Department of the Treasury

Internal Revenue Service

Publication 969

Cat. No. 24216S

Health Savings Accounts and Other Tax-Favored Health Plans

For use in preparing

2021 Returns

Contents

What’s New. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Health Savings Accounts (HSAs) . . . . . . . . . . . . . . 3

Medical Savings Accounts (MSAs). . . . . . . . . . . 11

Archer MSAs . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Medicare Advantage MSAs . . . . . . . . . . . . . . . . 15

Flexible Spending Arrangements (FSAs) . . . . . . . 16

Health Reimbursement Arrangements

(HRAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . . 19

Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Future Developments

For the latest information about developments related to Pub. 969, such as legislation enacted after it was published, go to IRS.gov/Pub969.

Get forms and other information faster and easier at:
• *IRS.gov* (English)	• *IRS.gov/Korean* (한국어)

IRS.gov/Russian (Pусский)

IRS.gov/Chinese (中文)• IRS.gov/Vietnamese (Tiếng Việt)^•^{IRS.gov/Spanish}^(Español)

Jan 06, 2022

What’s New

Costs for home testing and personal protective equipment (PPE) for COVID-19. The cost of home test-ing for COVID-19 and PPE is an eligible medical expense that can be paid or reimbursed under health flexible spending arrangements (health FSAs), health savings ac-counts (HSAs), health reimbursement arrangements (HRAs), or Archer medical savings accounts (Archer MSAs). That is because the cost to diagnose and prevent COVID-19 is an eligible medical expense for tax purpo-ses. See IR- 2021-181, available at IRS.gov/newsroom/ irs-cost-of-home-testing-for-covid-19-is-eligible-medical-expense-reimbursable-under-fsas-hsas, for additional in-formation.

Health Flexible Spending Arrangements (FSAs) limi-tation. Salary reduction contributions to your health FSA for 2021 are limited to $2,750 a year. This amount is listed in Revenue Procedure 2020-45, section 3.17, available at IRS.gov/pub/irs-drop/rp-20-45.

Reminders

The Consolidated Appropriations Act (P. L. 116-260, December 27, 2020) provides for the following optional plan amendments. See Notice 2021-15, available at IRS.gov/pub/irs-drop/n-21-15.pdf.

A health FSA may allow participants to carry over unused benefits from a plan year ending in 2020 to a

plan year ending in 2021 and from a plan year ending in 2021 to a plan year ending in 2022.

A health FSA may extend the grace period for using unused benefits for a plan year ending in 2020 or 2021 to 12 months after the end of the plan year.

A health FSA may allow an individual who ceases participation in a health FSA during calendar year 2020 or 2021 to continue to receive reimbursements from unused benefits through the end of the plan year in which participation ceased and through any grace period.

For plan years ending in 2021, a health FSA may allow an employee to make an election to modify prospectively the amount (but not in excess of any applicable dollar limitation) of the employee's contributions to the health FSA (without regard to any change in status).

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P. L. 116-136, March 27, 2020) made the following changes.

HSA.

Telehealth and other remote care coverage with plan years beginning before 2022 is disregarded for deter-mining who is an eligible individual.

A high deductible health plan (HDHP) year beginning before 2022 may have a $0 deductible for telehealth and other remote care services.

Over-the-counter medicine (whether or not prescri-bed) and menstrual care products are treated as med-ical care for amounts paid after 2019.

Archer MSA.

Over-the-counter medicine (whether or not prescri-bed) and menstrual care products are treated as med-ical care for amounts paid after 2019.

Health FSA.

Over-the-counter medicine (whether or not prescri-bed) and menstrual care products are treated as med-ical care for amounts incurred after 2019.

HRA.

Over-the-counter medicine (whether or not prescri-bed) and menstrual care products are treated as med-ical care for amounts incurred after 2019.

The IRS will provide any further updates as soon as they are available at IRS.gov/Coronavirus.

See also Notice 2020-29, 2020-22 I.R.B. 864, and Notice 2020-33, 2020-22 I.R.B. 868, available at

IRS.gov/pub/irs-irbs/irb20-22.pdf, for additional information.

Affordable Care Act guidance. Notice 2013-54, 2013-40 I.R.B. 287, available at IRS.gov/irb/2013-40_IRB/ ar11.html, provides guidance for employers on the appli-cation of the Affordable Care Act (ACA) to FSAs and Health Reimbursement Arrangements (HRAs).

For more information on the ACA, go to IRS.gov/ Affordable-Care-Act.

Page 2

Photographs of missing children. The Internal Reve-nue Service is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the

photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction

Various programs are designed to give individuals tax ad-vantages to offset health care costs. This publication ex-plains the following programs.

Health Savings Accounts (HSAs).

Medical Savings Accounts (Archer MSAs and Medi-care Advantage MSAs).

Health Flexible Spending Arrangements (FSAs).

Health Reimbursement Arrangements (HRAs).

An HSA may receive contributions from an eligible indi-vidual or any other person, including an employer or a family member, on behalf of an eligible individual. Contri-butions, other than employer contributions, are deductible on the eligible individual’s return whether or not the indi-vidual itemizes deductions. Employer contributions aren’t included in income. Distributions from an HSA that are used to pay qualified medical expenses aren’t taxed.

An Archer MSA may receive contributions from an eligi-ble individual and his or her employer, but not both in the same year. Contributions by the individual are deductible whether or not the individual itemizes deductions. Em-ployer contributions aren’t included in income. Distribu-tions from an Archer MSA that are used to pay qualified medical expenses aren’t taxed.

A Medicare Advantage MSA is an Archer MSA desig-nated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is enrolled in Medicare. Contributions can be made only by Medicare. The contributions aren’t included in your income. Distribu-tions from a Medicare Advantage MSA that are used to pay qualified medical expenses aren’t taxed.

A health FSA may receive contributions from an eligible individual. Employers may also contribute. Contributions aren’t includible in income. Reimbursements from an FSA that are used to pay qualified medical expenses aren’t taxed.

An HRA must receive contributions from the employer only. Employees may not contribute. Contributions aren’t includible in income. Reimbursements from an HRA that are used to pay qualified medical expenses aren’t taxed.

Comments and suggestions. We welcome your com-ments about this publication and suggestions for future editions.

You can send us comments through IRS.gov/ FormComments. Or, you can write to the Internal Reve-nue Service, Tax Forms and Publications, 1111 Constitu-tion Ave. NW, IR-6526, Washington, DC 20224.

Publication 969 (2021)

Although we can’t respond individually to each com-ment received, we do appreciate your feedback and will consider your comments and suggestions as we revise our tax forms, instructions, and publications. Don’t send tax questions, tax returns, or payments to the above ad-dress.

Getting answers to your tax questions. If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS Interactive Tax Assistant page at IRS.gov/ Help/ITA where you can find topics by using the search feature or viewing the categories listed.

Getting tax forms, instructions, and publications. Go to IRS.gov/Forms to download current and prior-year forms, instructions, and publications.

Ordering tax forms, instructions, and publications. Go to IRS.gov/OrderForms to order current forms, instruc-tions, and publications; call 800-829-3676 to order prior-year forms and instructions. The IRS will process your order for forms and publications as soon as possible. Don’t resubmit requests you’ve already sent us. You can get forms and publications faster online.

Health Savings Accounts (HSAs)

A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA.

No permission or authorization from the IRS is neces-sary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insur-ance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.

Your employer may already have some information on HSA trustees in your area.

If you have an Archer MSA, you can generally roll TIP it over into an HSA tax free. See Rollovers, later.

What are the benefits of an HSA? You may enjoy sev-eral benefits from having an HSA.

You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).

Contributions to your HSA made by your employer (in-cluding contributions made through a cafeteria plan) may be excluded from your gross income.

The contributions remain in your account until you use them.

Publication 969 (2021)

The interest or other earnings on the assets in the ac-count are tax free.

Distributions may be tax free if you pay qualified medi-cal expenses. See Qualified medical expenses, later.

An HSA is “portable.” It stays with you if you change employers or leave the work force.

Qualifying for an HSA Contribution

To be an eligible individual and qualify for an HSA contri-bution, you must meet the following requirements.

You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.

You have no other health coverage except what is permitted under Other health coverage, later.

You aren’t enrolled in Medicare.

You can’t be claimed as a dependent on someone else’s 2021 tax return.

Under the last-month rule, you are considered to TIP be an eligible individual for the entire year if you are an eligible individual on the first day of the last

month of your tax year (December 1 for most taxpayers).

If you meet these requirements, you are an eligible indi-vidual even if your spouse has non-HDHP family cover-age, provided your spouse’s coverage doesn’t cover you.

Also, you may be an eligible individual even if you re-ceive hospital care or medical services under any law ad-ministered by the Secretary of Veterans Affairs for a serv-ice-connected disability.

If another taxpayer is entitled to claim you as a ! dependent, you can’t claim a deduction for an CAUTION HSA contribution. This is true even if the other person doesn’t receive an exemption deduction for you because the exemption amount is zero for tax years 2018

through 2025.

Each spouse who is an eligible individual who TIP wants an HSA must open a separate HSA. You

can’t have a joint HSA.

High deductible health plan (HDHP). An HDHP has:

A higher annual deductible than typical health plans, and

A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Out-of-pocket expenses include copayments and other amounts, but don’t in-clude premiums.

An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. Preventive care includes, but isn’t limi-ted to, the following.

Page 3

1. Periodic health evaluations, including tests and diag-nostic procedures ordered in connection with routine examinations, such as annual physicals.

2. Routine prenatal and well-child care.

3. Child and adult immunizations.

4. Tobacco cessation programs.

5. Obesity weight-loss programs.

6. Screening services. This includes screening services for the following.

a. Cancer.

b. Heart and vascular diseases.

c. Infectious diseases.

d. Mental health conditions.

e. Substance abuse.

f. Metabolic, nutritional, and endocrine conditions.

g. Musculoskeletal disorders.

h. Obstetric and gynecological conditions.

i. Pediatric conditions.

j. Vision and hearing disorders.

For more information on screening services, see Notice 2004-23, 2004-15 I.R.B. 725, available at IRS.gov/irb/2004-15_IRB#NOT-2004-23 .

For additional guidance on preventive care, see Notice 2004-50, 2004-2 C.B. 196, Q&A 26 and 27, available at IRS.gov/irb/2004-33_IRB#NOT-2004-50; and Notice 2013-57, 2013-40 I.R.B. 293, available at IRS.gov/pub/irs-drop/n-13-57.pdf. Preventive care can also include coverage for treatment of individuals with certain chronic conditions listed in the Appendix of Notice 2019-45, 2019-32 I.R.B. 593, if such serv-ices were received or items were incurred on or after July 17, 2019. For information on preventive care for chronic conditions, see Notice 2019-45, 2019 -32 I.R.B. 593, available at IRS.gov/pub/irs-drop/ n-19-45.pdf.

The following table shows the minimum annual deducti-ble and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2021.

	Self-only coverage	Family coverage
Minimum annual	$1,400	$2,800
deductible
Maximum annual
deductible and
other out-of-pocket	$7,000	$14,000
expenses*

This limit doesn’t apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.

Page 4

The following table shows the minimum annual TIP deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for

2022.

	Self-only coverage	Family coverage
Minimum annual	$1,400	$2,800
deductible
Maximum annual
deductible and
other out-of-pocket	$7,050	$14,100
expenses*

This limit doesn’t apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.

Self-only HDHP coverage is HDHP coverage for only an eligible individual. Family HDHP coverage is HDHP coverage for an eligible individual and at least one other individual (whether or not that individual is an eligible indi-vidual).

Example. An eligible individual and his dependent child are covered under an “employee plus one” HDHP of-fered by the individual’s employer. This is family HDHP coverage.

Family plans that don’t meet the high deductible rules. There are some family plans that have deductibles for both the family as a whole and for individual family members. Under these plans, if you meet the individual deductible for one family member, you don’t have to meet the higher annual deductible amount for the family. If ei-ther the deductible for the family as a whole or the deduc-tible for an individual family member is less than the mini-mum annual deductible for family coverage, the plan doesn’t qualify as an HDHP.

Example. You have family health insurance coverage in 2021. The annual deductible for the family plan is $3,500. This plan also has an individual deductible of $1,500 for each family member. The plan doesn’t qualify as an HDHP because the deductible for an individual fam-ily member is less than the minimum annual deductible ($2,800) for family coverage.

Other health coverage. If you (and your spouse, if you have family coverage) have HDHP coverage, you can’t generally have any other health coverage. However, you can still be an eligible individual even if your spouse has non-HDHP coverage, provided you aren’t covered by that plan.

You can have additional insurance that provides bene-fits only for the following items.

Liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.

A specific disease or illness.

A fixed amount per day (or other period) of hospitali-zation.

Publication 969 (2021)

You can also have coverage (whether provided through insurance or otherwise) for the following items.

Accidents.

Disability.

Dental care.

Vision care.

Long-term care.

Telehealth and other remote care (for plan years be-ginning before 2022).

Plans in which substantially all of the coverage is ! through the items listed earlier aren’t HDHPs. For CAUTION example, if your plan provides coverage substan-tially all of which is for a specific disease or illness, the

plan isn’t an HDHP for purposes of establishing an HSA.

Prescription drug plans. You can have a prescrip-tion drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan doesn’t provide benefits until the minimum annual deductible of the HDHP has been met. If you can receive benefits before that deductible is met, you aren’t an eligi-ble individual.

Other employee health plans. An employee cov-ered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses can’t generally make contributions to an HSA. FSAs and HRAs are dis-cussed later.

However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements.

Limited-purpose health FSA or HRA. These arrange-ments can pay or reimburse the items listed earlier un-der Other health coverage except long-term care. Also, these arrangements can pay or reimburse pre-ventive care expenses because they can be paid with-out having to satisfy the deductible.

Suspended HRA. Before the beginning of an HRA coverage period, you can elect to suspend the HRA. The HRA doesn’t pay or reimburse, at any time, the medical expenses incurred during the suspension pe-riod except preventive care and items listed under Other health coverage, earlier. When the suspension period ends, you are no longer eligible to make contri-butions to an HSA.

Post-deductible health FSA or HRA. These arrange-ments don’t pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. The deductible for these arrangements doesn’t have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met.

Retirement HRA. This arrangement pays or reimbur-ses only those medical expenses incurred after retire-ment. After retirement, you are no longer eligible to make contributions to an HSA.

Publication 969 (2021)

Health FSA—grace period. Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero. See Flexible Spending Arrangements (FSAs), later.

Contributions to an HSA

Any eligible individual can contribute to an HSA. For an employee’s HSA, the employee, the employee’s em-ployer, or both may contribute to the employee’s HSA in the same year. For an HSA established by a self -em-ployed (or unemployed) individual, the individual can con-tribute. Family members or any other person may also make contributions on behalf of an eligible individual.

Contributions to an HSA must be made in cash. Contri-butions of stock or property aren’t allowed.

Limit on Contributions

The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individ-ual, and the date you cease to be an eligible individual. For 2021, if you have self-only HDHP coverage, you can contribute up to $3,600. If you have family HDHP cover-age, you can contribute up to $7,200.

For 2022, if you have self-only HDHP coverage, TIP you can contribute up to $3,650. If you have fam-_$7,300.ily HDHP coverage, you can contribute up to

If you are, or were considered (under the last-month rule, discussed later), an eligible individual for the entire year and didn’t change your type of coverage, you can contribute the full amount based on your type of coverage. However, if you weren’t an eligible individual for the entire year or changed your coverage during the year, your con-tribution limit is the greater of:

1. The limitation shown on the Line 3 Limitation Chart and Worksheet in the Instructions for Form 8889, Health Savings Accounts (HSAs); or

2. The maximum annual HSA contribution based on your HDHP coverage (self-only or family) on the first day of the last month of your tax year.

If you had family HDHP coverage on the first day TIP of the last month of your tax year, your contribu-tion limit for 2021 is $7,200 even if you changed

coverage during the year.

Last-month rule. Under the last -month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are consid-ered an eligible individual for the entire year. You are trea-ted as having the same HDHP coverage for the entire year as you had on the first day of the last month if you didn’t otherwise have coverage.

Page 5

Testing period. If contributions were made to your HSA based on you being an eligible individual for the en-tire year under the last-month rule, you must remain an eli-gible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2021, through December 31, 2022).

If you fail to remain an eligible individual during the test-ing period, for reasons other than death or becoming disa-bled, you will have to include in income the total contribu-tions made to your HSA that wouldn’t have been made except for the last-month rule. You include this amount in your income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The income and additional tax are calculated on Form 8889, Part III.

Example 1. Chris, age 53, becomes an eligible indi-vidual on December 1, 2021. He has family HDHP cover-age on that date. Under the last-month rule, he contrib-utes $7,200 to his HSA.

Chris fails to be an eligible individual in June 2022. Be-cause Chris didn’t remain an eligible individual during the testing period (December 1, 2021, through December 31, 2022), he must include in his 2022 income the contribu-tions made in 2021 that wouldn’t have been made except for the last -month rule. Chris uses the worksheet in the Form 8889 instructions to determine this amount.

January . . . . . . . . . . . . . . . .	-0-
February . . . . . . . . . . . . . . . .	-0-
March . . . . . . . . . . . . . . . . . .	-0-
April . . . . . . . . . . . . . . . . . . .	-0-
May . . . . . . . . . . . . . . . . . . .	-0-
June . . . . . . . . . . . . . . . . . .	-0-
July . . . . . . . . . . . . . . . . . . .	-0-
August . . . . . . . . . . . . . . . . .	-0-
September . . . . . . . . . . . . . .	-0-
October . . . . . . . . . . . . . . . .	-0-
November . . . . . . . . . . . . . . .	-0-
December . . . . . . . . . . . . . . .	$7,200.00
Total for all months . . . . . . . .	$7,200.00
Limitation. Divide the total by 12	$600.00

Chris would include $6,600.00 ($7,200.00 – $600.00) in his gross income on his 2022 tax return. Also, a 10% addi-tional tax applies to this amount.

Example 2. Erika, age 39, has self-only HDHP cover-age on January 1, 2021. Erika changes to family HDHP coverage on November 1, 2021. Because Erika has family HDHP coverage on December 1, 2021, she contributes $7,200 for 2021.

Erika fails to be an eligible individual in March 2022. Because she didn’t remain an eligible individual during the testing period (December 1, 2021, through December 31, 2022), she must include in income the contribution made that wouldn’t have been made except for the last-month rule. Erika uses the worksheet in the Form 8889 instruc-tions to determine this amount.

Page 6

January . . . . . . . . . . . . . . . .	$3,600.00
February . . . . . . . . . . . . . . . .	$3,600.00
March . . . . . . . . . . . . . . . . . .	$3,600.00
April . . . . . . . . . . . . . . . . . . .	$3,600.00
May . . . . . . . . . . . . . . . . . . .	$3,600.00
June . . . . . . . . . . . . . . . . . .	$3,600.00
July . . . . . . . . . . . . . . . . . . .	$3,600.00
August . . . . . . . . . . . . . . . . .	$3,600.00
September . . . . . . . . . . . . . .	$3,600.00
October . . . . . . . . . . . . . . . .	$3,600.00
November . . . . . . . . . . . . . . .	$7,200.00
December . . . . . . . . . . . . . . .	$7,200.00
Total for all months . . . . . . . .	$50,400.00
Limitation. Divide the total by 12	$4,200.00

Erika would include $3,000.00 ($7,200.00 – $4,200.00) in her gross income on her 2022 tax return. Also, a 10% ad-ditional tax applies to this amount.

Additional contribution. If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. For example, if you have self-only coverage, you can contribute up to $4,600 (the contribution limit for self-only coverage ($3,600) plus the additional contribution of $1,000). How-ever, see Enrolled in Medicare, later.

If you have more than one HSA in 2021, your total ! contributions to all the HSAs can’t be more than

CAUTIONthe limits discussed earlier.

Reduction of contribution limit. You must reduce the amount that can be contributed (including any additional contribution) to your HSA by the amount of any contribu-tion made to your Archer MSA (including employer contri-butions) for the year. A special rule applies to married people, discussed next, if each spouse has family cover-age under an HDHP.

*Rules for married people.* If either spouse has fam-
ily HDHP coverage, both spouses are treated as having
family HDHP coverage. If each spouse has family cover-
age under a separate plan, the contribution limit for 2021
is $7,200. You must reduce the limit on contributions, be-
fore taking into account any additional contributions, by
the amount contributed to both spouses’ Archer MSAs.
After that reduction, the contribution limit is split equally
between the spouses unless you agree on a different divi-
sion.	The rules for married people apply only if both
!
	spouses are eligible individuals.

CAUTION

If both spouses are 55 or older and not enrolled in Med-icare, each spouse’s contribution limit is increased by the additional contribution. If both spouses meet the age re-quirement, the total contributions under family coverage can’t be more than $9,200. Each spouse must make the additional contribution to his or her own HSA.

Example. For 2021, spouses Ginger and Lucy are both eligible individuals. They each have family coverage

Publication 969 (2021)

under separate HDHPs. Ginger is 58 years old and Lucy is 53. Ginger and Lucy can split the family contribution limit ($7,200) equally or they can agree on a different divi-sion. If they split it equally, Ginger can contribute $4,600 to an HSA (one-half the maximum contribution for family coverage ($3,600) + $1,000 additional contribution) and Lucy can contribute $3,600 to an HSA.

Employer contributions. You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. This in-cludes amounts contributed to your account by your em-ployer through a cafeteria plan.

Enrolled in Medicare. Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. This rule applies to periods of retroactive Medicare coverage. So, if you delayed applying for Medicare and later your enrollment is backdated, any contributions to your HSA made during the period of retroactive coverage are considered excess. See Excess contributions, later.

Example. You turned age 65 in July 2021 and enrol-led in Medicare. You had an HDHP with self-only cover-age and are eligible for an additional contribution of $1,000. Your contribution limit is $2,300 ($4,600 × 6 ÷ 12).

Qualified HSA funding distribution. A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. This distribution can’t be made from an ongoing SEP IRA or SIMPLE IRA. For this pur-pose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within the tax year in which the distribution would be made.

The maximum qualified HSA funding distribution de-pends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. The distribution isn’t inclu-ded in your income, isn’t deductible, and reduces the amount that can be contributed to your HSA. The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made.

You can generally make only one qualified HSA fund-ing distribution during your lifetime. However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. The total qualified HSA funding distribution can’t be more than the contribution limit for family HDHP coverage plus any additional contri-bution to which you are entitled.

Example. In 2021, you are an eligible individual, age 57, with self-only HDHP coverage. You can make a quali-fied HSA funding distribution of $4,600 ($3,600 plus $1,000 additional contribution).

Funding distribution—testing period. You must re-main an eligible individual during the testing period. For a qualified HSA funding distribution, the testing period

Publication 969 (2021)

begins with the month in which the qualified HSA funding distribution is contributed and ends on the last day of the 12th month following that month. For example, if a quali-fied HSA funding distribution is contributed to your HSA on August 10, 2021, your testing period begins in August 2021, and ends on August 31, 2022.

If you fail to remain an eligible individual during the test-ing period, for reasons other than death or becoming disa-bled, you will have to include in income the qualified HSA funding distribution. You include this amount in income in the year in which you fail to be an eligible individual. This amount is also subject to a 10% additional tax. The in-come and the additional tax are calculated on Form 8889, Part III.

Each qualified HSA funding distribution allowed has its own testing period. For example, you are an eligible indi-vidual, age 45, with self-only HDHP coverage. On June 18, 2021, you make a qualified HSA funding distribution. On July 27, 2021, you enroll in family HDHP coverage and on August 17, 2021, you make a qualified HSA funding distribution. Your testing period for the first distribution be-gins in June 2021 and ends on June 30, 2022. Your test-ing period for the second distribution begins in August 2021 and ends on August 31, 2022.

The testing period rule that applies under the last-month rule (discussed earlier) doesn’t apply to amounts contributed to an HSA through a qualified HSA funding distribution. If you remain an eligible individual during the entire funding distribution testing period, then no amount of that distribution is included in income and won’t be subject to the additional tax for failing to meet the last-month rule testing period.

Rollovers

A rollover contribution isn’t included in your income, isn’t deductible, and doesn’t reduce your contribution limit.

Archer MSAs and other HSAs. You can roll over amounts from Archer MSAs and other HSAs into an HSA. You don’t have to be an eligible individual to make a roll-over contribution from your existing HSA to a new HSA. Rollover contributions don’t need to be in cash. Rollovers aren’t subject to the annual contribution limits.

You must roll over the amount within 60 days after the date of receipt. You can make only one rollover contribu-tion to an HSA during a 1-year period.

Note. If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer isn’t considered a rollover. There is no limit on the number of these transfers. Don’t include the amount trans-ferred in income, deduct it as a contribution, or include it as a distribution on Form 8889.

When To Contribute

You can make contributions to your HSA for 2021 until April 15, 2022. If you fail to be an eligible individual during 2021, you can still make contributions until April 15, 2022, for the months you were an eligible individual.

Page 7

Your employer can make contributions to your HSA from January 1, 2022, through April 15, 2022, that are al-located to 2021. Your employer must notify you and the trustee of your HSA that the contribution is for 2021. The contribution will be reported on your 2022 Form W-2, Wage and Tax Statement.

Reporting Contributions on Your Return

Contributions made by your employer aren’t included in your income. Contributions to an employee’s account by an employer using the amount of an employee’s salary re-duction through a cafeteria plan are treated as employer contributions. Generally, you can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income.

Contributions by a partnership to a bona fide partner’s HSA aren’t contributions by an employer. The contribu-tions are treated as a distribution of money and aren’t in-cluded in the partner’s gross income. Contributions by a partnership to a partner’s HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner’s gross in-come. In both situations, the partner can deduct the con-tribution made to the partner’s HSA.

Contributions by an S corporation to a 2% share-holder-employee’s HSA for services rendered are treated as guaranteed payments and are deductible by the S cor-poration and includible in the shareholder-employee’s gross income. The shareholder-employee can deduct the contribution made to the shareholder-employee’s HSA.

Form 8889. Report all contributions to your HSA on Form 8889 and file it with your Form 1040, 1040-SR, or 1040-NR. You should include all contributions made for 2021, including those made from January 1, 2021, through April 15, 2022, that are designated for 2021. Con-tributions made by your employer and qualified HSA fund-ing distributions are also shown on the form.

You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. Your employer’s contributions will also be shown on Form W-2, box 12, code W. Follow the Instructions for Form 8889. Report your HSA deduction on Form 1040, 1040-SR, or 1040-NR.

Excess contributions. You will have excess contribu-tions if the contributions to your HSA for the year are greater than the limits discussed earlier. Excess contribu-tions aren’t deductible. Excess contributions made by your employer are included in your gross income. If the excess contribution isn’t 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 Quali-fied Plans (Including IRAs) and Other Tax-Favored Ac-counts, to figure the excise tax. The excise tax applies to

Page 8

each tax year the excess contribution remains in the ac-count.

You may withdraw some or all of the excess contribu-tions and avoid paying the excise tax on the amount with-drawn if you meet the following conditions.

You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.

You withdraw any income earned on the withdrawn contributions and include the earnings in “Other in-come” on your tax return for the year you withdraw the contributions and earnings.

If you fail to remain an eligible individual during ! any of the testing periods, discussed earlier, the CAUTION amount you have to include in income isn’t an ex-cess contribution. If you withdraw any of those amounts, the amount is treated the same as any other distribution

from an HSA, discussed later.

Deducting an excess contribution in a later year. You may be able to deduct excess contributions for previ-ous years that are still in your HSA. The excess contribu-tion you can deduct for the current year is the lesser of the following two amounts.

Your maximum HSA contribution limit for the year mi-nus any amounts contributed to your HSA for the year.

The total excess contributions in your HSA at the be-ginning of the year.

Amounts contributed for the year include contributions by you, your employer, and any other person. They also include any qualified HSA funding distribution made to your HSA. Any excess contribution remaining at the end of a tax year is subject to the excise tax. See Form 5329.

Distributions From an HSA

You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. When you pay medical expenses during the year that aren’t reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA.

You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distribu-tions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. You don’t have to make withdrawals from your HSA each year.

If you are no longer an eligible individual, you can TIP still receive tax-free distributions to pay or reim-

burse your qualified medical expenses.

Generally, a distribution is money you get from your HSA. Your total distributions include amounts paid with a debit card and amounts withdrawn from the HSA by other individuals that you have designated. The trustee will report any distribution to you and the IRS on Form

Publication 969 (2021)

1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA.

Qualified medical expenses. Qualified medical expen-ses are those expenses that would generally qualify for the medical and dental expenses deduction. These are explained in Pub. 502, Medical and Dental Expenses.

Amounts paid after 2019 for over-the-counter medicine (whether or not prescribed) and menstrual care products are considered medical care and are considered a cov-ered expense.

For HSA purposes, expenses incurred before you es-tablish your HSA aren’t qualified medical expenses. State law determines when an HSA is established. An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established.

If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical ex-penses.

Qualified medical expenses are those incurred by the following persons.

1. You and your spouse.

2. All dependents you claim on your tax return.

3. Any person you could have claimed as a dependent on your return except that:

a. The person filed a joint return;

b. The person had gross income of $4,300 or more; or

c. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2021 return.

For this purpose, a child of parents that are di-TIP vorced, separated, or living apart for the last 6 months of the calendar year is treated as the de-pendent of both parents whether or not the custodial pa-

rent releases the claim to the child’s exemption.

You can’t deduct qualified medical expenses as ! an itemized deduction on Schedule A (Form CAUTION 1040) that are equal to the tax-free distribution

from your HSA.

Insurance premiums. You can’t treat insurance pre-miums as qualified medical expenses unless the premi-ums are for any of the following.

1. Long-term care insurance.

2. Health care continuation coverage (such as coverage under COBRA).

3. Health care coverage while receiving unemployment compensation under federal or state law.

4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare sup-plemental policy, such as Medigap).

Publication 969 (2021)

The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are sub-ject to limits based on age and are adjusted annually. See Limit on long-term care premiums you can deduct in the Instructions for Schedule A (Form 1040).

Items (2) and (3) can be for your spouse or a depend-ent meeting the requirement for that type of coverage. For item (4), if you, the account beneficiary, aren’t 65 or older, Medicare premiums for coverage of your spouse or a de-pendent (who is 65 or older) aren’t generally qualified medical expenses.

Health coverage tax credit. You can’t claim this credit for premiums that you pay with a tax-free distribu-tion from your HSA. See Pub. 502 for more information on this credit.

Deemed distributions from HSAs. The following situa-tions result in deemed taxable distributions from your HSA.

You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs at any time in 2021. Your account ceases to be an HSA as of Janu-ary 1, 2021, and you must include the fair market value of all assets in the account as of January 1, 2021, on Form 8889.

You used any portion of any of your HSAs as security for a loan at any time in 2021. You must include the fair market value of the assets used as security for the loan as income on Form 1040, 1040-SR, or 1040-NR.

Examples of prohibited transactions include the direct or indirect:

Sale, exchange, or leasing of property between you and the HSA;

Lending of money between you and the HSA;

Furnishing goods, services, or facilities between you and the HSA; and

Transfer to or use by you, or for your benefit, of any assets of the HSA.

Any deemed distributions won’t be treated as used to pay qualified medical expenses. These distributions are included in your income and are subject to the additional 20% tax, discussed later.

Recordkeeping. You must keep records suffi-cient to show that:

RECORDS

The distributions were exclusively to pay or reimburse qualified medical expenses,

The qualified medical expenses hadn’t been previ-ously paid or reimbursed from another source, and

The medical expenses hadn’t been taken as an item-ized deduction in any year.

Don’t send these records with your tax return. Keep them with your tax records.

Page 9

Reporting Distributions on Your Return

How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier).

If you use a distribution from your HSA for qualified medical expenses, you don’t pay tax on the distribu-tion but you have to report the distribution on Form 8889. However, the distribution of an excess contribu-tion taken out after the due date, including extensions, of your return is subject to tax even if used for quali-fied medical expenses. Follow the instructions for the form and file it with your Form 1040, 1040-SR, or 1040 -NR.

If you don’t use a distribution from your HSA for quali-fied medical expenses, you must pay tax on the distri-bution. Report the amount on Form 8889 and file it with your Form 1040, 1040-SR, or 1040-NR. You may have to pay an additional 20% tax on your taxable dis-tribution.

HSA administration and maintenance fees with-TIP drawn by the trustee aren’t reported as distribu-

tions from the HSA.

Additional tax. There is an additional 20% tax on the part of your distributions not used for qualified medical ex-penses. Figure the tax on Form 8889 and file it with your Form 1040, 1040-SR, or 1040-NR.

Exceptions. There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.

Balance in an HSA

An HSA is generally exempt from tax. You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions, earlier). Earnings on amounts in an HSA aren’t included in your income while held in the HSA.

Death of HSA Holder

You should choose a beneficiary when you set up your HSA. What happens to that HSA when you die depends on whom you designate as the beneficiary.

Spouse is the designated beneficiary. If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse’s HSA after your death.

Spouse isn’t the designated beneficiary. If your spouse isn’t the designated beneficiary of your HSA:

The account stops being an HSA, and

The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die.

Page 10

If your estate is the beneficiary, the value is included on your final income tax return. The amount taxable to a ben-eficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death.

Filing Form 8889

You must file Form 8889 with your Form 1040, 1040-SR, or 1040-NR if you (or your spouse, if married filing jointly) had any activity in your HSA during the year. You must file the form even if only your employer or your spouse’s em-ployer made contributions to the HSA.

If, during the tax year, you are the beneficiary of two or more HSAs or you are a beneficiary of an HSA and you have your own HSA, you must complete a separate Form 8889 for each HSA. Enter “statement” at the top of each Form 8889 and complete the form as instructed. Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. Attach the statements to your tax return after the controlling Form 8889.

Employer Participation

This section contains the rules that employers must follow if they decide to make HSAs available to their employees. Unlike the previous discussions, “you” refers to the em-ployer and not to the employee.

Health plan. If you want your employees to be able to have HSAs, they must have an HDHP. You can provide no additional coverage other than those exceptions listed earlier under Other health coverage.

Contributions. You can make contributions to your em-ployees’ HSAs. You deduct the contributions on your business income tax return for the year in which you make the contributions. If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution.

For more information on employer contributions, see Notice 2008-59, 2008-29 I.R.B. 123, questions 23 through 27, available at IRS.gov/irb/2008-29_IRB/ar11.html.

Comparable contributions. If you decide to make con-tributions, you must make comparable contributions to all comparable participating employees’ HSAs. Your contri-butions are comparable if they are either:

The same amount, or

The same percentage of the annual deductible limit under the HDHP covering the employees.

The comparability rules don’t apply to contributions made through a cafeteria plan.

Comparable participating employees. Comparable participating employees:

Are covered by your HDHP and are eligible to estab-lish an HSA,

Publication 969 (2021)

Have the same category of coverage (either self-only or family coverage), and

Have the same category of employment (part-time, full-time, or former employees).

To meet the comparability requirements for eligible em-ployees who have neither established an HSA by Decem-ber 31 nor notified you that they have an HSA, you must meet a notice requirement and a contribution requirement.

You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. The notice must state that each eligi-ble employee who, by the last day of February, estab-lishes an HSA and notifies you that he or she has estab-lished an HSA will receive a comparable contribution to the HSA for the prior year. For a sample of the notice, see Regulations section 54.4980G-4 A-14(c). You will meet the contribution requirement for these employees if by April 15, 2022, you contribute comparable amounts plus reasonable interest to the employees’ HSAs for the prior year.

Note. For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participat-ing employees.

Excise tax. If you made contributions to your employees’ HSAs that weren’t comparable, you must pay an excise tax of 35% of the amount you contributed.

Employment taxes. Amounts you contribute to your em-ployees’ HSAs aren’t generally subject to employment taxes. You must report the contributions in box 12 of the Form W-2 you file for each employee. This includes the amounts the employee elected to contribute through a cafeteria plan. Enter code W in box 12.

Medical Savings Accounts (MSAs)

Archer MSAs were created to help self-employed individ-uals 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).

!	After 2007, you can’t be treated as an eligible indi-
	vidual for Archer MSA purposes unless:

CAUTION

1. You were an active participant for any tax year ending before 2008, or

2. You became an active participant for a tax year end-ing after 2007 by reason of coverage under a high de-ductible health plan (HDHP) of an Archer MSA partici-pating employer.

A Medicare Advantage MSA is an Archer MSA desig-nated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare.

Publication 969 (2021)

Archer MSAs

An Archer MSA is a tax-exempt trust or custodial account that you set up with a U.S. financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses.

What are the benefits of an Archer MSA? You may enjoy several benefits from having an Archer MSA.

You can claim a tax deduction for contributions you make even if you don’t itemize your deductions on Schedule A (Form 1040) or Schedule A (Form 1040-NR).

The interest or other earnings on the assets in your Archer MSA are tax free.

Distributions may be tax free if you pay qualified medi-cal expenses. See Qualified medical expenses, later.

The contributions remain in your Archer MSA from year to year until you use them.

An Archer MSA is “portable,” so it stays with you if you change employers or leave the work force.

Qualifying for an Archer MSA

To qualify for an Archer MSA, you must be either of the following.

An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse).

A self-employed person (or the spouse of a self-em-ployed person) who maintains a self-only or family HDHP.

You can have no other health or Medicare coverage ex-cept what is permitted under Other health coverage, later. You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month.

If another taxpayer is entitled to claim you as a ! dependent, you can’t claim a deduction for an CAUTION Archer MSA contribution. This is true even if the other person doesn’t receive an exemption deduction for you because the exemption amount is zero for tax years

2018 through 2025.

Small employer. A small employer is generally an em-ployer who had an average of 50 or fewer employees dur-ing either of the last 2 calendar years. The definition of small employer is modified for new employers and grow-ing employers.

Growing employer. A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. The employer will con-tinue to meet the requirement for small employers if he or she:

Had 50 or fewer employees when the Archer MSAs began,

Page 11

Made a contribution that was excludable or deductible as an Archer MSA for the last year he or she had 50 or fewer employees, and

Had an average of 200 or fewer employees each year after 1996.

Changing employers. If you change employers, your Archer MSA moves with you. However, you may not make additional contributions unless you are otherwise eligible.

High deductible health plan (HDHP). To be eligible for an Archer MSA, you must be covered under an HDHP. An HDHP has:

A higher annual deductible than typical health plans, and

A maximum limit on the annual out-of-pocket medical expenses that you must pay for covered expenses.

Limits. The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2021.

	Self-only coverage	Family coverage
Minimum annual	$2,400	$4,800
deductible
Maximum annual	$3,600	$7,150
deductible
Maximum annual
out-of-pocket	$4,800	$8,750
expenses

Family plans that don’t meet the high deductible rules. There are some family plans that have deductibles for both the family as a whole and for individual family members. Under these plans, if you meet the individual deductible for one family member, you don’t have to meet the higher annual deductible amount for the family. If ei-ther the deductible for the family as a whole or the deduc-tible for an individual family member is less than the mini-mum annual deductible for family coverage, the plan doesn’t qualify as an HDHP.

Example. You have family health insurance coverage in 2021. The annual deductible for the family plan is $5,500. This plan also has an individual deductible of $3,000 for each family member. The plan doesn’t qualify as an HDHP because the deductible for an individual fam-ily member is less than the minimum annual deductible ($4,800) for family coverage.

Other health coverage. If you (and your spouse, if you have family coverage) have HDHP coverage, you can’t generally have any other health coverage. However, you can still be an eligible individual even if your spouse has non-HDHP coverage, provided you aren’t covered by that plan. However, you can have additional insurance that provides benefits only for the following items.

Liabilities incurred under workers’ compensation laws, torts, or ownership or use of property.

Page 12

A specific disease or illness.

A fixed amount per day (or other period) of hospitali-zation.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

Accidents.

Disability.

Dental care.

Vision care.

Long-term care.

Contributions to an MSA

Contributions to an Archer MSA must be made in cash. You can’t 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 don’t pay tax on these contributions.) If your employer doesn’t make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. You and your employer can’t make contributions to your Archer MSA in the same year. You don’t 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 spou-CAUTION se’s employer to an Archer MSA belonging to your spouse, you can’t 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 con-tribute 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 don’t qualify to contribute the full amount for the year, determine your annual deductible limit by us-ing the Line 3 Limitation Chart and Worksheet in the In-structions for Form 8853, Archer MSAs and Long-Term Care Insurance Contracts.

Example 1. You have an HDHP for your family all year in 2021. The annual deductible is $6,000. You can con-tribute up to $4,500 ($6,000 × 75% (0.75)) to your Archer MSA for the year.

Example 2. You have an HDHP for your family for the entire period of July through December 2021 (6 months). The annual deductible is $6,000. You can contribute up to

Publication 969 (2021)

$2,250 ($6,000 × 75% (0.75) ÷ 12 × 6) to your Archer MSA for the year.

If you and your spouse each have a family plan, TIP you are treated as having family coverage with the lower annual deductible of the two health plans. The contribution limit is split equally between the

two of you unless you agree on a different division.

Income limit. You can’t contribute more than you earned for the year from the employer through whom you have your HDHP.

If you are self-employed, you can’t contribute more than your net self-employment income. This is your in-come from self-employment minus expenses (including the deductible part of self-employment tax).

Example 1. Simon Snowhill earned $25,000 from TR Company in 2021. Through TR, he had an HDHP for his family for the entire year. The annual deductible was $6,000. He can contribute up to $4,500 to his Archer MSA (75% (0.75) × $6,000). He can contribute the full amount because he earned more than $4,500 at TR.

Example 2. Westley Lawrence is self-employed. He had an HDHP for his family for the entire year in 2021. The annual deductible was $6,000. Based on the annual de-ductible, the maximum contribution to his Archer MSA would have been $4,500 (75% (0.75) × $6,000). However, after deducting his business expenses, Westley’s net self-employment income is $2,500 for the year. Therefore, he is limited to a contribution of $2,500.

Individuals enrolled in Medicare. Beginning with the first month you are enrolled in Medicare, you can’t contrib-ute 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 2021 until April 15, 2022.

Reporting Contributions on Your Return

Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040, 1040-SR, or 1040-NR. You should include all contributions you or your employer made for 2021, including those made from January 1, 2022, through April 15, 2022, that are designated for 2021.

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 on Form W-2, box 12, code R. Follow the Instruc-tions for Form 8853 and complete the Line 3 Limitation Chart and Worksheet in the instructions. Report your Archer MSA deduction on Form 1040, 1040-SR, or 1040-NR.

Excess contributions. You will have excess contribu-tions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. Excess con-tributions aren’t deductible. Excess contributions made by your employer are included in your gross income. If the excess contribution isn’t 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 Quali-fied Plans (Including IRAs) and Other Tax-Favored Ac-counts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the ac-count.

You may withdraw some or all of the excess contribu-tions and avoid paying the excise tax on the amount with-drawn 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 in-come” on your tax return for the year you withdraw the contributions and earnings.

Deducting an excess contribution in a later year. You may be able to deduct excess contributions for previous years that are still in your Archer MSA. The excess contri-bution you can deduct in the current year is the lesser of the following two amounts.

Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year.

The total excess contributions in your Archer MSA at the beginning of the year.

Any excess contributions remaining at the end of a tax year are subject to the excise tax. See Form 5329.

Distributions From an MSA

You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. When you pay medical expenses during the year that aren’t reimbursed by your HDHP, you can ask the trustee of your Archer MSA to send you a distribution from your Archer MSA.

You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). If you receive distributions for other reasons, the amount will be subject to income tax and may be subject to an additional 20% tax as well. You don’t have to make withdrawals from your Archer MSA each year.

If you no longer qualify to make contributions, you TIP can still receive tax-free distributions to pay or re-

imburse your qualified medical expenses.

A distribution is money you get from your Archer MSA. The trustee will report any distribution to you and the IRS

Publication 969 (2021)Page 13

on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA.

Qualified medical expenses. Qualified medical expen-ses are those expenses that would generally qualify for the medical and dental expenses deduction. These are explained in Pub. 502.

Amounts paid after 2019 for over-the-counter medicine (whether or not prescribed) and menstrual care products are considered medical care and are considered a cov-ered expense.

Qualified medical expenses are those incurred by the following persons.

1. You and your spouse.

2. All dependents you claim on your tax return.

3. Any person you could have claimed as a dependent on your return except that:

a. The person filed a joint return;

b. The person had gross income of $4,300 or more; or

c. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2021 return.

For this purpose, a child of parents that are di-TIP vorced, separated, or living apart for the last 6 months of the calendar year is treated as the de-pendent of both parents whether or not the custodial pa-

rent releases the claim to the child’s exemption.

You can’t deduct qualified medical expenses as ! an itemized deduction on Schedule A (Form CAUTION 1040) that are equal to the tax-free distribution

from your Archer MSA.

Special rules for insurance premiums. Generally, you can’t treat insurance premiums as qualified medical expenses for Archer MSAs. You can, however, treat pre-miums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law as qualified medical expenses for Archer MSAs.

Health coverage tax credit. You can’t claim this credit for premiums that you pay with a tax-free distribu-tion from your Archer MSA. See Pub. 502 for information on this credit.

Deemed distributions from Archer MSAs. The follow-ing situations result in deemed taxable distributions from your Archer MSA.

You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2021. Your account ceases to be an Archer MSA as of January 1, 2021, and you must include the fair market value of all assets in the account as of Jan-uary 1, 2021, on Form 8853.

You used any portion of any of your Archer MSAs as security for a loan at any time in 2021. You must in-

Page 14

clude the fair market value of the assets used as se-curity for the loan as income on Form 1040, 1040-SR, or 1040-NR.

Examples of prohibited transactions include the direct or indirect:

Sale, exchange, or leasing of property between you and the Archer MSA;

Lending of money between you and the Archer MSA;

Furnishing goods, services, or facilities between you and the Archer MSA; and

Transfer to or use by you, or for your benefit, of any assets of the Archer MSA.

Any deemed distribution won’t be treated as used to pay qualified medical expenses. These distributions are included in your income and are subject to the additional 20% tax, discussed later.

Recordkeeping. You must keep records suffi-cient to show that:

RECORDS

The distributions were exclusively to pay or reimburse qualified medical expenses,

The qualified medical expenses hadn’t been previ-ously paid or reimbursed from another source, and

The medical expenses hadn’t been taken as an item-ized deduction in any year.

Don’t send these records with your tax return. Keep them with your tax records.

Reporting Distributions on Your Return

How you report your distributions depends on whether or not you use the distribution for qualified medical expen-ses, defined earlier.

If you use a distribution from your Archer MSA for qualified medical expenses, you don’t 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, 1040-SR, or 1040-NR.

If you don’t 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, 1040-SR, or 1040-NR. You may have to pay an additional 20% tax, discussed later, on your taxable distribution.

If an amount (other than a rollover) is contributed ! to your Archer MSA this year (by you or your em-CAUTION ployer), you must also report and pay tax on a dis-tribution you receive from your Archer MSA this year that is used to pay medical expenses of someone who isn’t covered by an HDHP, or is also covered by another health plan that isn’t an HDHP, at the time the expenses are in-

curred.

Rollovers. Generally, any distribution from an Archer MSA that you roll over into another Archer MSA or an

Publication 969 (2021)

HSA isn’t taxable if you complete the rollover within 60 days. An Archer MSA and an HSA can receive only one rollover contribution during a 1 -year period. See the Form 8853 instructions for more information.

Additional tax. There is a 20% additional tax on the part of your distributions not used for qualified medical expen-ses. Figure the tax on Form 8853 and file it with your Form 1040, 1040 -SR, or 1040-NR. Report the additional tax in the total on Form 1040, 1040-SR, or 1040 -NR.

Exceptions. There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.

Balance in an Archer MSA

An Archer MSA is generally exempt from tax. You are per-mitted to take a distribution from your Archer MSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions, earlier). Earnings on amounts in an Archer MSA aren’t included in your income while held in the Archer MSA.

Death of the Archer MSA Holder

You should choose a beneficiary when you set up your Archer MSA. What happens to that Archer MSA when you die depends on whom you designate as the beneficiary.

Spouse is the designated beneficiary. If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse’s Archer MSA after your death.

Spouse isn’t the designated beneficiary. If your spouse isn’t the designated beneficiary of your Archer MSA:

The account stops being an Archer MSA, and

The fair market value of the Archer MSA becomes tax-able to the beneficiary in the year in which you die.

If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return.

The amount taxable to a beneficiary other than TIP the estate is reduced by any qualified medical ex-penses for the decedent that are paid by the ben-

eficiary within 1 year after the date of death.

Filing Form 8853

You must file Form 8853 with your Form 1040, 1040 -SR, or 1040-NR 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

Publication 969 (2021)

MSA and you have your own Archer MSA, you must com-plete a separate Form 8853 for each MSA. Enter “state-ment” 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.

Employer Participation

This section contains the rules that employers must follow if they decide to make Archer MSAs available to their em-ployees. Unlike the previous discussions, “you” refers to the employer and not to the employee.

Health plan. If you want your employees to be able to have Archer MSAs, you must make an HDHP available to them. You can provide no additional coverage other than those exceptions listed earlier under Other health cover-age.

Contributions. You can make contributions to your em-ployees’ Archer MSAs and deduct them for the year in which you make them.

Comparable contributions. If you decide to make con-tributions, you must make comparable contributions to all comparable participating employees’ Archer MSAs. Your contributions are comparable if they are either:

The same amount, or

The same percentage of the annual deductible limit under the HDHP covering the employees.

Comparable participating employees. Comparable participating employees:

Are covered by your HDHP and are eligible to estab-lish an Archer MSA,

Have the same category of coverage (either self-only or family coverage), and

Have the same category of employment (either part-time or full-time).

Excise tax. If you made contributions to your employees’ Archer MSAs that weren’t comparable, you must pay an excise tax of 35% of the amount you contributed.

Employment taxes. Amounts you contribute to your em-ployees’ Archer MSAs aren’t generally subject to employ-ment taxes. You must report the contributions in box 12 of the Form W-2 you file for each employee. Enter code R in box 12.

Medicare Advantage MSAs

A Medicare Advantage MSA is an Archer MSA designa-ted by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have an HDHP that meets the Medicare guidelines.

Page 15

A Medicare Advantage MSA is a tax-exempt trust or custodial savings account that you set up with a financial institution (such as a bank or an insurance company) in which the Medicare program can deposit money for quali-fied medical expenses. The money in your account isn’t taxed if it is used for qualified medical expenses, and it may earn interest or dividends.

An HDHP is a special health insurance policy that has a high deductible. You choose the policy you want to use as part of your Medicare Advantage MSA plan. However, the policy must be approved by the Medicare program.

Medicare Advantage MSAs are administered through the federal Medicare program. You can get information by calling 800 -MEDICARE (800-633-4227) or through the In-ternet at Medicare.gov.

Note. You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA.

Flexible Spending Arrangements (FSAs)

A health Flexible Spending Arrangement (FSA) allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer. No employment or fed-eral income taxes are deducted from your contribution. The employer may also contribute.

Note. Unlike HSAs or Archer MSAs, which must be reported on Form 1040, 1040-SR, or 1040-NR, there are no reporting requirements for FSAs on your income tax re-turn.

For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier.

What are the benefits of an FSA? You may enjoy sev-eral benefits from having an FSA.

Contributions made by your employer can be exclu-ded from your gross income.

No employment or federal income taxes are deducted from the contributions.

Reimbursements may be tax free if you pay qualified medical expenses. See Qualified medical expenses, later.

You can use an FSA to pay qualified medical expen-ses even if you haven’t yet placed the funds in the ac-count.

Qualifying for an FSA

Health FSAs are employer-established benefit plans. These may be offered in conjunction with other em-ployer-provided benefits as part of a cafeteria plan.

Page 16

Employers have flexibility to offer various combinations of benefits in designing their plans.

Self-employed persons aren’t eligible for FSAs.

!	Certain limitations may apply if you are a highly
	compensated participant or a key employee.
CAUTION

Contributions to an FSA

You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. This is sometimes called a salary reduction agreement. The employer may also contribute to your FSA if specified in the plan.

You don’t pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. However, contributions made by your employer to provide coverage for long-term care in-surance must be included in income.

When To Contribute

At the beginning of the plan year, you must designate how much you want to contribute. Then, your employer will de-duct amounts periodically (generally, every payday) in ac-cordance with your annual election. You can change or re-voke your election only if specifically allowed by law and the plan.

Amount of Contribution

For 2021, salary reduction contributions to a health FSA can’t be more than $2,750 a year (or any lower amount set by the plan). This amount is indexed for inflation and may change from year to year.

For plan years ending in 2021, a health FSA may allow an employee to make an election to modify prospectively the amount (but not in excess of any applicable dollar limi-tation) of the employee's contributions to the health FSA (without regard to any change in status).

Generally, contributed amounts that aren’t spent by the end of the plan year are forfeited. However, see Balance in an FSA, later, for possible exceptions. For this reason, it is important to base your contribution on an estimate of the qualifying expenses you will have during the year.

Distributions From an FSA

Generally, distributions from a health FSA must be paid only to reimburse you for qualified medical expenses you incurred during the period of coverage. You must be able to receive the maximum amount of reimbursement (the amount you have elected to contribute for the year) at any time during the coverage period, regardless of the amount you have actually contributed. The maximum amount you can receive tax free is the total amount you elected to con-tribute to the health FSA for the year.

Publication 969 (2021)

You must provide the health FSA with a written state-ment from an independent third party stating that the med-ical expense has been incurred and the amount of the ex-pense. You must also provide a written statement that the expense hasn’t been paid or reimbursed under any other health plan coverage. The FSA can’t make advance reim-bursements of future or projected expenses.

Debit cards, credit cards, and stored value cards given to you by your employer can be used to reimburse partici-pants in a health FSA. If the use of these cards meets cer-tain substantiation methods, you may not have to provide additional information to the health FSA. For information on these methods, see Revenue Ruling 2003-43, 2003-21 I.R.B. 935, available at IRS.gov/pub/irs-drop/rr-03-43.pdf; Notice 2006-69, 2006-31 I.R.B. 107, available at IRS.gov/irb/2006-31_IRB/ar10.html; and Notice 2007-2, 2007-2 I.R.B. 254, available at IRS.gov/irb/2007-2_IRB/ ar09.html.

Qualified medical expenses. Qualified medical expen-ses are those specified in the plan that would generally qualify for the medical and dental expenses deduction. These are explained in Pub. 502.

Expenses incurred after December 31, 2019, for over-the-counter medicine (whether or not prescribed) and menstrual care products are considered medical care and are considered a covered expense.

Qualified medical expenses are those incurred by the following persons.

1. You and your spouse.

2. All dependents you claim on your tax return.

3. Any person you could have claimed as a dependent on your return except that:

a. The person filed a joint return;

b. The person had gross income of $4,300 or more; or

c. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2021 return.

4. Your child under age 27 at the end of your tax year.

You can’t receive distributions from your FSA for the following expenses.

Amounts paid for health insurance premiums.

Amounts paid for long-term care coverage or expen-ses.

Amounts that are covered under another health plan.

If you are covered under both a health FSA and an HRA, see Notice 2002-45, Part V, 2002-28 I.R.B. 93, available at IRS.gov/pub/irs-drop/n-02-45.pdf.

You can’t deduct qualified medical expenses as ! an itemized deduction on Schedule A (Form CAUTION 1040) that are equal to the reimbursement you re-

ceive from the FSA.

Publication 969 (2021)

Qualified reservist distribution. A special rule allows amounts in a health FSA to be distributed to reservists or-dered or called to active duty. This rule applies to distribu-tions made after June 17, 2008, if the plan has been amended to allow these distributions. Your employer must report the distribution as wages on your Form W-2 for the year in which the distribution is made. The distribution is subject to employment taxes and is included in your gross income.

A qualified reservist distribution is allowed if you were (because you were in the reserves) ordered or called to active duty for a period of more than 179 days or for an in-definite period, and the distribution is made during the pe-riod beginning on the date of the order or call and ending on the last date that reimbursements could otherwise be made for the plan year that includes the date of the order or call.

Balance in an FSA

A health FSA may allow participants to carry over unused benefits from a plan year ending in 2020 to a plan year ending in 2021 and from a plan year ending in 2021 to a plan year ending in 2022.

A health FSA may extend the grace period for using un-used benefits for a plan year ending in 2020 or 2021 to 12 months after the end of the plan year.

A health FSA may allow an individual who ceases par-ticipation in a health FSA during calendar year 2020 or 2021 to continue to receive reimbursements from unused benefits through the end of the plan year in which partici-pation ceased and through any grace period.

Employer Participation

For the health FSA to maintain tax-qualified status, em-ployers must comply with certain requirements that apply to cafeteria plans. For example, there are restrictions for plans that cover highly compensated employees and key employees. The plans must also comply with rules appli-cable to other accident and health plans. Chapters 1 and 2 of Pub. 15-B, Employer’s Tax Guide to Fringe Benefits, explain these requirements.

Health Reimbursement Arrangements (HRAs)

A Health Reimbursement Arrangement (HRA) must be funded solely by an employer. The contribution can’t be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dol-lar amount for a coverage period. An HRA may be offered with other health plans, including FSAs.

Note. Unlike HSAs or Archer MSAs, which must be reported on Form 1040, 1040-SR, or 1040-NR, there are

Page 17

no reporting requirements for HRAs on your income tax return.

For information on the interaction between an HRA and an HSA, see Other employee health plans under Qualify-ing for an HSA, earlier.

What are the benefits of an HRA? You may enjoy sev-eral benefits from having an HRA.

Contributions made by your employer can be exclu-ded from your gross income.

Reimbursements may be tax free if you pay qualified medical expenses. See Qualified medical expenses, later.

Any unused amounts in the HRA can be carried for-ward for reimbursements in later years.

Qualifying for an HRA

HRAs are employer-established benefit plans. These may be offered in conjunction with other employer-provided health benefits. Employers have complete flexibility to of-fer various combinations of benefits in designing their plans.

Self-employed persons aren’t eligible for HRAs. Certain limitations may apply if you are a highly

_!compensated participant.

CAUTION

Contributions to an HRA

HRAs are funded solely through employer contributions and may not be funded through employee salary reduc-tions under a cafeteria plan. These contributions aren’t in-cluded in the employee’s income. You don’t pay federal income tax or employment taxes on amounts your em-ployer contributes to the HRA.

Amount of Contribution

There is no limit on the amount of money your employer can contribute to the accounts. Additionally, the maximum reimbursement amount credited under the HRA in the fu-ture may be increased or decreased by amounts not pre-viously used. See Balance in an HRA, later.

Distributions From an HRA

Generally, distributions from an HRA must be paid to re-imburse you for qualified medical expenses you have in-curred. The expense must have been incurred on or after the date you are enrolled in the HRA.

Debit cards, credit cards, and stored value cards given to you by your employer can be used to reimburse partici-pants in an HRA. If the use of these cards meets certain substantiation methods, you may not have to provide ad-ditional information to the HRA. For information on these methods, see Revenue Ruling 2003-43, 2003-21 I.R.B. 935, available at IRS.gov/pub/irs-drop/rr-03-43.pdf; Notice

Page 18

2006-69, 2006-31 I.R.B. 107, available at IRS.gov/irb/

2006-31_IRB/ar10.html; and Notice 2007-2, 2007-2 I.R.B.

254, available at IRS.gov/irb/2007-2_IRB/ar09.html.

If any distribution is, or can be, made for other than the reimbursement of qualified medical expenses, any distri-bution (including reimbursement of qualified medical ex-penses) made in the current tax year is included in gross income. For example, if an unused reimbursement is pay-able to you in cash at the end of the year, or upon termina-tion of your employment, any distribution from the HRA is included in your income. This also applies if any unused amount upon your death is payable in cash to your benefi-ciary or estate, or if the HRA provides an option for you to transfer any unused reimbursement at the end of the year to a retirement plan.

If the plan permits amounts to be paid as medical bene-fits to a designated beneficiary (other than the employee’s spouse or dependents), any distribution from the HRA is included in income.

Reimbursements under an HRA can be made to the following persons.

1. Current and former employees.

2. Spouses and dependents of those employees.

3. Any person you could have claimed as a dependent on your return except that:

a. The person filed a joint return;

b. The person had gross income of $4,300 or more; or

c. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2021 return.

4. Your child under age 27 at the end of your tax year.

5. Spouses and dependents of deceased employees.

For this purpose, a child of parents that are di-TIP vorced, separated, or living apart for the last 6 months of the calendar year is treated as the de-pendent of both parents whether or not the custodial pa-

rent releases the claim to the child’s exemption.

Qualified medical expenses. Qualified medical expen-ses are those specified in the plan that would generally qualify for the medical and dental expenses deduction. These are explained in Pub. 502.

Expenses incurred after December 31, 2019, for over-the-counter medicine (whether or nor prescribed) and menstrual care products are considered medical care and are considered a covered expense.

Qualified medical expenses from your HRA include the following.

Amounts paid for health insurance premiums.

Amounts paid for long-term care coverage.

Amounts that aren’t covered under another health plan.

Publication 969 (2021)

If you are covered under both an HRA and a health FSA, see Notice 2002 -45, Part V, which is available at IRS.gov/pub/irs-drop/n-02-45.pdf.

You can’t deduct qualified medical expenses as ! an itemized deduction on Schedule A (Form CAUTION 1040) that are equal to the distribution from the

HRA.

Balance in an HRA

Amounts that remain at the end of the year can generally be carried over to the next year. Your employer isn’t per-mitted to refund any part of the balance to you. These amounts may never be used for anything but reimburse-ments for qualified medical expenses.

Employer Participation

For an HRA to maintain tax-qualified status, employers must comply with certain requirements that apply to other accident and health plans. Chapters 1 and 2 of Pub. 15-B, Employer’s Tax Guide to Fringe Benefits, explain these requirements.

How To Get Tax Help

If you have questions about a tax issue; need help prepar-ing your tax return; or want to download free publications, forms, or instructions, go to IRS.gov to find resources that can help you right away.

Preparing and filing your tax return. After receiving all your wage and earnings statements (Forms W-2, W-2G, 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment compensation statements (by mail or in a digital format) or other government payment statements (Form 1099-G); and interest, dividend, and retirement statements from banks and investment firms (Forms 1099), you have sev-eral options to choose from to prepare and file your tax re-turn. You can prepare the tax return yourself, see if you qualify for free tax preparation, or hire a tax professional to prepare your return.

For 2021, if you received an Economic Impact ! Payment (EIP), refer to your Notice 1444-C, Your CAUTION 2021 Economic Impact Payment. If you received Advance Child Tax Credit payments, refer to your Letter

6419.

Free options for tax preparation. Go to IRS.gov to see your options for preparing and filing your return online or in your local community, if you qualify, which include the following.

Free File. This program lets you prepare and file your federal individual income tax return for free using brand-name tax-preparation-and-filing software or Free File fillable forms. However, state tax preparation may not be available through Free File. Go to IRS.gov/ FreeFile to see if you qualify for free online federal tax

Publication 969 (2021)

preparation, e-filing, and direct deposit or payment op-tions.

VITA. The Volunteer Income Tax Assistance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities, and limited-English-speaking taxpayers who need help preparing their own tax returns. Go to IRS.gov/ VITA, download the free IRS2Go app, or call

800-906-9887 for information on free tax return prepa-ration.

TCE. The Tax Counseling for the Elderly (TCE) pro-gram offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volun-teers specialize in answering questions about pen-sions and retirement-related issues unique to seniors. Go to IRS.gov/TCE, download the free IRS2Go app, or call 888-227-7669 for information on free tax return preparation.

MilTax. Members of the U.S. Armed Forces and qualified veterans may use MilTax, a free tax service offered by the Department of Defense through Military OneSource. For more information, go to MilitaryOneSource (MilitaryOneSource.mil/Tax).

Also, the IRS offers Free Fillable Forms, which can be completed online and then filed electronically re-gardless of income.

Using online tools to help prepare your return. Go to IRS.gov/Tools for the following.

The Earned Income Tax Credit Assistant (IRS.gov/ EITCAssistant) determines if you’re eligible for the earned income credit (EIC).

The Online EIN Application (IRS.gov/EIN) helps you get an employer identification number (EIN) at no cost.

The Tax Withholding Estimator (IRS.gov/W4app) makes it easier for everyone to pay the correct amount of tax during the year. The tool is a convenient, online way to check and tailor your withholding. It’s more user-friendly for taxpayers, including retirees and self-employed individuals. The features include the following.

Easy to understand language.

The ability to switch between screens, correct previous entries, and skip screens that don’t apply.

Tips and links to help you determine if you qualify for tax credits and deductions.

A progress tracker.

A self-employment tax feature.

Automatic calculation of taxable social security benefits.

The First-Time Homebuyer Credit Account Look-up (IRS.gov/HomeBuyer) tool provides information on your repayments and account balance.

The Sales Tax Deduction Calculator (IRS.gov/ SalesTax) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040).

Page 19

Getting answers to your tax questions. On IRS.gov, you can get up-to-date information on current events and changes in tax law.

IRS.gov/Help: A variety of tools to help you get an-swers to some of the most common tax questions.

IRS.gov/ITA: The Interactive Tax Assistant, a tool that will ask you questions and, based on your input, pro-vide answers on a number of tax law topics.

IRS.gov/Forms: Find forms, instructions, and publica-tions. You will find details on 2021 tax changes and hundreds of interactive links to help you find answers to your questions.

You may also be able to access tax law information in your electronic filing software.

Need someone to prepare your tax return? There are various types of tax return preparers, including tax prepar-ers, enrolled agents, certified public accountants (CPAs), attorneys, and many others who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer wisely. A paid tax pre-parer is:

Primarily responsible for the overall substantive accu-racy of your return,

Required to sign the return, and

Required to include their preparer tax identification number (PTIN).

Although the tax preparer always signs the return, you're ultimately responsible for providing all the informa-tion required for the preparer to accurately prepare your return. Anyone paid to prepare tax returns for others should have a thorough understanding of tax matters. For more information on how to choose a tax preparer, go to Tips for Choosing a Tax Preparer on IRS.gov.

Advance child tax credit payments. From July through December 2021, advance payments were sent automati-cally to taxpayers with qualifying children who met certain criteria. The advance child tax credit payments were early payments of up to 50% of the estimated child tax credit that taxpayers may properly claim on their 2021 returns. Go to IRS.gov/AdvCTC for more information about these payments and how they can affect your taxes.

Coronavirus. Go to IRS.gov/Coronavirus for links to in-formation on the impact of the coronavirus, as well as tax relief available for individuals and families, small and large businesses, and tax-exempt organizations.

Employers can register to use Business Services On-line. The Social Security Administration (SSA) offers on-line service at SSA.gov/employer for fast, free, and secure online W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement.

Page 20

IRS social media. Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, prod-ucts, and services. At the IRS, privacy and security are our highest priority. We use these tools to share public in-formation with you. Don’t post your social security number (SSN) or other confidential information on social media sites. Always protect your identity when using any social networking site.

The following IRS YouTube channels provide short, in-formative videos on various tax-related topics in English, Spanish, and ASL.

Youtube.com/irsvideos.

Youtube.com/irsvideosmultilingua.

Youtube.com/irsvideosASL.

Watching IRS videos. The IRS Video portal (IRSVideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.

Online tax information in other languages. You can find information on IRS.gov/MyLanguage if English isn’t your native language.

Free Over-the-Phone Interpreter (OPI) Service. The IRS is committed to serving our multilingual customers by offering OPI services. The OPI Service is a federally fun-ded program and is available at Taxpayer Assistance Centers (TACs), other IRS offices, and every VITA/TCE return site. The OPI Service is accessible in more than 350 languages.

Accessibility Helpline available for taxpayers with disabilities. Taxpayers who need information about ac-cessibility services can call 833-690-0598. The Accessi-bility Helpline can answer questions related to current and future accessibility products and services available in al-ternative media formats (for example, braille, large print, audio, etc.).

Getting tax forms and publications. Go to IRS.gov/ Forms to view, download, or print all of the forms, instruc-tions, and publications you may need. Or, you can go to IRS.gov/OrderForms to place an order.

Getting tax publications and instructions in eBook format. You can also download and view popular tax publications and instructions (including the Instructions for Form 1040) on mobile devices as eBooks at IRS.gov/ eBooks.

Note. IRS eBooks have been tested using Apple's iBooks for iPad. Our eBooks haven’t been tested on other dedicated eBook readers, and eBook functionality may not operate as intended.

Access your online account (individual taxpayers only). Go to IRS.gov/Account to securely access infor-mation about your federal tax account.

View the amount you owe and a breakdown by tax year.

Publication 969 (2021)

See payment plan details or apply for a new payment plan.

Make a payment or view 5 years of payment history and any pending or scheduled payments.

Access your tax records, including key data from your most recent tax return, your EIP amounts, and tran-scripts.

View digital copies of select notices from the IRS.

Approve or reject authorization requests from tax pro-fessionals.

View your address on file or manage your communi-cation preferences.

Tax Pro Account. This tool lets your tax professional submit an authorization request to access your individual taxpayer IRS online account. For more information, go to IRS.gov/TaxProAccount.

Using direct deposit. The fastest way to receive a tax refund is to file electronically and choose direct deposit, which securely and electronically transfers your refund di-rectly into your financial account. Direct deposit also avoids the possibility that your check could be lost, stolen, or returned undeliverable to the IRS. Eight in 10 taxpayers use direct deposit to receive their refunds. If you don’t have a bank account, go to IRS.gov/DirectDeposit for more information on where to find a bank or credit union that can open an account online.

Getting a transcript of your return. The quickest way to get a copy of your tax transcript is to go to IRS.gov/ Transcripts. Click on either “Get Transcript Online” or “Get Transcript by Mail” to order a free copy of your transcript. If you prefer, you can order your transcript by calling 800-908-9946.

Reporting and resolving your tax-related identity theft issues.

Tax-related identity theft happens when someone steals your personal information to commit tax fraud. Your taxes can be affected if your SSN is used to file a fraudulent return or to claim a refund or credit.

The IRS doesn’t initiate contact with taxpayers by email, text messages, telephone calls, or social media channels to request personal or financial information. This includes requests for personal identification num-bers (PINs), passwords, or similar information for credit cards, banks, or other financial accounts.

Go to IRS.gov/IdentityTheft, the IRS Identity Theft Central webpage, for information on identity theft and data security protection for taxpayers, tax professio-nals, and businesses. If your SSN has been lost or stolen or you suspect you’re a victim of tax-related identity theft, you can learn what steps you should take.

Get an Identity Protection PIN (IP PIN). IP PINs are six-digit numbers assigned to taxpayers to help pre-vent the misuse of their SSNs on fraudulent federal in-

Publication 969 (2021)

come tax returns. When you have an IP PIN, it pre-vents someone else from filing a tax return with your SSN. To learn more, go to IRS.gov/IPPIN.

Ways to check on the status of your refund.

Go to IRS.gov/Refunds.

Download the official IRS2Go app to your mobile de-vice to check your refund status.

Call the automated refund hotline at 800-829-1954.

Note. The IRS can’t issue refunds before mid-Febru-ary 2022 for returns that claimed the EIC or the additional child tax credit (ACTC). This applies to the entire refund, not just the portion associated with these credits.

Making a tax payment. Go to IRS.gov/Payments for in-formation on how to make a payment using any of the fol-lowing options.

IRS Direct Pay: Pay your individual tax bill or estima-ted tax payment directly from your checking or sav-ings account at no cost to you.

Debit or Credit Card: Choose an approved payment processor to pay online or by phone.

Electronic Funds Withdrawal: Schedule a payment when filing your federal taxes using tax return prepara-tion software or through a tax professional.

Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.

Check or Money Order: Mail your payment to the ad-dress listed on the notice or instructions.

Cash: You may be able to pay your taxes with cash at a participating retail store.

Same-Day Wire: You may be able to do same-day wire from your financial institution. Contact your finan-cial institution for availability, cost, and time frames.

Note. The IRS uses the latest encryption technology to ensure that the electronic payments you make online, by phone, or from a mobile device using the IRS2Go app are safe and secure. Paying electronically is quick, easy, and faster than mailing in a check or money order.

What if I can’t pay now? Go to IRS.gov/Payments for more information about your options.

Apply for an online payment agreement (IRS.gov/ OPA) to meet your tax obligation in monthly install-ments if you can’t pay your taxes in full today. Once you complete the online process, you will receive im-mediate notification of whether your agreement has been approved.

Use the Offer in Compromise Pre-Qualifier to see if you can settle your tax debt for less than the full amount you owe. For more information on the Offer in Compromise program, go to IRS.gov/OIC.

Filing an amended return. You can now file Form 1040 -X electronically with tax filing software to amend 2019 or 2020 Forms 1040 and 1040-SR. To do so, you

Page 21

must have e -filed your original 2019 or 2020 return. Amen-ded returns for all prior years must be mailed. Go to IRS.gov/Form1040X for information and updates.

Checking the status of your amended return. Go to IRS.gov/WMAR to track the status of Form 1040-X amen-ded returns.

Note. It can take up to 3 weeks from the date you filed your amended return for it to show up in our system, and processing it can take up to 16 weeks.

Understanding an IRS notice or letter you’ve re-ceived. Go to IRS.gov/Notices to find additional informa-tion about responding to an IRS notice or letter.

You can use Schedule LEP, Request for Change in Language Preference, to state a preference to receive no-tices, letters, or other written communications from the IRS in an alternative language, when these are available. Once your Schedule LEP is processed, the IRS will deter-mine your translation needs and provide you translations when available. If you have a disability requiring notices in an accessible format, see Form 9000.

Contacting your local IRS office. Keep in mind, many questions can be answered on IRS.gov without visiting an IRS TAC. Go to IRS.gov/LetUsHelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can’t be handled online or by phone. All TACs now provide service by appointment, so you’ll know in advance that you can get the service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find the nearest TAC and to check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on “Local Offices.”

The Taxpayer Advocate Service (TAS) Is Here To Help You

What Is TAS?

TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Their job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

How Can You Learn About Your Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what

these rights mean to you and how they apply. These are your rights. Know them. Use them.

What Can TAS Do for You?

TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

Your problem is causing financial difficulty for you, your family, or your business;

You face (or your business is facing) an immediate threat of adverse action; or

You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

How Can You Reach TAS?

TAS has offices in every state, the District of Columbia, and Puerto Rico . Your local advocate’s number is in your local directory and at TaxpayerAdvocate.IRS.gov/ Contact-Us. You can also call them at 877-777-4778.

How Else Does TAS Help Taxpayers?

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, report it to them at IRS.gov/SAMS.

TAS for Tax Professionals

TAS can provide a variety of information for tax professio-nals, including tax law updates and guidance, TAS pro-grams, and ways to let TAS know about systemic prob-lems you’ve seen in your practice.

Low Income Taxpayer Clinics (LITCs)

LITCs are independent from the IRS. LITCs represent in-dividuals whose income is below a certain level and need to resolve tax problems with the IRS, such as audits, ap-peals, and tax collection disputes. In addition, LITCs can provide information about taxpayer rights and responsibili-ties in different languages for individuals who speak Eng-lish as a second language. Services are offered for free or a small fee for eligible taxpayers. To find an LITC near you, go to TaxpayerAdvocate.IRS.gov/about-us/Low-Income-Taxpayer-Clinics-LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List.

Page 22Publication 969 (2021)

	To help us develop a more useful index, please let us know if you have ideas for index entries.

Index
	See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A

Archer MSAs 11–15 Assistance (See Tax help)

C

Contributions to:

FSA 16

HRA 18

HSA 5

MSA 12

D

Death of:

HSA holder 10

MSA holder 15

Distributions from:

FSA 16

HRA 18

HSA 8

MSA 13

E

Employer participation:

FSA 17

HRA 19

HSA 10

MSA 15

Contributions to 16

Distributions from 16

Grace period 17

Qualifying for 16

When to contribute 16

Form:

5329 8, 13

5498–SA 8, 13

8853 15

8889 8, 10

H

Health plans, high deductible 3, 12

Health reimbursement

arrangements 17–19

Balance in 19

Contributions to 18

Distributions from 18

Qualifying for 18

Health savings accounts 3–11

Balance in 10

Contributions to 5

Deemed distributions 9

Distributions from 8

Last-month rule 5

Partnerships 8

Qualifying for 3

Rollovers 7

S corporations 8

When to contribute 7

High deductible health plan 3, 12

M

Medical expenses, qualified 9, 14, 17, 18

Medical savings accounts 11–16 Balance in 15

Contributions to 12 Deemed distributions 14 Distributions from 13 Medicare Advantage MSAs 15 Qualifying for 11

When to contribute 13 Medicare Advantage MSAs 15

P

Preventive care 3 Publications (See Tax help)

Q

Qualified HSA funding distribution 7

T

Tax help 19

Testing period:

Last-month rule 6

Qualified HSA funding

distribution 7

F

Flexible spending

arrangements 16, 17

Balance in 17

Publication 969 (2021)Page 23

IRS Releases Publication 969 (2021), Health Savings Accounts and Other Tax-Favored Health Plans