taxmap/pubs/p969-000.htm#en_us_publink1000204014taxmap/pubs/p969-000.htm#en_us_publink1000273740$2,500 limit on a health flexible spending arrangement (FSA).
(p1)For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of
$2,500.
Qualified HSA distributions.
(p1)For the latest information about developments related to Publication 969, such as legislation enacted after it was published, go to
www.IRS.gov/pub969.
Photographs of missing children.
(p1)The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a
child.
Various programs are designed to give individuals tax advantages to offset health care costs. This publication explains the following programs.
- Health savings accounts (HSAs).
- Medical savings accounts (Archer MSAs and Medicare Advantage
MSAs).
- Health flexible spending arrangements (FSAs).
- Health reimbursement arrangements (HRAs).
An HSA may receive contributions from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual. Contributions, other than employer contributions, are deductible on the eligible individual's return whether or not the individual itemizes deductions. Employer contributions are not included in income. Distributions from an HSA that are used to pay qualified medical expenses are not taxed.
An Archer MSA may receive contributions from an eligible individual and his or her employer, but not both in the same year. Contributions by the individual are deductible whether or not the individual itemizes deductions. Employer contributions are not included in income. Distributions from an Archer MSA that are used to pay qualified medical expenses are not taxed.
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 enrolled in Medicare. Contributions can only be made by Medicare. The contributions are not included in your income. Distributions from a Medicare Advantage MSA that are used to pay qualified medical expenses are not
taxed.
A health FSA may receive contributions from an eligible individual. Employers may also contribute. Contributions are not includible in income. Reimbursements from an FSA that are used to pay qualified medical expenses are not
taxed.
An HRA must receive contributions from the employer only. Employees may not contribute. Contributions are not includible in income. Reimbursements from an HRA that are used to pay qualified medical expenses are not
taxed.
taxmap/pubs/p969-000.htm#en_us_publink1000293592We welcome your comments about this publication and your suggestions for future
editions.
You can write to us at the following address:
Internal Revenue Service
Individual and Specialty Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your
correspondence.
You can email us at
taxforms@irs.gov. Please put "Publications Comment" on the subject line. You can also send us comments from
www.irs.gov/formspubs/. Select "Comment on Tax Forms and Publications" under "More
Information."
Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax
products.
taxmap/pubs/p969-000.htm#en_us_publink1000293593Visit
www.irs.gov/formspubs/
to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or
write to the address below and receive a response within 10 days after your
request is received.
Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above
addresses.
taxmap/pubs/p969-000.htm#en_us_publink1000204020A health savings account (HSA) is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an
HSA.
No permission or authorization from the IRS is necessary to establish an HSA. When you set up an HSA, you will need to work with a trustee. 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. The HSA can be established through a trustee that is different from your health plan provider.
Your employer may already have some information on HSA trustees in your
area.
 | If you have an Archer MSA, you can generally roll it over into an HSA tax free. See
Rollovers, later. |
taxmap/pubs/p969-000.htm#en_us_publink1000204023You may enjoy several benefits from having an HSA.
- 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.
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross
income.
- The contributions remain in your account from year to year until you use
them.
- The interest or other earnings on the assets in the account are tax
free.
- Distributions may be tax free if you pay qualified medical expenses. See
Qualified medical expenses, later.
- An HSA is "portable" so it stays with you if you change employers or leave the work
force.
To be an eligible individual and qualify for an HSA, you must meet the following requirements.
- You must be covered under a high deductible health plan (HDHP), described later, on the first day of the
month.
- You have no other health coverage except what is permitted under
Other health coverage, later.
- You are not enrolled in Medicare.
- You cannot be claimed as a dependent on someone else's 2012 tax return.
| 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). |
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.
 | If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. This is true even if the other person does not actually claim your
exemption. |
| Each spouse who is an eligible individual who wants an HSA must open a separate HSA. You cannot have a joint
HSA. |
taxmap/pubs/p969-000.htm#en_us_publink1000204030An 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. Out-of-pocket expenses include copayments and other amounts, but do not include
premiums.
An HDHP may provide preventive care benefits without a deductible or with a deductible below the minimum annual deductible. Preventive care includes, but is not limited to, the following.
- Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual
physicals.
- Routine prenatal and well-child care.
- Child and adult immunizations.
- Tobacco cessation programs.
- Obesity weight-loss programs.
- Screening services. This includes screening services for the
following:
- Cancer.
- Heart and vascular diseases.
- Infectious diseases.
- Mental health conditions.
- Substance abuse.
- Metabolic, nutritional, and endocrine conditions.
- Musculoskeletal disorders.
- Obstetric and gynecological conditions.
- Pediatric conditions.
- Vision and hearing disorders.
For more information on screening services, see Notice 2004-23, 2004-15 I.R.B. 725 available at
www.irs.gov/irb/2004-15_IRB/ar10.html.
The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2012.
| | Self-only coverage | Family coverage |
| Minimum annual deductible | $1,200 | $2,400 |
Maximum annual deductible and
other out-of-pocket expenses*
| $6,050 | $12,100 |
| * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.
|
| The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013.
|
| | 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. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.
|
Self-only HDHP coverage is an HDHP covering only an eligible individual. 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).
taxmap/pubs/p969-000.htm#en_us_publink1000204036Example.
(p3)
An eligible individual and his dependent child are covered under an "employee plus one" HDHP offered by the individual's employer. This is family HDHP
coverage.
taxmap/pubs/p969-000.htm#en_us_publink1000204037There 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/p969-000.htm#en_us_publink1000204038You have family health insurance coverage in 2012. The annual deductible for the family plan is $3,500. This plan also has an individual deductible of $1,500 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 ($2,400) for family
coverage.
taxmap/pubs/p969-000.htm#en_us_publink1000204039You (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.
You can have additional insurance that provides benefits only for the following
items.
- Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to 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.
| Plans in which substantially all of the coverage is through the above listed items are not HDHPs. 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. |
taxmap/pubs/p969-000.htm#en_us_publink1000204041You 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. If you can receive benefits before that deductible is met, you are not an eligible individual.
taxmap/pubs/p969-000.htm#en_us_publink1000204042An 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. Health FSAs and HRAs are discussed
later.
However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following
arrangements.
- Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under
Other health coverage,
except long-term care. Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the
deductible.
- Suspended HRA. Before the beginning of an HRA coverage period, you can elect to suspend the HRA. 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.
When the suspension period ends, you are no longer eligible to make contributions to an
HSA.
- Post-deductible health FSA or HRA. These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. 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.
- Retirement HRA. This arrangement pays or reimburses only those medical expenses incurred after retirement. After retirement you are no longer eligible to make contributions to an
HSA.
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. See
Flexible Spending Arrangements (FSAs), later.
Any eligible individual can contribute to an HSA. For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. Family members or any other person may also make contributions on behalf of an eligible
individual.
Contributions to an HSA must be made in cash. Contributions of stock or property are not
allowed.
taxmap/pubs/p969-000.htm#en_us_publink1000204046The 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. For 2012, if you have self-only HDHP coverage, you can contribute up to $3,100. If you have family HDHP coverage, you can contribute up to $6,250.
| For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. If you have family HDHP coverage you can contribute up to
$6,450. |
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. 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 last line of the
Line 3 Limitation Chart and Worksheet in 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.
| If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2012 is $6,250 even if you changed coverage during the
year. |
taxmap/pubs/p969-000.htm#en_us_publink1000204049Under 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. You are treated as having the same HDHP coverage for the entire year as you had on the first day of that last
month.
taxmap/pubs/p969-000.htm#en_us_publink1000204050If 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. 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. For example, December 1, 2012, through December 31,
2013.
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. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are shown on Form 8889, Part III.
taxmap/pubs/p969-000.htm#en_us_publink1000204051Example 1.
(p5)
Chris, age 53, becomes an eligible individual on December 1, 2012. He has family HDHP coverage on that date. Under the last-month rule, he contributes $6,250 to his
HSA.
Chris fails to be an eligible individual in June 2013. Because Chris did not remain an eligible individual during the testing period (December 1, 2012, through December 31, 2013), he must include in his 2013 income the contributions made in 2012 that would not have been made except for the last-month rule. Chris uses the worksheet for line 3 in the Form 8889 instructions to determine this amount.
| January | -0- |
| February | -0- |
| March | -0- |
| April | -0- |
| May | -0- |
| June | -0- |
| July | -0- |
| August | -0- |
| September | -0- |
| October | -0- |
| November | -0- |
| December | $6,250.00 |
| Total for all months | $6,250.00 |
| Limitation. Divide the total by 12
| $520.83 |
Chris would include $5,729.17 ($6,250.00 – $520.83) in his gross income on his 2013 tax return. Also, a 10% additional tax applies to this
amount.
Example 2.(p5)
Erika, age 39, has self-only HDHP coverage on January 1, 2012. Erika changes to family HDHP coverage on November 1, 2012. Because Erika has family HDHP coverage on December 1, 2012, she contributes $6,250 for
2012.
Erika fails to be an eligible individual in March 2013. Because she did not remain an eligible individual during the testing period (December 1, 2012, through December 31, 2013), she must include in income the contribution made that would not have been made except for the last-month rule. Erika uses the worksheet for line 3 in the Form 8889 instructions to determine this
amount.
| January | $3,100.00 |
| February | $3,100.00 |
| March | $3,100.00 |
| April | $3,100.00 |
| May | $3,100.00 |
| June | $3,100.00 |
| July | $3,100.00 |
| August | $3,100.00 |
| September | $3,100.00 |
| October | $3,100.00 |
| November | $6,250.00 |
| December | $6,250.00 |
| Total for all months | $43,500.00 |
| Limitation. Divide the total by 12
| $3,625.00 |
Erika would include $2,625.00 ($6,250 – $3,625.00) in her gross income on her 2013 tax return. Also, a 10% additional tax applies to this
amount.
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. For example, if you have self-only coverage, you can contribute up to $4,100 (the contribution limit for self-only coverage ($3,100) plus the additional contribution of $1,000). However, see
Enrolled in Medicare, later.
| If you have more than one HSA in 2012, your total contributions to all the HSAs cannot be more than the limits discussed earlier.
|
taxmap/pubs/p969-000.htm#en_us_publink1000204058You 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. A special rule applies to married people, discussed next, if each spouse has family coverage under an
HDHP.
taxmap/pubs/p969-000.htm#en_us_publink1000204059If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If each spouse has family coverage under a separate plan, the contribution limit for 2012 is $6,250. You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouse's Archer MSAs. After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division.
| The rules for married people apply only if both spouses are eligible
individuals. |
If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,250. Each spouse must make the additional contribution to his or her own
HSA.
taxmap/pubs/p969-000.htm#en_us_publink1000204061Example.
(p6)
For 2012, Mr. Auburn and his wife are both eligible individuals. They each have family coverage under separate HDHPs. Mr. Auburn is 58 years old and Mrs. Auburn is 53. Mr. and Mrs. Auburn can split the family contribution limit ($6,250) equally or they can agree on a different division. If they split it equally, Mr. Auburn can contribute $4,125 to an HSA (one-half the maximum contribution for family coverage ($3,125) + $1,000 additional contribution) and Mrs. Auburn can contribute $3,125 to an
HSA.
taxmap/pubs/p969-000.htm#en_us_publink1000204062You 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. This includes amounts contributed to your account by your employer through a cafeteria
plan.
taxmap/pubs/p969-000.htm#en_us_publink1000204063Beginning with the first month you are enrolled in Medicare, your contribution limit is zero.
taxmap/pubs/p969-000.htm#en_us_publink1000204064Example.
(p6)
You turned age 65 in July 2012 and enrolled in Medicare. You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. Your contribution limit is $2,050 ($4,100 × 6 ÷
12).
taxmap/pubs/p969-000.htm#en_us_publink1000204065A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. 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.
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. The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. The qualified HSA funding distribution is shown on Form 8889, Part I, line 10 for the year in which the distribution is
made.
You can make only one qualified HSA funding distribution during your lifetime. 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. 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.
taxmap/pubs/p969-000.htm#en_us_publink1000204066In 2012, you are an eligible individual, age 57, with self-only HDHP coverage. You can make a qualified HSA funding distribution of $4,100 ($3,100 plus $1,000 additional
contribution).
taxmap/pubs/p969-000.htm#en_us_publink1000204067You must remain an eligible individual during the testing period. 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. For example, if a qualified HSA funding distribution is contributed to your HSA on August 10, 2012, your testing period begins in August 2012, and ends on August 31,
2013.
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. You include this amount in income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and the additional tax are shown on Form 8889, Part
III.
Each qualified HSA funding distribution allowed has its own testing period. For example, you are an eligible individual, age 45, with self-only HDHP coverage. On June 18, 2012, you make a qualified HSA funding distribution of $3,100. On July 27, 2012, you enroll in family HDHP coverage and on August 17, 2012, you make a qualified HSA funding distribution of $3,150. Your testing period for the first distribution begins in June 2012 and ends on June 30, 2013. Your testing period for the second distribution begins in August 2012 and ends on August 31,
2013.
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. 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.
taxmap/pubs/p969-000.htm#en_us_publink1000204068A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution
limit.
taxmap/pubs/p969-000.htm#en_us_publink1000204069You can roll over amounts from Archer MSAs and other HSAs into an HSA. You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Rollover contributions do not need to be in cash. Rollovers are not subject to the annual contribution limits.
You must roll over the amount within 60 days after the date of receipt. You can make only one rollover contribution to an HSA during a 1-year period.
Note.If you instruct the trustee of your HSA to transfer funds directly to the trustee of another HSA, the transfer is not considered a rollover. There is no limit on the number of these transfers. Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889, line
14a.
taxmap/pubs/p969-000.htm#en_us_publink1000204071taxmap/pubs/p969-000.htm#en_us_publink1000204074You must remain an eligible individual during the testing period. For a qualified HSA distribution, the testing period begins with the month in which the qualified HSA distribution is contributed and ends on the last day of the 12th month following that month. For example, if a qualified HSA distribution is contributed to your HSA on December 31, 2011, your testing period runs from December 2011, through December 31,
2012.
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 distribution. You include this amount in income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and the additional tax are shown on Form 8889, Part
III.
taxmap/pubs/p969-000.htm#en_us_publink1000204075You can make contributions to your HSA for 2012 until April 15, 2013. If you fail to be an eligible individual during 2012, you can still make contributions, up until April 15, 2013, for the months you were an eligible
individual.
Your employer can make contributions to your HSA between January 1, 2013, and April 15, 2013, that are allocated to 2012. Your employer must notify you and the trustee of your HSA that the contribution is for 2012. The contribution will be reported on your 2013 Form
W-2.
taxmap/pubs/p969-000.htm#en_us_publink1000204076Contributions made by your employer are not included in your income. 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. 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.
Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. The contributions are treated as a distribution of money and are not included in the partner's gross income. 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. In both situations, the partner can deduct the contribution made to the partner's
HSA.
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. The shareholder-employee can deduct the contribution made to the shareholder-employee's
HSA.
taxmap/pubs/p969-000.htm#en_us_publink1000204077Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. You should include all contributions made for 2012, including those made by April 15, 2013, that are designated for 2012. Contributions made by your employer and qualified HSA funding distributions are also shown on the
form.
You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Follow the instructions for Form 8889. Report your HSA deduction on Form 1040 or Form 1040NR, line 25.
taxmap/pubs/p969-000.htm#en_us_publink1000204078You will have excess contributions if the contributions to your HSA 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 for the year the contributions were
made.
- 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.
| 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. If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed
later. |
taxmap/pubs/p969-000.htm#en_us_publink1000204080You may be able to deduct excess contributions for previous years that are still in your HSA. The excess contribution you can deduct for the current year is the lesser of the following two
amounts.
- Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the
year.
- The total excess contributions in your HSA at the beginning of the
year.
Amounts contributed for the year include contributions by you, your employer, and any other person. They also include any qualified HSA funding distribution made to your HSA. Any excess contribution remaining at the end of a tax year is subject to the excise tax. See Form
5329.
taxmap/pubs/p969-000.htm#en_us_publink1000204081You 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 HSA to send you a distribution from your
HSA.
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. 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. You do not have to make distributions from your HSA each year.
| If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical
expenses. |
Generally, a distribution is money you get from your health savings account. 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. 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/p969-000.htm#en_us_publink1000204083Qualified 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.
Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. 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.
For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. State law determines when an HSA is established. 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.
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.
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 $3,800 or more, or
- You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2012
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
HSA. |
taxmap/pubs/p969-000.htm#en_us_publink1000204086You cannot treat insurance premiums as qualified medical expenses unless the premiums are
for:
- Long-term care insurance.
- Health care continuation coverage (such as coverage under
COBRA).
- Health care coverage while receiving unemployment compensation under federal or state
law.
- Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as
Medigap).
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. See
Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040).
Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. 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.
taxmap/pubs/p969-000.htm#en_us_publink1000204087You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. See Publication
502 for more information on this credit.
The following situations result in deemed taxable distributions from your HSA.
- You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2012. Your account ceases to be an HSA as of January 1, 2012, and you must include the fair market value of all assets in the account as of January 1, 2012, on Form 8889, line
14a.
- You used any portion of any of your HSAs as security for a loan at any time in 2012. 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
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.
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 20% 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/p969-000.htm#en_us_publink1000204090How 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 HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8889. 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. 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 HSA for qualified medical expenses, you must pay tax on the distribution. Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. If you have a taxable HSA distribution, include it in the total on Form 1040 or Form 1040NR, line 21, and enter "HSA" and the amount on the dotted line next to line 21. You may have to pay an additional 20% tax on your taxable
distribution.
| HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the
HSA. |
taxmap/pubs/p969-000.htm#en_us_publink1000204092There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. Report the additional tax in the total on Form 1040, line 60, or Form 1040NR, line 59, and enter "HSA" and the amount on the dotted line next to that line.
taxmap/pubs/p969-000.htm#en_us_publink1000204093There is no additional tax on distributions made after the date you are disabled, reach age 65, or
die.
taxmap/pubs/p969-000.htm#en_us_publink1000204094An HSA is generally exempt from tax. 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. 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 HSA are not included in your income while held in the HSA.
You should choose a beneficiary when you set up your HSA. What happens to that HSA when you die depends on whom you designate as the beneficiary.
taxmap/pubs/p969-000.htm#en_us_publink1000204097If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your
death.
taxmap/pubs/p969-000.htm#en_us_publink1000204098If 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.
If your estate is the beneficiary, the value is 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/p969-000.htm#en_us_publink1000204100You 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. You must file the form even if only your employer or your spouse's employer made contributions to the
HSA.
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. Enter "statement" at the top of each Form 8889 and complete the form as instructed. Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. Attach the statements to your tax return after the controlling Form
8889.
taxmap/pubs/p969-000.htm#en_us_publink1000204101This section contains the rules that employers must follow if they decide to make HSAs available to their employees. Unlike the previous discussions, "you" refers to the employer and not to the
employee.
taxmap/pubs/p969-000.htm#en_us_publink1000204102If you want your employees to be able to have an HSA, they must have an HDHP. You can provide no additional coverage other than those exceptions listed previously under
Other health coverage.
You can make contributions to your employees' HSAs. 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 the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. If you are filing Form 1040, Schedule C, this is Part II, line 14.
taxmap/pubs/p969-000.htm#en_us_publink1000204105If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. 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.
The comparability rules do not apply to contributions made through a cafeteria
plan.
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).
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.
You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. 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. For a sample of the notice, see Regulation 54.4980G-4 A-14(c). You will meet the contribution requirement for these employees if by April 15, 2013, you contribute comparable amounts plus reasonable interest to the employee's HSA for the prior
year.
Note.For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating
employees.
taxmap/pubs/p969-000.htm#en_us_publink1000204108If you made contributions to your employees' HSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed.
taxmap/pubs/p969-000.htm#en_us_publink1000204109Amounts you contribute to your employees' HSAs 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. This includes the amounts the employee elected to contribute through a cafeteria plan. Enter code "W" in box 12.
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