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).

•

If you use a distribution from your HSA for qualified

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

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

meeting the requirement for that type of coverage. For item

bution but you have to report the distribution on

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

Form 8889. However, the distribution of an excess

Medicare premiums for coverage of your spouse or a

contribution taken out after the due date, including

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

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

Deemed distributions from HSAs. The following situa-

distribution. Report the amount on Form 8889 and

tions result in deemed taxable distributions from your HSA.

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

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 2011. Your account ceases to be an HSA as

21. You may have to pay an additional 20% tax on

of January 1, 2011, and you must include the fair

your taxable distribution.

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

ary 1, 2011, 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 2011. You must include

tions from the HSA.

the fair market value of the assets used as security

Additional tax. There is an additional 20% tax on the part

for the loan as income on Form 1040 or Form

of your distributions not used for qualified medical ex-

1040NR, line 21.

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

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

Examples of prohibited transactions include the direct or

the total on Form 1040, line 60, or Form 1040NR, line 59,

indirect:

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

•

Sale, exchange, or leasing of property between you

that line.

and the HSA,

Exceptions. There is no additional tax on distributions

•

Lending of money between you and the HSA,

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

•

Furnishing goods, services, or facilities between you

Balance in an HSA

and the HSA, and

•

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

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

assets of the HSA.

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

only those amounts used exclusively to pay for qualified

Any deemed distribution will not be treated as used to

medical expenses are tax free. Amounts that remain at the

pay qualified medical expenses. These distributions are

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

included in your income and are subject to the additional

(see

Excess

contributions, earlier). Earnings on amounts

20% tax, discussed later.

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

HSA.

Recordkeeping. You must keep records suffi-

cient to show that:

Death of HSA Holder

RECORDS

You should choose a beneficiary when you set up your

•

The distributions were exclusively to pay or reim-

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

burse qualified medical expenses,

whom you designate as the beneficiary.

•

The qualified medical expenses had not been previ-

ously paid or reimbursed from another source, and

Spouse is the designated beneficiary. If your spouse is

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

•

The medical expenses had not been taken as an

your spouse’s HSA after your death.

itemized deduction in any year.

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

Spouse is not the designated beneficiary. If your

with your tax records.

spouse is not the designated beneficiary of your HSA:

Publication 969 (2011)

Page 9

Publication 969 - Health Savings Accounts And Other Tax-Favored Health Plans - 2011 Page 9

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