Health, Medical, and Flexible Spending Accounts

health-savings-account-hsa

Black Canyon, Colorado
@tevintrinh

There are several programs based on tax breaks that are designed to help you pay for you and your family's medical expenses. The IRS calls them tax-favored health plans. Whether or not to report the information from any of these accounts or how to report it on your tax return can be confusing. The easiest and most accurate way to report this information is to start a free tax return on eFile.com. Based on your answers to several questions, we will prepare the forms you will need to report your Health Savings Account (HSA) or any other tax-favored health plan correctly on your tax return. See how the eFile Tax App works and start tax planning now.

For more details about these tax-favored health plans such as a Health Savings Account, a Medical Savings Account, a Flexible Spending Arrangement, and/or a Health Reimbursement Arrangement, see the information below.

Health Savings Account (HSA)

A Health Savings Account (HSA) is a tax-exempt account used to pay or reimburse you and your family's medical expenses if you are covered by a high-deductible health insurance plan (HDHP). A high deductible insurance plan means that you are responsible for a greater amount of your initial health care costs, saving the insurers money. For you, the benefit generally comes in lower monthly premiums.

You or anyone else can contribute money to your HSA. You can take a tax deduction for money contributed to your HSA by anyone except your employer. The money you take out of the account is tax-free if you use it for qualified medical expenses.

A wide range of IRS-qualified medical expenses are covered with your HSA. e.g. many expenses that aren't typically covered by health insurance plans. For example, deductibles, co-insurance, prescriptions, dental and vision care, and more. See a complete list of IRS qualified medical expenses and details on Health Savings Accounts (HSA) and other tax favored health plans.

You can set up a HSA through your employer, bank, insurance company, or another approved trustee. Health Savings Accounts are portable, so you can keep the account even if you change employers. The money in an HSA remains in the account until you spend it.

The requirements to qualify for an HSA are:

  • You must be covered by a high-deductible health plan (HDHP) on the first day of the month.
  • You cannot have any other general health coverage except a high-deductible health plan (there are exceptions for specific coverage, such as for vision, dental, disability, or long-term care insurance).
  • You may not be enrolled in Medicare.
  • You must not be claimed as a dependent on someone's tax return.

Contribution Limit for a Health Savings Account

Tax Year
Status
HSA Contribution
2023
Individual
$3,850
2023
Family
$7,750
2022
Individual
$3,650
2022
Family
$7,300
2021
Individual
$3,600
2021
Family
$7,200
2020
Individual
$3,550
2020
Family
$7,100
2019
Individual
$3,500
2019
Family
$7,000

Note: If you are 55 years old or older by the end of the tax year, you can add an additional $1,000 to your HSA contribution. You can make 2022 Tax Year contributions until April 15, 2023; 2023 contributions can be made until April 15, 2024.

Contributions that you save or make to your HSA can be carried into the future without a requirement to spend saved amounts. Thus, in retirement, you can use these funds for health-care payments.

You generally cannot make contributions to an HSA if you are covered by a Flexible Spending Account or a Health Reimbursement Account.

Reporting HSA Contributions on Your Tax Return

If your employer made the contributions and they are listed on your Form W-2 or your contributions were made pre-tax, then you should not report them on Form 8889 because they are reported on your W-2. However, if you made the HSA contributions post-tax, you should report them on Form 8889 - eFileIT. The same applies for the HSA employer contribution.

Your gross (total) distributions from an HSA are reported to you on Form 1099-SA. When you file your tax return, you are required to report HSA contributions and HSA distributions on Form 8889. When you prepare your return on eFile.com, we will select the proper form(s) for you and help you fill them out correctly.

Medical Savings Account (Archer MSA)

An Archer Medical Savings Account (MSA) helps those employees of small businesses and self-employed people who are covered by a high-deductible health plan to pay the health care costs of themselves, their spouses, and their dependents. If you are employed, either you or your employer may contribute to your Archer MSA in any given year, but not both. If you are self-employed, only you can make contributions to your MSA.

What does my healthcare plan have to be for me to open a Medical Savings Account?

For 2022, self-only health coverage can have an annual deductible greater than $2,450 but less than $3,600; up from $2,400 - $3,600 in 2021. The maximum out-of-pocket amount of expenses is $4,950, up from $4,800 in 2021. If you have family coverage, the deductible should be at least $4,950, but less than $7,400; the out-of-pocket expense limit should be $9,050 or less. This is up from a deductible of $4,800 - $7,150 in 2021 with an out-of-pocket expense limit of $8,850 or less.

In 2023, the high-deductible self-only health coverage plan must have had an annual deductible greater than $2,650 but less than $3,950. For a self-only plan, the maximum out-of-pocket amount of expenses was $5,300. For family coverage plans, the limit is a deductible of at least $5,300, but less than $7,900; the out-of-pocket expense limit can be $9,650 or less.

The table below summarizes this by year, annual deductible limit, and out-of-pocket expense limit.

Tax Year
Deductible Limit
Out-of-Pocket Expense
2023
Individual: $2,650 - $3,950
Family: $5,300 - $7,900
Individual: $5,300
Family: $9,650
2022
Individual: $2,450 - $3,600
Family: $4,950 - $7,400
Individual: $4,950
Family: $9,050
2021
Individual: $2,400 - $3,600
Family: $5,300 - $7,900
Individual: $4,800
Family: $8,850

You can set up an Archer MSA through your employer, a bank, an insurance company, or another financial institution. Medical Savings Accounts are portable, so you can keep the account even if you change employers and the funds in an MSA remain in the account until you spend them.

You qualify for an Archer Medical Savings Account if all of the following are true:

  • You are employed by a small employer (with an average of 50 or fewer employees over the last 2 years) at the time you start the MSA or you are self-employed.
  • You are covered by a high-deductible health plan (HDHP).
  • You do not have any other general health care coverage except a high-deductible health plan (there are exceptions for specific coverage, such as for vision, dental, disability, etc.).

If you are eligible to be covered by Medicare, then you cannot enroll in an Archer MSA, but you can enroll in a Medicare Advantage MSA. This is like an Archer MSA, but you can only use the funds from a Medicare Advantage MSA to pay your own qualified medical expenses.

If you make contributions to your MSA, you can deduct the contributions on your tax return even if you don't itemize deductions, unless you are eligible to be claimed as someone else's dependent for the year. Distributions from an MSA are tax-free if the money is spent on qualified medical expenses, such as expenses not covered by your health plan because you have not yet met the high deductible (see a list of qualified medical expenses).

The maximum annual contribution to an MSA is 75% of your family health plan's annual deductible amount, or 65% of the deductible if you have a self-only plan. If you were not covered for the whole year by a high-deductible health plan, the maximum allowable contribution to your MSA is reduced by 1/12 per month in which you were not covered.

You may be able to carry forward excess contributions to an MSA and deduct them in a future year. Generally, you can also roll over funds from an MSA to a Health Savings Account tax-free. There are no HSA contribution limits for rollovers, but you can only make one rollover contribution per 1-year period.

Your total (gross) Archer or Medicare Advantage MSA distributions for the year will be reported to you on Form 1099-SA. When you file your tax return, you must report all distributions from your HSA - and contributions to your HSA - on Form 8853 - eFileIT, which can be e-filed with your return on eFile.com. We will automatically select this form for you on eFile.com if you qualify for it based on your answers during our tax interview. 

Flexible Spending Account or Arrangement (FSA)

A Flexible Spending Arrangement or Account (FSA) is an employer-sponsored account that helps you pay for you and your family's medical expenses. This may sometimes be referred to as a cafeteria plan. You may also set up a Dependent Care FSA or DCFSA which has the same tax implications as one used for medical expenses. An FSA is funded by voluntary paycheck withholding and by employer contributions. All money contributed to an FSA is completely tax-free for you. No payroll or income taxes are withheld from your contributions to an FSA and contributions by your employer are excluded from your taxable income. Withdrawals from a Flexible Spending Account are tax-free if the money is spent on qualified medical expenses (see a list of qualified medical expenses).

You can only establish an FSA through your employer, meaning self-employed people are not eligible. You do not have to be covered by a high-deductible plan or by any other health plan to qualify for an FSA.

With an FSA, there are limits for how much you can contribute per year and how much carries over into the next year. Review the table below for these figures.

Tax Year
FSA Contribution
Carrover Limit
2023
$3,050
$610
2022
$2,850
$570
2021
$2,750
$550

The maximum amount you can contribute to an FSA through paycheck withholding is $2,850 for 2022, up from $2,750 in 2021. In 2023, the limit is increased to $3,050. There is no IRS-imposed limit on the amount your employer can contribute, but there may be other limits if you are considered a highly compensated employee.

At the beginning of each year in which you have a Flexible Spending Account, you must decide the amount that you will contribute to it over the course of the year. It is important not to contribute too much to an FSA, because FSAs are "use-it-or-lose-it." This means that you must spend the money in the account by the end of the tax year or else any remaining amount is forfeited, excluding the amounts in the table above. For example, any amount up to $570 kept in your FSA in 2022 can be carried into 2023. However, your employer can provide up to a 2 and 1/2 month grace period for you to spend the money in the following year. It is also possible to roll over funds from an FSA to a Health Savings Account, tax-free. Rollover contributions to HSAs have no dollar amount limit, but you may only make one rollover contribution per 1-year period.

You do not report Flexible Spending Account contributions nor distributions on your tax return.

Note: As part of the American Rescue Plan Act of 2021, the treatment of FSAs changed for Tax Year 2021 only. During 2021, taxpayers could contribute up to $10,500 for single or married filing joint taxpayers and $5,250 for married filing separately taxpayers. These were pre-tax contributions made after December 31, 2020 and before January 1, 2022. This was up from $5,000 in 2020. Additionally, these wages carried forward into 2022 if unused. For example, if you put $5,000 into an FSA in 2021 to pay for summer camp for your dependent, but that camp was closed potentially due to COVID-19, then your funds will remain in this account into 2022.

This does not apply for 2022 or other year returns.

See also: Child and Dependent Care Credit.

Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement (HRA) is an employer-sponsored plan that reimburses you for the health care costs of you and your family. Your employer is the only one who can contribute to your HRA.

An HRA is established by your employer, so self-employed individuals are not eligible. There is no requirement to be covered (or not covered) by any other type of health plan, so you can enroll in an HRA if it is offered by your employer, no matter what other health coverage you have (or do not have).

Health Reimbursement Arrangements are solely funded by your employer, and your employer can set the maximum coverage amount. Employer contributions are tax-free income to you. Reimbursements are excluded from your taxable income if the money was spent on qualified health costs and medical expenses (see a list of qualified medical expenses). There may be some exceptions if you are considered a highly compensated employee. Unlike FSA funds, unused funds in an HRA at the end of the year are not forfeited and can be carried forward to later years.

Information about a Health Reimbursement Arrangement is not reported on your tax return.

Tax Tip: You can itemize and deduct medical expenses that are not covered by one of these health plans. 

More Information

For more details on any of the above, see:

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