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What is IRS Form 1099-SA?

There are a number of tax incentives that can help individuals save money on healthcare related costs. Medical Saving Accounts (MSAs) and Health Savings Accounts (HSAs) can be used to save money on healthcare expenditures. When funds from those accounts are used, the distributions must be reported on a 1099-SA form. Not everyone can contribute to a MSA or HSA; you must have a high deductible health plan and cannot be a recipient of Medicare. You also cannot be claimed as a dependent on another person’s tax return. If a person meets these requirements and is also employed, his or her employer can make tax-free contributions to the MSA or HSA as well.

MSAs are the predecessors of HSAs and were discontinued on December 31, 2005. Both types of accounts are both very similar and are both tax deductible savings accounts that can be used for several health expenses without tax penalty. Both accounts require a high deductible health insurance plan, and they can also double as retirement accounts that can be drawn after the age of 65 without tax penalty. HSAs have a minimum deductible requirement of $1,150 for individuals and $2,300 for families. There is a maximum annual contribution limit for both HSAs and MSAs, and excess contribution can result in additional taxes and/or IRS fees.

If money is received from a HSA or MSA, it is not taxable as long as it is spent on “qualified” medical expenses. The IRS does not provide that many specific details on what medical expenses it considers to be “qualified”. The IRS says that an expense can be considered qualified if it can be reported as an itemized deduction on Schedule A. Medical treatment on any part of the body is considered to be a qualified medical expense. Generally, any money received should be used toward preventing, diagnosing, curing or otherwise treating a disease.

If an individual receives a 1099-SA that shows that the distribution was not used for qualified medical expenses, income tax will be paid on the amount. MSAs are subject to the same taxation rules as HSAs. Form 8889 is required to be completed when a distribution is taken from a HSA. Both taxable and non-taxable distributions are reported on this form. Taxable distributions are subject to a 20 percent additional tax. It is recommended to consult with a tax professional while completing Form 8889 as well as related tax preparation regarding Form 1099-SA.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

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