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

•

You withdraw the excess contributions by the due

Qualified medical expenses. Qualified medical ex-

penses are those expenses that would generally qualify for

date, including extensions, of your tax return for the

the medical and dental expenses deduction. These are

year the contributions were made.

explained in Publication 502, Medical and Dental Ex-

•

You withdraw any income earned on the withdrawn

penses.

contributions and include the earnings in “Other in-

come” on your tax return for the year you withdraw

Note. Non-prescription medicines (other than insulin)

the contributions and earnings.

purchased in tax years beginning after December 31,

2010, are not considered qualified medical expenses. See

Qualified medical expenses

under What’s New, earlier.

If you fail to remain an eligible individual during

any of the testing periods, discussed earlier, the

For HSA purposes, expenses incurred before you es-

amount you have to include in income is not an

tablish your HSA are not qualified medical expenses. State

CAUTION

excess contribution. If you withdraw any of those amounts,

law determines when an HSA is established. An HSA that

the amount is treated the same as any other distribution

is funded by amounts rolled over from an Archer MSA or

another HSA is established on the date the prior account

from an HSA, discussed later.

was established.

Deducting an excess contribution in a later year. You

If, under the last-month rule, you are considered to be

may be able to deduct excess contributions for previous

an eligible individual for the entire year for determining the

years that are still in your HSA. The excess contribution

contribution amount, only those expenses incurred after

you can deduct for the current year is the lesser of the

you actually establish your HSA are qualified medical ex-

following two amounts.

penses.

•

Your maximum HSA contribution limit for the year

Qualified medical expenses are those incurred by the

minus any amounts contributed to your HSA for the

following persons.

year.

•

1. You and your spouse.

The total excess contributions in your HSA at the

beginning of the year.

2. All dependents you claim on your tax return.

3. Any person you could have claimed as a dependent

Amounts contributed for the year include contributions

on your return except that:

by you, your employer, and any other person. They also

include any qualified HSA funding distribution made to

a. The person filed a joint return,

your HSA. Any excess contribution remaining at the end of

b. The person had gross income of $3,700 or more,

a tax year is subject to the excise tax. See Form 5329.

Distributions From an HSA

c. You, or your spouse if filing jointly, could be

claimed as a dependent on someone else’s 2011

You will generally pay medical expenses during the year

return.

without being reimbursed by your HDHP until you reach

the annual deductible for the plan. When you pay medical

For this purpose, a child of parents that are di-

expenses during the year that are not reimbursed by your

vorced, separated, or living apart for the last 6

TIP

HDHP, you can ask the trustee of your HSA to send you a

months of the calendar year is treated as the

distribution from your HSA.

dependent of both parents whether or not the custodial

You can receive tax-free distributions from your HSA to

parent releases the claim to the child’s exemption.

pay or be reimbursed for qualified medical expenses you

You cannot deduct qualified medical expenses as

incur after you establish the HSA. If you receive distribu-

an itemized deduction on Schedule A (Form

tions for other reasons, the amount you withdraw will be

1040) that are equal to the tax-free distribution

CAUTION

subject to income tax and may be subject to an additional

from your HSA.

20% tax. You do not have to make distributions from your

HSA each year.

Insurance premiums. You cannot treat insurance pre-

miums as qualified medical expenses unless the premi-

If you are no longer an eligible individual, you can

ums are for:

still receive tax-free distributions to pay or reim-

TIP

burse your qualified medical expenses.

1. Long-term care insurance.

Generally, a distribution is money you get from your

2. Health care continuation coverage (such as cover-

health savings account. Your total distributions include

age under COBRA).

amounts paid with a debit card that restricts payments to

3. Health care coverage while receiving unemployment

health care and amounts withdrawn from the HSA by other

compensation under federal or state law.

individuals that you have designated. The trustee will re-

port any distribution to you and the IRS on Form 1099-SA,

4. Medicare and other health care coverage if you were

Distributions From an HSA, Archer MSA, or Medicare

65 or older (other than premiums for a Medicare

Advantage MSA.

supplemental policy, such as Medigap).

Page 8

Publication 969 (2011)

Publication 969 - Health Savings Accounts And Other Tax-Favored Health Plans - 2011 Page 8

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