Publication 969 - Health Savings Accounts And Other Tax-Favored Health Plans

Reporting Distributions on Your Return

The premiums for long-term care insurance (item (1))

that you can treat as qualified medical expenses are sub-

How you report your distributions depends on whether or

ject to limits based on age and are adjusted annually. See

not you use the distribution for qualified medical expenses

Limit on long-term care premiums you can deduct in the

(defined earlier).

instructions for Schedule A (Form 1040).

•

Items (2) and (3) can be for your spouse or a dependent

If you use a distribution from your HSA for qualified

meeting the requirement for that type of coverage. For item

medical expenses, you do not pay tax on the distri-

(4), if you, the account beneficiary, are not 65 or older,

bution but you have to report the distribution on

Medicare premiums for coverage of your spouse or a

Form 8889. However, the distribution of an excess

dependent (who is 65 or older) generally are not qualified

contribution taken out after the due date, including

extensions, of your return is subject to tax even if

medical expenses.

used for qualified medical expenses. Follow the in-

Health coverage tax credit. You cannot claim this

structions for the form and file it with your Form 1040

credit for premiums that you pay with a tax-free distribution

or Form 1040NR.

from your HSA. See Publication 502 for more information

•

If you do not use a distribution from your HSA for

on this credit.

qualified medical expenses, you must pay tax on the

distribution. Report the amount on Form 8889 and

Deemed distributions from HSAs. The following situa-

file it with your Form 1040 or Form 1040NR. If you

tions result in deemed taxable distributions from your HSA.

have a taxable HSA distribution, include it in the total

•

You engaged in any transaction prohibited by sec-

on Form 1040 or Form 1040NR, line 21, and enter

tion 4975 with respect to any of your HSAs, at any

“HSA” and the amount on the dotted line next to line

time in 2010. Your account ceases to be an HSA as

21. You may have to pay an additional 10% tax on

of January 1, 2010, and you must include the fair

your taxable distribution.

market value of all assets in the account as of Janu-

ary 1, 2010, on Form 8889, line 14a.

HSA administration and maintenance fees with-

•

You used any portion of any of your HSAs as secur-

drawn by the trustee are not reported as distribu-

TIP

ity for a loan at any time in 2010. You must include

tions from the HSA.

the fair market value of the assets used as security

for the loan as income on Form 1040 or Form

Additional tax. There is an additional 10% tax on the part

1040NR, line 21.

of your distributions not used for qualified medical ex-

penses. Figure the tax on Form 8889 and file it with your

Examples of prohibited transactions include the direct or

Form 1040 or Form 1040NR. Report the additional tax on

indirect:

Form 1040, line 60, or Form 1040NR, line 59, and enter

•

Sale, exchange, or leasing of property between you

“HSA” and the amount on the dotted line next to that line.

and the HSA,

Note. For tax years beginning after December 31,

•

Lending of money between you and the HSA,

2010, the additional tax increases to 20%.

•

Furnishing goods, services, or facilities between you

Exceptions. There is no additional tax on distributions

and the HSA, and

made after the date you are disabled, reach age 65, or die.

•

Transfer to or use by you, or for your benefit, of any

Balance in an HSA

assets of the HSA.

Any deemed distribution will not be treated as used to

An HSA is generally exempt from tax. You are permitted to

pay qualified medical expenses. These distributions are

take a distribution from your HSA at any time; however,

included in your income and are subject to the additional

only those amounts used exclusively to pay for qualified

medical expenses are tax free. Amounts that remain at the

10% tax, discussed later.

end of the year are generally carried over to the next year

Recordkeeping. You must keep records suffi-

(see

Excess contributions,

earlier). Earnings on amounts

cient to show that:

in an HSA are not included in your income while held in the

RECORDS

HSA.

•

The distributions were exclusively to pay or reim-

Death of HSA Holder

burse qualified medical expenses,

•

The qualified medical expenses had not been previ-

You should choose a beneficiary when you set up your

ously paid or reimbursed from another source, and

HSA. What happens to that HSA when you die depends on

whom you designate as the beneficiary.

•

The medical expenses had not been taken as an

itemized deduction in any year.

Spouse is the designated beneficiary. If your spouse is

Do not send these records with your tax return. Keep them

the designated beneficiary of your HSA, it will be treated as

with your tax records.

your spouse’s HSA after your death.

Publication 969 (2010)

Page 9

Publication 969 - Health Savings Accounts And Other Tax-Favored Health Plans - 2010 Page 9

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