Merritt Personal Lines Manual: Contributions to an MSA
Contributions to an Archer MSA must be made in cash. You cannot contribute stock or other property to an Archer MSA.
Who can contribute to my Archer MSA? If you are an employee, your employer may make contributions to your Archer MSA. (You do not pay tax on these contributions.) If your employer does not make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. Both you and your employer cannot make contributions to your Archer MSA in the same year. You do not have to make contributions to your Archer MSA every year.
If your spouse is covered by your HDHP and an excludable amount is contributed by your spouse's employer to an Archer MSA belonging to your spouse, you cannot make contributions to your own Archer MSA that year.
Limits
There are two limits on the amount you or your employer can contribute to your Archer MSA.
- The annual deductible limit.
- An income limit.
Annual deductible limit. You (or your employer) can contribute up to 75% of the annual deductible of your HDHP (65% if you have a self-only plan) to your Archer MSA. You must have the HDHP all year to contribute the full amount. If you do not qualify to contribute the full amount for the year, determine your annual deductible limit by using the worksheet for line 5 in the Form 8853 instructions.
You have an HDHP for your family all year in 2006. The annual deductible is $4,000. You can contribute up to $3,000 ($4,000 -- 75%) to your Archer MSA for the year.
You have an HDHP for your family for the entire months of July through December, 2006 (6 months). The annual deductible is $4,000. You can contribute up to $1,500 ($4,000 -- 75% 12 -- 6) to your Archer MSA for the year.
If you and your spouse each have a family plan, you are treated as having family coverage with the lower annual deductible of the two health plans. The contribution limit is split equally between you unless you agree on a different division.
Income limit. You cannot contribute more than you earned for the year from the employer through whom you have your HDHP.
If you are self-employed, you cannot contribute more than your net self-employment income. This is your income from self-employment minus expenses (including the one-half of self-employment tax deduction).
Example 1.
Bob Smith earned $25,000 from ABC Company in 2006. Through ABC, he had an HDHP for his family for the entire year. The annual deductible was $4,000. He can contribute up to $3,000 to his Archer MSA (75% -- $4,000). He can contribute the full amount because he earned more than $3,000 at ABC.
Example 2.
Joe Craft is self-employed. He had an HDHP for his family for the entire year in 2006. The annual deductible was $4,000. Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,000 (75% -- $4,000). However, after deducting his business expenses, Joe's net self-employment income is $1,950 for the year. Therefore, he is limited to a contribution of $1,950.
Individuals enrolled in Medicare. Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. However, you may be eligible for a Medicare Advantage MSA, discussed later.
When To Contribute
You can make contributions to your Archer MSA for 2006 until April 17, 2007.
Reporting Contributions on Your Return
Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040. You should include all contributions you, or your employer, made for 2006, including those made by April 17, 2007, that are designated for 2006.
You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount you (or your employer) contributed during the year. Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. Follow the instructions for Form 8853 and complete the worksheet for line 5. Report your Archer MSA deduction on Form 1040, line 23.
Excess contributions. You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. Excess contributions are not deductible. Excess contributions made by your employer are included in your gross income. If the excess contribution is not included in box 1 of Form W-2, you must report the excess as "Other income" on your tax return.
Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the account.
You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions.
- You withdraw the excess contributions by the due date, including extensions, of your tax return.
- You withdraw any income earned on the withdrawn contributions and include the earnings in "Other income" on your tax return for the year you withdraw the contributions and earnings.
