Publication 969
taxmap/pubs/p969-001.htm#en_us_publink1000204110Archer 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).
 | 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.
|
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.
taxmap/pubs/p969-001.htm#en_us_publink1000204112An Archer MSA is a tax-exempt trust or custodial account that
you set up with a U.S. financial institution (such as a bank or an insurance
company) in which you can save money exclusively for future medical expenses.
taxmap/pubs/p969-001.htm#en_us_publink1000204113You may enjoy several benefits from having an Archer MSA.
- You can claim a tax deduction for contributions you make even
if you do not itemize your deductions on Form 1040 or Form 1040NR.
- The interest or other earnings on the assets in your Archer
MSA are tax free.
- Distributions may be tax free if you pay qualified medical
expenses. See
Qualified medical expenses,
later.
- The contributions remain in your Archer MSA from year to year
until you use them.
- An Archer MSA is "portable" so it stays with you if you change
employers or leave the work force.
To qualify for an Archer MSA, you must be either of the following.
- 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).
- A self-employed person (or the spouse of a self-employed person)
who maintains a self-only or family HDHP.
You can have no other health or Medicare coverage except what
is permitted under
Other health coverage, later. You must be an eligible individual on the first day
of a given month to get an Archer MSA deduction for that month.
| If another taxpayer is entitled to claim an exemption for
you, you cannot claim a deduction for an Archer MSA contribution. This is true
even if the other person does not actually claim your exemption.
|
taxmap/pubs/p969-001.htm#en_us_publink1000204118A small employer is generally an employer who had an average
of 50 or fewer employees during either of the last 2 calendar years. The
definition of small employer is modified for new employers and growing
employers.
taxmap/pubs/p969-001.htm#en_us_publink1000204119A small employer may begin HDHPs and Archer MSAs for his or her
employees and then grow beyond 50 employees. 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.
If you change employers, your Archer MSA moves with you. However,
you may not make additional contributions unless you are otherwise eligible.
taxmap/pubs/p969-001.htm#en_us_publink1000204121To be eligible for an Archer MSA, you must be covered under an
HDHP. 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.
The following table shows the limits for annual deductibles and
the maximum out-of-pocket expenses for HDHPs for 2010.
| | Self-only coverage | Family coverage |
| Minimum annual deductible | $2,000 | $4,050 |
| Maximum annual deductible | $3,000 | $6,050 |
| Maximum annual out-of-pocket expenses | $4,050 | $7,400 |
taxmap/pubs/p969-001.htm#en_us_publink1000204124There are some family plans that have deductibles for both the
family as a whole and for individual family members. 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. If either the deductible for
the family as a whole or the deductible for an individual family member is below
the minimum annual deductible for family coverage, the plan does not qualify as
an HDHP.
taxmap/pubs/p969-001.htm#en_us_publink1000204125You have family health insurance coverage in 2010. The annual
deductible for the family plan is $5,500. This plan also has an individual
deductible of $2,000 for each family member. The plan does not qualify as an
HDHP because the deductible for an individual family member is below the minimum
annual deductible ($4,050) for family coverage.
taxmap/pubs/p969-001.htm#en_us_publink1000204126You (and your spouse, if you have family coverage) generally
cannot have any other health coverage that is not an HDHP. However, you can
still be an eligible individual even if your spouse has non-HDHP coverage
provided you are not covered by that plan. However, you can have additional
insurance that provides benefits only for the following items.
- Liabilities incurred under workers' compensation laws, torts,
or ownership or use of property.
- A specific disease or illness.
- A fixed amount per day (or other period) of hospitalization.
You can also have coverage (whether provided through insurance
or otherwise) for the following items.
- Accidents.
- Disability.
- Dental care.
- Vision care.
- Long-term care.
Contributions to an Archer MSA must be made in cash. You cannot
contribute stock or other property to an Archer MSA.
taxmap/pubs/p969-001.htm#en_us_publink1000204128If you are an employee, your employer may make contributions
to your Archer MSA. (You do not pay tax on these contributions.) 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. Both you
and your employer cannot make contributions to your Archer MSA in the same year.
You do not have to make contributions to your Archer MSA every year.
| 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.
|
taxmap/pubs/p969-001.htm#en_us_publink1000204130There are two limits on the amount you or your employer can contribute
to your Archer MSA:
- The annual deductible limit.
- An income limit.
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.
You must have the HDHP all year to contribute the full amount. If you do not
qualify to contribute the full amount for the year, determine your annual
deductible limit by using the worksheet for line 5 in the Instructions for Form
8853, Archer MSAs and Long-Term Care Insurance Contracts.
taxmap/pubs/p969-001.htm#en_us_publink1000204132You have an HDHP for your family all year in 2010. The annual
deductible is $5,000. You can contribute up to $3,750 ($5,000 × 75%) to
your Archer MSA for the year.
taxmap/pubs/p969-001.htm#en_us_publink1000204133You have an HDHP for your family for the entire months of July
through December 2010 (6 months). The annual deductible is $5,000. You can
contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer
MSA for the year.
 | 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. The contribution limit is split equally between you unless you agree on a
different division.
|
taxmap/pubs/p969-001.htm#en_us_publink1000204135You cannot contribute more than you earned for the year from
the employer through whom you have your HDHP.
If you are self-employed, you cannot contribute more than your
net self-employment income. This is your income from self-employment minus
expenses (including the one-half of self-employment tax deduction, but not
including any self-employed health insurance deduction).
taxmap/pubs/p969-001.htm#en_us_publink1000204136Noah Paul earned $25,000 from ABC Company in 2010. Through ABC,
he had an HDHP for his family for the entire year. The annual deductible was
$5,000. He can contribute up to $3,750 to his Archer MSA (75% × $5,000). He
can contribute the full amount because he earned more than $3,750 at ABC.
taxmap/pubs/p969-001.htm#en_us_publink1000204137Westley Lawrence is self-employed. He had an HDHP for his family
for the entire year in 2010. The annual deductible was $5,000. Based on the
annual deductible, the maximum contribution to his Archer MSA would have been
$3,750 (75% × $5,000). However, after deducting his business expenses,
Joe's net self-employment income is $2,500 for the year. Therefore, he is
limited to a contribution of $2,500.
taxmap/pubs/p969-001.htm#en_us_publink1000204138Beginning with the first month you are enrolled in Medicare,
you cannot contribute to an Archer MSA. However, you may be eligible for a
Medicare Advantage MSA, discussed later.
taxmap/pubs/p969-001.htm#en_us_publink1000204139You can make contributions to your Archer MSA for 2010 until
April 18, 2011.
taxmap/pubs/p969-001.htm#en_us_publink1000204140Report all contributions to your Archer MSA on Form 8853 and
file it with your Form 1040 or Form 1040NR. You should include all contributions
you, or your employer, made for 2010, including those made by April 18, 2011,
that are designated for 2010.
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. Your employer's contributions should be
shown in box 12 of Form W-2, Wage and Tax Statement, with code R. Follow the
instructions for Form 8853 and complete the worksheet for line 5. Report your
Archer MSA deduction on Form 1040, line 36, or Form 1040NR, line 35.
taxmap/pubs/p969-001.htm#en_us_publink1000204141You will have excess contributions if the contributions to your
Archer MSA for the year are greater than the limits discussed earlier. Excess
contributions are not deductible. Excess contributions made by your employer are
included in your gross income. 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.
Generally, you must pay a 6% excise tax on excess contributions.
See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other
Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each
tax year the excess contribution remains in the account.
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.
- You withdraw the excess contributions by the due date, including
extensions, of your tax return.
- 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.
You may be able to deduct excess contributions for previous years
that are still in your Archer MSA. The excess contribution you can deduct in the
current year is the lesser of the following two amounts.
- Your maximum Archer MSA contribution limit for the year minus
any amounts contributed to your Archer MSA for the year.
- The total excess contributions in your Archer MSA at the beginning
of the year.
Any excess contributions remaining at the end of a tax year are
subject to the additional tax. See Form 5329.
taxmap/pubs/p969-001.htm#en_us_publink1000204143You will generally pay medical expenses during the year without
being reimbursed by your HDHP until you reach the annual deductible for the
plan. 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.
You can receive tax-free distributions from your Archer MSA to
pay for qualified medical expenses (discussed later). If you receive
distributions for other reasons, the amount will be subject to income tax and
may be subject to an excise tax as well. You do not have to make withdrawals
from your Archer MSA each year.
| If you no longer qualify to make contributions, you can still
receive tax-free distributions to pay or reimburse your qualified medical
expenses. |
A distribution is money you get from your Archer MSA. 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.
taxmap/pubs/p969-001.htm#en_us_publink1000204145Qualified medical expenses are those expenses that would generally
qualify for the medical and dental expenses deduction. These are explained in
Publication 502, Medical and Dental Expenses. However, even though
non-prescription medicines (other than insulin) do not qualify for the medical
and dental expenses deduction, they do qualify as expenses for MSA purposes.
Note.After 2010, non-prescription medicines (other than insulin)
do not qualify as an expense for MSA purposes. See the discussion under What's
New for 2011, earlier.
Qualified medical expenses are those incurred by the following
persons.
- You and your spouse.
- All dependents you claim on your tax return.
- 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 $3,650 or more, or
- You, or your spouse if filing jointly, could be claimed
as a dependent on someone else's 2010 return.
| 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. |
| 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. This is the amount on line 7 of Form 8853. |
taxmap/pubs/p969-001.htm#en_us_publink1000204148Generally, you cannot treat insurance premiums as qualified medical
expenses for Archer MSAs. 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.
taxmap/pubs/p969-001.htm#en_us_publink1000204149You cannot claim this credit for premiums that you pay with a
tax-free distribution from your Archer MSA. See Publication 502 for information
on this credit.
taxmap/pubs/p969-001.htm#en_us_publink1000204150The following situations result in deemed taxable distributions
from your Archer MSA.
- You engaged in any transaction prohibited by section 4975
with respect to any of your Archer MSAs at any time in 2010. Your account ceases
to be an Archer MSA as of January 1, 2010, and you must include the fair market
value of all assets in the account as of January 1, 2010, on line 6a of Form
8853.
- You used any portion of any of your Archer MSAs as security
for a loan at any time in 2010. You must include the fair market value of the
assets used as security for the loan as income on Form 1040 or Form 1040NR, line
21.
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.
Any deemed distribution will not be treated as used to pay qualified
medical expenses. These distributions are included in your income and are
subject to the additional 15% tax, discussed later.
 | Recordkeeping.
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.
Do not send these records with your tax return. Keep them
with your tax records.
|
taxmap/pubs/p969-001.htm#en_us_publink1000204152How you report your distributions depends on whether or not you
use the distribution for qualified medical expenses (defined earlier).
- 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. Follow the instructions for the form and file it
with your Form 1040 or Form 1040NR.
- If you do not use a distribution from your Archer MSA for
qualified medical expenses, you must pay tax on the distribution. Report the
amount on Form 8853 and file it with your Form 1040 or Form 1040NR. If you have
a taxable Archer MSA distribution, include it in the total on Form 1040 or Form
1040NR, line 21, and enter "MSA" and the amount on the dotted line next to line
21. You may have to pay an additional tax on your taxable distribution.
| 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. |
taxmap/pubs/p969-001.htm#en_us_publink1000204154Generally, 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. You can make only one rollover contribution to an
Archer MSA during a 1-year period. See the Form 8853 instructions for more
information.
taxmap/pubs/p969-001.htm#en_us_publink1000204155There is a 15% additional tax on the part of your distributions
not used for qualified medical expenses. Figure the tax on Form 8853 and file it
with your Form 1040 or Form 1040NR. Report the additional tax on Form 1040, line
60, or Form 1040NR, line 59, and enter "MSA" and the amount on the dotted line
next to that line.
Note.For tax years beginning after December 31, 2010, the additional
tax increases to 20%.
taxmap/pubs/p969-001.htm#en_us_publink1000204156There is no additional tax on distributions made after the date
you are disabled, reach age 65, or die.
taxmap/pubs/p969-001.htm#en_us_publink1000204157An Archer MSA is generally exempt from tax. 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.
Amounts that remain at the end of the year are generally carried over to the
next year (see
Excess contributions,
earlier). Earnings on amounts in an Archer MSA are not included
in your income while held in the Archer MSA.
You should choose a beneficiary when you set up your Archer MSA.
What happens to that Archer MSA when you die depends on whom you designate as
the beneficiary.
taxmap/pubs/p969-001.htm#en_us_publink1000204160If your spouse is the designated beneficiary of your Archer MSA,
it will be treated as your spouse's Archer MSA after your death.
taxmap/pubs/p969-001.htm#en_us_publink1000204161If 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.
If your estate is the beneficiary, the fair market value of the
Archer MSA will be included on your final income tax return.
| 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. |
taxmap/pubs/p969-001.htm#en_us_publink1000204163You 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. You must file the form even if only your employer or
your spouse's employer made contributions to the Archer MSA.
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. Enter
"statement" at the top of each Form 8853 and complete the form as instructed.
Next, complete a controlling Form 8853 combining the amounts shown on each of
the statement Forms 8853. Attach the statements to your tax return after the
controlling Form 8853.
taxmap/pubs/p969-001.htm#en_us_publink1000204164This section contains the rules that employers must follow if
they decide to make Archer MSAs available to their employees. Unlike the
previous discussions, "you" refers to the employer and not to the employee.
taxmap/pubs/p969-001.htm#en_us_publink1000204165If you want your employees to be able to have an Archer MSA,
you must make an HDHP available to them. You can provide no additional coverage
other than those exceptions listed previously under
Other health coverage.You can make contributions to your employees' Archer MSAs. 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. If
you are filing Form 1040, Schedule C, this is Part II, line 14.
taxmap/pubs/p969-001.htm#en_us_publink1000204168If you decide to make contributions, you must make comparable
contributions to all comparable participating employees' Archer MSAs. 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.
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).
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.
taxmap/pubs/p969-001.htm#en_us_publink1000204171Amounts you contribute to your employees' Archer MSAs are generally
not subject to employment taxes. You must report the contributions in box 12 of
the Form W-2 you file for each employee. Enter code "R" in box 12.
taxmap/pubs/p969-001.htm#en_us_publink1000204172A Medicare Advantage MSA is an Archer MSA designated by Medicare
to be used solely to pay the qualified medical expenses of the account holder.
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.
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. The money in your account is not taxed if it is used for
qualified medical expenses, and it may earn interest or dividends.
An HDHP is a special health insurance policy that has a high
deductible. You choose the policy you want to use as part of your Medicare
Advantage MSA plan. However, the policy must be approved by the Medicare
program.
Medicare Advantage MSAs are administered through the federal
Medicare program. You can get information by calling 1-800-Medicare
(1-800-633-4227) or through the Internet at
www.medicare.gov.
Note.You must file Form 8853, Archer MSAs and Long-Term Care Insurance
Contracts, with your tax return if you have a Medicare Advantage MSA.
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