Similar to a Health Savings Account, an Archer Medical Savings Account (MSA) is a tax-exempt trust or custodial account set up with a U.S. financial institution, such as a bank or an insurance company, used to save money exclusively for future medical expenses. A Medicare 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. The taxpayer must obtain the Medicare MSA designation.
After December 31, 2007, no individual can be considered an eligible individual for Archer MSA purposes unless:
- they were an active participant for any tax year ending before January 1, 2008,
or - they 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.
To qualify for an Archer MSA, the participant in the plan must be:
- an employee (or spouse) of a small employer that maintains a self-only or family HDHP for either self or spouse; or
- a self-employed person (or spouse) who maintains a self-only plan or a family HDHP plan.
Contributions to an Archer MSA
Contributions to an Archer MSA may be made by anyone: the taxpayer, their spouse, someone else, or an employer. However, the taxpayer and employer cannot contribute to the MSA in the same year.
Employer contributions are not tax-deductible, however contributions by the taxpayer or someone else for the benefit of the taxpayer may be considered a deductible contribution for tax purposes on the plan holder's return. If the taxpayer can be claimed as a dependent on someone else's return, no deduction for a contribution is allowed.
To enter the information needed to calculate the Archer MSA deduction in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- Adjustments
- Archer MSAs and Long-Term Care Insurance Contracts (8853)
- Section A Part I - Archer MSA Contributions & Deductions
- Employer Contributions made to your MSA(s) for 20xx - This amount is pulled from Form W-2 with code R in Box 12. If an amount is entered here, the taxpayer should not have made contributions of their own and no deduction will calculate.
- MSA Contributions you made for 20xx - Enter the contributions the taxpayer made for this tax year including those made the following year before the filing deadline if they were for this tax year. Do not include rollovers. No credit will calculate if no entry is made.
- Limitation from Worksheet - The Line 3 Limitation Chart and Worksheet is in the Form 8853 instructions here. You must make an entry here or no credit will calculate.
- Compensation from Employer Maintaining High Deductible Plan - If the taxpayer is an employee, enter their total compensation from their employer as shown on their W-2. (Do not include deferred compensation.) If the taxpayer is self-employed, enter their net earnings from self-employment less the deductible portion of SE tax. You must make an entry here or no credit will calculate.
Distributions from an Archer MSA
Distributions from the Archer MSA must be for qualified medical expenses for persons eligible to participate in the plan. Distributions for medical expenses incurred by a person that is not covered by a HDHP are taxable. Distributions not used to cover unreimbursed qualified medical expenses are subject to an additional 20% tax unless they are made after:
- The account holder dies.
- The account holder becomes disabled.
- The account holder turns 65.
To enter Archer MSA distributions in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- Adjustments
- Archer MSAs and Long-Term Care Insurance Contracts (8853)
- Section A Part II - Archer MSA Distributions
- Total MSA Distributions received during 20xx - Enter the total of all 1099-SA Box 1 distributions from Archer MSA(s).
- Distributions included above that you Rolled Over - Enter the amount of any distributions that were rolled over into another Archer MSA or HSA plus any excess contributions that were withdrawn before the due date of the return, including extensions.
- Total Unreimbursed Qualified Medical Expenses - Enter the total qualified medical expenses paid for with Archer MSA distributions for the taxpayer, spouse, dependents, and anyone who would have been a dependent except that (a) they filed a joint return, (b) they had gross income of $4,300 or more, or (c) the taxpayer and/or spouse are a dependent of someone else.
- Do you meet any of the Exceptions to the 20% Tax? - If the account holder (taxpayer or spouse) meets one of the three exceptions, answer Yes.
- Section B, Part II - Medicare distributions are entered here, separately from Archer MSA distributions.
- Section C, Part II - Accelerated death benefits paid by a Life Insurance Policy and Long-term Care Insurance payments, including per diems, and other expenses paid by a Long-term Insurance plan are reported are entered here.
Note: This is a guide to entering the Medical Savings Account Deduction into the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
IRS: Instructions for Form 8853
IRS: Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans