IRS Publication 969 "Health Savings Accounts and Other Tax-Favored Health Plans" provides the general rules for Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), Medical Savings Accounts (Archer MSAs and Medicare Advantage MSAs), and Flexible Spending Arrangements (FSAs).
For each type of plan (HSA, MSA, FSA, and HRA), IRS Publication 969 provides information on:
- The benefits of each plan
- Eligibility rules for individual and dependents
- Contribution rules and limits
- Rollover rules
- How to report to contributions and distributions on your taxes
- Qualified medical expenses (further outlined in IRS Publication 502)
- Employer participation and contribution rules
IRS Publication 969 provides descriptions of each of the tax-favored health plans. All of the programs are designed to give individuals tax advantages to offset health care costs. (See the full IRS Publication 969 here.)
Health Savings Accounts (HSAs)
An HSA is a health savings account, where contributions can come from an eligible individual or any other person, including an employer or a family member, on behalf of an eligible individual. To open a HSA, you must be enrolled in a high deductible health plan (HDHP). Distributions from an HSA that are used to pay qualified medical expenses are not taxed. Read more about HSAs here.
Archer MSA & Medicare Advantage MSA
An Archer MSA may receive contributions from an eligible individual and his or her employer, but not both in the same year. Distributions from an Archer MSA that are used to pay qualified medical expenses are not taxed.
A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is enrolled in Medicare. Distributions from a Medicare Advantage MSA that are used to pay qualified medical expenses are not taxed.
Health Flexible Spending Account (FSA)
A health FSA may receive contributions from an eligible individual. Employers may also contribute, though it's less common. Reimbursements from an FSA that are used to pay qualified medical expenses are not taxed. Read more on FSAs here. Read more on FSAs here.
Health Reimbursement Arrangement (HRA)
An HRA, also called a Health Reimbursement Account, must receive contributions from the employer only. Employees may not contribute. Reimbursements from an HRA that
are used to pay qualified medical expenses are not taxed. Read more on Health Reimbursement Arrangements here.
What About Health Reform?
A common question is how these medical reimbursement plans work with health reform changes. This article outlines health reform changes for HRAs, HSAs, and FSAs.