A Medical Savings Account (MSA), often referred to as an Archer MSA, is a way for self-employed persons and employees of small business to save money to pay for medical costs. If you don’t have an MSA now and you're an employee, you may not be able to get one, because most employers are now using Health Savings Accounts (HSA). See HSAs and Your Tax Return.
But if you were enrolled in an MSA before January 1, 2008, you can keep your account. The only other way to start an MSA is if you work for an employer after December 31, 2007 who offers both insurance through a High Deductible Health Plan (HDHP) and an Archer MSA.
Important: Keeping records for an MSA is just as important as it is for someone who has an HSA. Get receipts (clearly itemized, if possible) or other paperwork for any medical expense you use the MSA for. You don’t have to include receipts and other paperwork with your return, but it’s good to keep for your tax records.
Who’s Eligible for an MSA?
If you or your spouse work for a small business or are self-employed and maintain a HDHP, you may be eligible for an MSA. The IRS defines a small business as one that has had 50 or fewer employees during the previous two calendar years.
Any HDHP that involves an MSA must have a minimum deductible of $2,350 and a maximum of $3,500 for single coverage for tax year 2019. For family coverage, the minimum deductible is $4,650 and the maximum is $6,700.
(For 2020, the individual deductible minimum is $2,350, with a maximum of $3,550. For family coverage, the minimum deductible is $4,750 and the maximum is $7,100.)
Another eligibility requirement is that you or your spouse cannot have any other medical insurance, including Medicare. But you may have standalone dental and vision coverage, as well as disability and long-term care insurance.
Like an HSA, MSAs have tax benefits. The benefits include:
- Tax deductions for contributions you make
- Tax-free interest or other earnings
- Tax-free distributed money, if used for qualifying medical expenses
- Year-to-year rollovers for any contributions you make
- The MSA moves with you when you leave your employer or retire.
Like HSAs, MSAs have a limit on how much you can contribute each year without facing a penalty. However, MSAs are much more restrictive in how much and who can contribute. There’s an annual limit to contributions, as well as an income limit.
How much can I contribute to an MSA? The annual limit to contributions are 65% of your insurance deductible if you have single coverage, or 75% if you have family coverage. You must be enrolled by the first day of the month to be able to claim the deduction for any contribution made. If you’re not covered for a whole year, use our Form 8853 screen to calculate your contribution limit. You also can’t contribute more than your income from the employer that provides the coverage.
Who can contribute to an MSA? Either you or your employer can contribute to your MSA, but not both.
Filing Your Return with an MSA
You should receive Form 5498 showing how much you or your employer contributed to your MSA during the year. To report your MSA contributions and distributions on your 1040.com return, fill out our Form 8853 screen.