Many of us are in the process, or will soon be, getting our open enrollment packages and reviewing our health care insurance options. The Affordable Care Act of 2010 made some changes to employer-based health care plans. Some of these changes became effective January 1, 2011 and more are on the way effective in 2012.
If you use either a health care savings account (HSA), a flexible spending account (FSA), an Archer Medical Savings Account (MSA), or a health reimbursement arrangement (HRA), you do benefit from having less taxable income on your federal tax return while using pre-tax deductions to offset your medical expenses.
As of January 1 of this year, if you buy over the counter meds, they must be prescribed by a health care provider in order to be reimbursed by your HSA/FSA/MSA/HRA.
Also in 2011, lactation supplies are now eligible for coverage through a HSA/FSA/MSA/HRA.
If you are in a HSA or Archer MSA, please note the following:
- Beginning Jan. 1, 2011, the additional tax for distributions from HSAs for non-qualified medical expenses increased from 10 to 20 percent and from 15 to 20 percent for Archer MSAs.
- If you have an HSA or an Archer MSA, distributions after Dec.31, 2010, for expenses that are not qualifying medical expenses, including OTC medicines and drugs purchased without a prescription, will be included in your gross income and subject to an additional tax of 20 percent.
- The income tax and additional tax for distributions not used for qualified medical expenses are reported on Form 8889 for an HSA distribution and on Form 8853 for an Archer MSA distribution. You must complete these forms and attach them to your Form 1040 when you file your 2011 income tax return in 2012. Distributions from an HSA or an Archer MSA are not included as taxable wages.