Tax 1040nr The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. Tax 1040nr ) Sam W. Tax 1040nr Evans–The back pay award was $30,000 for the periods 7/89-12/91. Tax 1040nr This employee was hired in 1989 and was subject to MQGE only. Tax 1040nr He was no longer employed by this governmental employer in 2012. Tax 1040nr (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. Tax 1040nr After the SSA allocation, he will not have any net posted wages for 2012. Tax 1040nr ) Roland S. Tax 1040nr Adams–The back pay award was $15,000 for the periods 7/80-12/81. Tax 1040nr He was no longer employed by this state and local government (Section 218) employer in 2012. Tax 1040nr (His Form W-2 for 2012 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any net posted wages for 2012. Tax 1040nr ) If the state Social Security Administrator's office needs more information, they can contact the SSA at the following address:   Social Security Administration Office of Income Security Programs Office of Earnings and Program Integrity Policy 6401 Security Boulevard 2506 OPS Baltimore, MD 21235 2. Tax 1040nr Special Wage Payments A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. Tax 1040nr Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. Tax 1040nr Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. Tax 1040nr Special wage payments may include (but are not limited to): Accumulated sick and vacation pay, Back pay, Bonuses, Deferred compensation, Payments because of retirement, Sales commissions, Severance pay, and Stock options. Tax 1040nr Note. Tax 1040nr Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. Tax 1040nr Earnings Test. Tax 1040nr   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. Tax 1040nr The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. Tax 1040nr Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. Tax 1040nr If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. Tax 1040nr Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. Tax 1040nr Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. Tax 1040nr Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. Tax 1040nr See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. Tax 1040nr In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. Tax 1040nr Submit reports after the close of the tax year. Tax 1040nr To avoid delays in processing, submit reports in time to reach the SSA by April 1. Tax 1040nr Use one of the following reporting methods. Tax 1040nr Electronic reporting. Tax 1040nr   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. Tax 1040nr gov website. Tax 1040nr BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. Tax 1040nr You must register to use this website. Tax 1040nr The web address is www. Tax 1040nr socialsecurity. Tax 1040nr gov/bso/bsowelcome. Tax 1040nr htm. Tax 1040nr   Use the specifications and record layout shown in  Table 2, later. Tax 1040nr Only one file at a time may be submitted. Tax 1040nr If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. Tax 1040nr A zipped file contains a file that has been compressed to reduce its file size. Tax 1040nr WinZip and PKZIP are examples of acceptable compression packages. Tax 1040nr   Electronic submissions not meeting the specifications in Table 2 will be rejected. Tax 1040nr Paper listing. Tax 1040nr   A paper listing can be used to report special wage payments to several employees. Tax 1040nr Use the format shown in Table 3, later. Tax 1040nr Submit paper listings to the local SSA office nearest your place of business. Tax 1040nr Visit www. Tax 1040nr socialsecurity. Tax 1040nr gov/locator to find a Social Security office near you. Tax 1040nr Form SSA-131. Tax 1040nr   Use Form SSA-131 to report special wage payments made to an employee. Tax 1040nr Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2. Tax 1040nr    This image is too large to be displayed in the current screen. Tax 1040nr Please click the link to view the image. Tax 1040nr Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. Tax 1040nr Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. Tax 1040nr 2. Tax 1040nr Enter the date the employee retired. Tax 1040nr Enter “Not Retired” if the employee has not retired. Tax 1040nr 3. Tax 1040nr Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. Tax 1040nr This date should be the same as or earlier than the date in item “2”. Tax 1040nr Enter “Not Retired” if the employee has not retired. Tax 1040nr 4. Tax 1040nr Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement. Tax 1040nr  Examples (not all inclusive) of payments to be included: Payments in lieu of vacation that were earned in a year prior to the tax year. Tax 1040nr Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. Tax 1040nr Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. Tax 1040nr Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. Tax 1040nr Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer. Tax 1040nr Stock Options. Tax 1040nr   Do not include in item “4” payments: For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items “2” or “3”). Tax 1040nr That were reported or will be reported under “Nonqualified Plans” on the Form W-2. Tax 1040nr That were deducted from the employee's wages and paid to a deferred compensation plan (e. Tax 1040nr g. Tax 1040nr , 401k). Tax 1040nr Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). Tax 1040nr Bonuses earned and paid in the tax year. Tax 1040nr 5. Tax 1040nr Check whether payments listed in item 4 will be made for years after the tax year. Tax 1040nr If yes, please show the amounts and years in which these will be paid, if known. Tax 1040nr 6. Tax 1040nr Nonqualified deferred compensation and section 457 plans only. Tax 1040nr If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. Tax 1040nr Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). Tax 1040nr Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. Tax 1040nr 702. Tax 1040nr The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. Tax 1040nr While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. Tax 1040nr We may also use the information you give us when we match records by computer. Tax 1040nr Matching programs compare our records with those of other Federal, State, or local government agencies. Tax 1040nr Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. Tax 1040nr The law allows us to do this even if you do not agree to it. Tax 1040nr Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. Tax 1040nr If you want to learn more about this, contact any Social Security Office. Tax 1040nr The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. Tax 1040nr S. Tax 1040nr C. Tax 1040nr §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. Tax 1040nr You are not required to answer these questions unless we display a valid Office of Management and Budget control number. Tax 1040nr We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. Tax 1040nr Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. Tax 1040nr Or, the employee can submit it to the SSA office handling the claim. Tax 1040nr You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. Tax 1040nr If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3. Tax 1040nr Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. Tax 1040nr Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. Tax 1040nr Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. Tax 1040nr It should not count for the social security earnings test. Tax 1040nr Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods. Tax 1040nr Nonqualified Deferred Compensation and Section 457 Plans A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. Tax 1040nr For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. Tax 1040nr Nonqualified and section 457 plans are reported differently than other special wage payments. Tax 1040nr See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. Tax 1040nr Reporting Amounts Deferred to Nonqualified and Section 457 Plans Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. Tax 1040nr However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. Tax 1040nr The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. Tax 1040nr No risk of forfeiture. Tax 1040nr   If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Tax 1040nr Example. Tax 1040nr Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. Tax 1040nr The plan has no risk of forfeiture. Tax 1040nr In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. Tax 1040nr Form W-2 Completion Amount Box 1 $200,000 Box 3* 110,100 Box 5 200,000 *Wage base maximum for tax year 2012 Risk of forfeiture lapses before retirement. Tax 1040nr   If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Tax 1040nr The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. Tax 1040nr   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. Tax 1040nr If the employee continues working, future deferrals are social security and Medicare wages when they are earned. Tax 1040nr    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. Tax 1040nr Risk of forfeiture lapses at retirement. Tax 1040nr   When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. Tax 1040nr Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Tax 1040nr   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. Tax 1040nr    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. Tax 1040nr Example—risk of forfeiture. Tax 1040nr At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. Tax 1040nr B's wages, including this year's deferred amount, are $80,000. Tax 1040nr Form W-2 Completion Amount Box 1 $60,000 Box 3* 110,100 Box 5 200,000 Box 11 120,000 *Wage base maximum for tax year 2012 Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. Tax 1040nr Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Tax 1040nr Example. Tax 1040nr Employee D retired from the XYZ company and began receiving social security benefits. Tax 1040nr XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. Tax 1040nr In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. Tax 1040nr D made no deferrals to the nonqualified plan this year. Tax 1040nr Form W-2 Completion Amount Box 1 $52,000 Box 3 27,000 Box 5 27,000 Box 11 25,000 Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. Tax 1040nr For more information, see Reporting Special Wage Payments , earlier. Tax 1040nr Reporting Payments and Deferrals in the Same Year Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). Tax 1040nr Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. Tax 1040nr Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. Tax 1040nr See Form SSA-131 and its instructions, earlier. Tax 1040nr Example. Tax 1040nr Employee K retired this year from Company XYZ and began receiving social security benefits. Tax 1040nr During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. Tax 1040nr K also received $75,000 in payments from the company's nonqualified plan. Tax 1040nr Form W-2 Completion Amount Special Wage Payment $75,000 Wages 50,000 Minus: deferral 35,000 Total reported in Box 1 $90,000     Wages including deferral reported in  Boxes 3 and 5 $50,000     Leave Box 11 blank. Tax 1040nr File Form SSA-131 -0-     Form SSA-131 Completion Amount from Box 1 of Form W-2 $90,000 Minus: payments from a nonqualified plan 75,000 Plus: amounts deferred into the plan during the year 35,000 Total wages earned for purposes of Form SSA-131 (item 6) $50,000 Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) Plans It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. Tax 1040nr If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. Tax 1040nr For more information, see Notice 2008-115, 2008-52 I. Tax 1040nr R. Tax 1040nr B. Tax 1040nr 1367, available at www. Tax 1040nr irs. Tax 1040nr gov/irb/2008-52_IRB/ar10. Tax 1040nr html. Tax 1040nr Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). Tax 1040nr Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. Tax 1040nr See Notice 2008-115. Tax 1040nr The following examples use small dollar amounts for illustrative purposes. Tax 1040nr However, the amount reported in box 3 of Form W-2 is always limited by the social security earnings wage base (for example, $110,100 for 2012). Tax 1040nr The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. Tax 1040nr Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. Tax 1040nr The examples assume that the NQDC plan is in compliance with section 409A, and that amounts deferred under the plan are not includible in gross income as they are deferred. Tax 1040nr For purposes of the examples, it is assumed that the regular pay of the employee is remuneration for employment and wages for employment tax purposes except to the extent the deferral of a portion of the regular pay results in a reduction in wages. Tax 1040nr Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. Tax 1040nr For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. Tax 1040nr The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. Tax 1040nr Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. Tax 1040nr Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 vested deferral) $180 Box 3 ($200 Regular pay plus $10 Employer match, vested) 210 Box 5 ($200 Regular pay plus $10 Employer match, vested) 210 Box 11 -0- Example 2: Deferral with delayed vesting (substantial risk of forfeiture) of employee and employer portions (no distributions and no vesting of prior-year deferrals). Tax 1040nr For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. Tax 1040nr The deferral of $20 was not vested upon deferral, and there was an employer match of $10 under the plan, which was also not vested. Tax 1040nr Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. Tax 1040nr Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, not vested) $180 Box 3 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 5 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 11 -0- Example 3: Deferral that is immediately vested with prior-year deferrals and investment earnings on the prior-year deferrals that are now vesting (no distributions). Tax 1040nr For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. Tax 1040nr The deferral of $20 was vested upon deferral. Tax 1040nr During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. Tax 1040nr Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. Tax 1040nr Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, vested) $180 Box 3 ($200 Regular pay plus $100 vested prior-year deferral plus $15 earnings on deferral) 315 Box 5 ($200 Regular pay plus $100 vested prior-year deferral plus $15 vested investment earnings on prior year deferral) 315 Box 11 ($100 vested prior-year deferral plus $15 earnings) 115 Example 4: No deferrals but there are distributions (no vesting of prior-year deferrals). Tax 1040nr For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. Tax 1040nr There was no vesting of prior-year deferrals under the plan. Tax 1040nr During the year, there were total distributions of $50 from the plan to the employee. Tax 1040nr Regular pay = $100; Distribution = $50. Tax 1040nr Form W-2 Completion Amount Box 1 ($100 Regular pay plus $50 Distribution) $150 Box 3 ($100 Regular pay ) 100 Box 5 ($100 Regular pay) 100 Box 11 ($50 Distribution) 50 Special rule for box 11 of Form W-2 (distributions and deferral in the same year). Tax 1040nr   If, in the same year, there are NQDC distributions and there are deferrals that are reportable in boxes 3 and/or 5 (current or prior-year deferrals) of Form W-2, do not complete box 11. Tax 1040nr Instead, report on Form SSA-131 the total amount the employee earned during the year. Tax 1040nr * Submit the SSA-131 to the nearest SSA office or give it to the employee. Tax 1040nr   *Generally, the amount earned by the employee during the tax year for purposes of item 6 of Form SSA-131 is the amount reported in box 1 of Form W-2 plus current-year deferrals that are vested (employee and employer portions) less distributions. Tax 1040nr Do not consider prior-year deferrals that are vesting in the current year. Tax 1040nr If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. Tax 1040nr Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). Tax 1040nr For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Tax 1040nr There was also an employer match of $10. Tax 1040nr The deferral and employer match were vested upon deferral. Tax 1040nr There was no vesting of prior-year deferrals under the plan. Tax 1040nr During the year, there were total distributions of $50 from the plan to the employee. Tax 1040nr Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. Tax 1040nr Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, vested) $230 Boxes 3 and 5 ($200 Regular pay plus $10 vested employer match) 210 Leave Box 11 blank. Tax 1040nr File Form SSA-131 -0-     Form SSA-131 Completion Item 6 - amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $30 vested current year employee deferral and employer match) $210 Example 6: Deferral with delayed vesting and there are distributions (no vesting of prior-year deferrals). Tax 1040nr For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Tax 1040nr The deferral was not vested upon deferral. Tax 1040nr There was no vesting of prior-year deferrals under the plan. Tax 1040nr During the year, there were total distributions of $50 from the plan to the employee. Tax 1040nr Regular pay = $200; Deferral, not vested = $20; Distribution = $50. Tax 1040nr Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay minus $20 deferral that is not vested) 180 Box 11 ($50 Distribution). Tax 1040nr 50 Example 7: Deferral that is immediately vested and there are distributions (also vesting of prior-year deferrals and earnings on those prior-year deferrals). Tax 1040nr For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Tax 1040nr The deferral was vested upon deferral. Tax 1040nr There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. Tax 1040nr During the year, there were total distributions of $50 from the plan to the employee. Tax 1040nr Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. Tax 1040nr Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 vested deferral $230 Boxes 3 and 5 ($200 Regular pay Plus $115 vested prior deferral (with vested earnings on the deferral)) 315 Leave Box 11 blank. Tax 1040nr File Form SSA-131 -0-     Form SSA-131 Completion Item 6, amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $20 vested current year deferral) $200 Example 8: Deferral with delayed vesting and there are distributions (vesting of prior-year deferrals, including employer matches, and earnings on those deferrals). Tax 1040nr For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Tax 1040nr The deferral was not vested upon deferral. Tax 1040nr There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). Tax 1040nr During the year, there were total distributions of $50 from the plan to the employee. Tax 1040nr Regular pay = $200; Deferral, not vested = $20; Distribution = $50; Vesting of prior-year deferrals and employer match = $100 plus earnings on that $100 of $15. Tax 1040nr Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay plus $115 vested prior-year deferral and prior year employer match and earning on the prior year amounts minus $20 deferral that is not vested) 295 Leave Box 11 blank. Tax 1040nr File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. Tax 1040nr Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. Tax 1040nr  The file format is ASCII. Tax 1040nr  Submit only one file at a time. Tax 1040nr   Table 3. Tax 1040nr Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. Tax 1040nr Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . Tax 1040nr 1) B. Tax 1040nr Employee Name: (Last) (First) (MI)   C. Tax 1040nr SSN: D. Tax 1040nr SWP:$ E. Tax 1040nr Type: Other: 2) B. Tax 1040nr Employee Name: (Last) (First) (MI)   C. Tax 1040nr SSN: D. Tax 1040nr SWP:$ E. Tax 1040nr Type: Other: 3) B. Tax 1040nr Employee Name: (Last) (First) (MI)   C. Tax 1040nr SSN: D. Tax 1040nr SWP:$ E. Tax 1040nr Type: Other: 4) B. Tax 1040nr Employee Name: (Last) (First) (MI)   C. Tax 1040nr SSN: D. Tax 1040nr SWP:$ E. Tax 1040nr Type: Other: 5) B. Tax 1040nr Employee Name: (Last) (First) (MI)   C. Tax 1040nr SSN: D. Tax 1040nr SWP:$ E. Tax 1040nr Type: Other:     INSTRUCTIONS:   Enter tax year and page number. Tax 1040nr   A. Tax 1040nr Employer name, employer identification number (EIN), address, the name of a contact person, and a phone number where the contact person can be reached during normal business hours. Tax 1040nr   B. Tax 1040nr Employee's name. Tax 1040nr   C. Tax 1040nr Employee's social security number (SSN). Tax 1040nr   D. Tax 1040nr Total amount of special wage payments made to the employee. Tax 1040nr   E. Tax 1040nr Type of special wage payment from the following list: (1) Vacation Pay, (2) Sick Pay, (3) Severance Pay,  (4) Bonus, (5) Deferred Compensation, (6) Stock Options, and (7) Other—Please explain. Tax 1040nr   Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2. Tax 1040nr (Get Form SSA-131. Tax 1040nr )                 Prev  Up  Next   Home   More Online Publications
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The Internet gives you easy access to information, entertainment, financial offers and countless other services. The flip-side, however, is that it can leave you vulnerable to online scammers, identity thieves, and criminals. To guard against Internet fraud, follow the tips below:

Know your seller. If you don't, do some research.

  • Company websites often provide information in a section called "About Us". Some online sellers participate in programs, such as BBBOnLine, that help resolve problems. Look for a logo or endorsement seal on the company website. This is an indication, but not a guarantee, of the seller's reliability.
  • Check with state and/or local consumer offices.
  • Another way to check online sellers is to look for other consumers' comments. Visit Bizrate, where consumers rate online stores. Some Internet auction sites post ratings of sellers based on comments by buyers. This information may give you some idea of how you'll be treated, but beware of too many glowing stories that might have ben placed by sellers themselves.

Protect your personal information. Don't provide it in response to an e-mail, a pop-up, or a website you've linked to from an e-mail or web page.

  • Take your time and resist any urge to "act now" to keep your account open or take advantage of a special offer.
  • Use anti-virus and anti-spyware software, as well as a firewall, and update them all regularly. Make sure your operating system and web browser are set up properly and update them regularly as well.
  • Protect your passwords. Don't share your passwords with anyone. Memorize them.
  • Back up important files. Copy them onto another computer or a removable hard drive such as a flash memory stick. When you spill coffee on your laptop or if your computer stops working, you'll be glad you did.

Learn who to contact if something goes wrong online. Report suspected fraud to your bank, credit card company or relevant authority.

The FTC provides tips to help secure your computer, guard against Internet fraud, and protect your personal information. Visit OnGuardOnline for more information. To keep up to date with the latest computer threats, signup for alerts from the Department of Homeland Security.

Social Networking Privacy

Social networking sites such as Facebook, Twitter, LinkedIn, craigslist, and others continue to gain popularity. These sites make it easy to re-connect, stay in touch, and even do business. But recent reports involving privacy concerns and crimes should make you more careful about the information they share. Some tips to consider to protect your privacy and safety include:

  • Make your contact information private.
  • Limit who can search for your profile on Internet search engines.
  • Manage who can view your images; untag photos if necessary.
  • Create seperate lists to manage who can see information you've posted.
  • Be careful about who can see your status updates.
  • Refrain from telling people where you are at any specific time.
  • Be cautious about arranging meetings in person with online acquaintances.

For more information go to:

Beware: Scareware

If you’ve ever received a “security alert” stating that malicious software was found on your computer it may have been scareware. These messages will persuade you that your computer is infected with a virus that you can only eliminate by purchasing and installing specific software. Don’t follow that advice; shut down your browser without clicking in the message. If you believe that your computer is infected, you should run a scan using a known anti-virus software. For more information about scareware and protecting your computer, visit Onguard Online.

The Tax 1040nr

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