We had a client recently ask if distributions from an MSA are reported with the Form 1040. Below is some important information that we hope will help answer this question for anyone with this same question. As always, consult with your tax professional for how this affects your own personal tax situation.
Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder’s spouse, or the account holder’s dependent(s).
Filing Form 8853
You must file Form 8853 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your Archer MSA during the year. You must file the form even if only your employer or your spouse’s employer made contributions to the Archer MSA.
If, during the tax year, you are the beneficiary of two or more Archer MSAs or you are a beneficiary of an Archer MSA and you have your own Archer MSA, you must complete a separate Form 8853 for each MSA. Enter “statement” at the top of each Form 8853 and complete the form as instructed. Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. Attach the statements to your tax return after the controlling Form 8853.
How you report your distributions depends on whether or not you use the distribution for qualified medical expenses.
- If you use a distribution from your Archer MSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. Follow the instructions for the form and file it with your Form 1040 or Form 1040NR.
- If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. If you have a taxable Archer MSA distribution, include it in the total on Form 1040 or Form 1040NR, line 21, and enter “MSA” and the amount on the dotted line next to line 21. You may have to pay an additional 20% tax, discussed later, on your taxable distribution.