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Deductions

Archer Medical Savings Account

An Archer medical savings account (MSA) is a tax-exempt trust or custodial account in which you save money exclusively for future medical expenses. It must be established with a U.S. financial institution.

Contributions to your Archer MSA qualify for a deduction on your tax return, even if you do not itemize deductions.

Contributions and distributions are reported on Form 8853 and attached to your Form 1040.

Benefits

  • You can claim a tax deduction on your 1040, even if you do not itemize deductions.
  • Interest and other earnings on the assets in the account are tax-free.
  • Distributions are tax-free if used to pay qualified medical expenses.
  • Contributions remain in your account year after year until you use them.
  • Archer MSA accounts stay with you, even if you change employers or leave the work force.

Requirements

  • You must have a high deductible health plan (HDHP).
  • You must have no other health or Medicare coverage.
  • You must be either of the following:
    • A self-employed person, or the spouse of a self-employed person, who maintains an individual or family HDHP
    • Employed by a small employer who maintains an individual or family or HDHP  for you or your spouse

Limits on Contributions

  • Annual deductible limit:
    • You or your employer can contribute up to 65% (75% if family coverage) of the annual deductible of your HDHP.
  • Income limit:
    • You cannot contribute more than you earned for the entire year from the employer maintaining the HDHP.
    • If you are self-employed you cannot contribute more than your net self-employment income.

Limits of Deduction

The deduction is limited based on whether the coverage is for an individual or a family. The 2013 limits are:

Self-Only Coverage

  • Annual deductible must be at least $2,150 and no more than $3,200.
  • Out-of-pocket expenses can be no more than $4,300.

Family Coverage

  • Annual deductible must be at least $4,300 and no more than $6,450.
  • Out-of-pocket expenses can be no more than $7,850.

Qualified Medical Expenses

Qualified medical expenses are the same expenses that qualify for the Medical and Dental Deduction and are incurred by:

  • You or your spouse
  • All dependents whom you are claiming
  • Any person you could have claimed as a dependent except that:
    • The person filed a joint return.
    • The person had more than $3,900 in gross income.
    • You could be claimed by someone else.

You cannot deduct qualified medical expenses as an itemized deduction if the expenses are paid with a tax-free distribution from your Archer MSA.

For more information, see IRS Publication 969.