Form 1099-SA Checklist: 2011 Tax Year
HSA, Archer MSA, and Medicare Advantage MSA Distributions
Purpose
Form 1099-SA reports distributions made during the 2011 calendar year from Health Savings Accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Medicare Advantage MSAs (MA MSAs). Trustees and custodians must file this form with recipients and the Internal Revenue Service to document all distributions, whether paid directly to medical service providers or to account holders and beneficiaries.
Under Internal Revenue Code section 223(f)(8)(B), nonspouse beneficiaries who inherit an HSA must include the fair market value of the account in gross income for the taxable year that includes the account holder’s date of death. This income inclusion applies regardless of when the actual distribution is received. Although Form 1099-SA reports distributions in the year paid, the tax obligation attaches to the year of death. This rule reflects longstanding statutory law and was not newly introduced for 2011.
Surviving spouses who inherit an HSA become the account holders and retain tax-advantaged treatment. Nonspouse beneficiaries generally must include the account’s fair market value in income, though they may reduce the taxable amount by qualified medical expenses of the decedent paid within one year after death.
Filing Steps for Trustees and Custodians
1. Verify Account Holder Status and Beneficiary Type
Determine whether the account holder died during 2011. If death occurred, obtain the fair market value of the HSA, Archer MSA, or MA MSA as of the date of death for reporting in Box 4. Identify whether the beneficiary is a spouse, nonspouse individual, or estate, as this determines the appropriate distribution code and tax treatment.
If the account holder died in 2011 and a distribution is made during 2011, report the gross distribution in Box 1, enter distribution code 4 in Box 3, and report the fair market value on the date of death in Box 4.
If the account holder died in 2011 but the distribution occurs in a later year, use:
- Code 1 for distributions to spouse beneficiaries
- Code 4 for distributions to estates
- Code 6 for distributions to nonspouse beneficiaries other than estates
2. Complete Box 1 – Gross Distribution
Enter the total amount distributed during 2011 in Box 1. This includes:
- Cash distributions to the account holder or beneficiary
- Direct payments to medical service providers
Include earnings on excess contributions reported in Box 2 as part of the Box 1 total. Do not report negative amounts. Do not include withdrawals of excess employer contributions returned directly to employers from employee HSAs.
3. Complete Box 2 – Earnings on Excess Contributions
Enter earnings on excess HSA or Archer MSA contributions that were withdrawn during 2011. This amount must also be included in Box 1.
Earnings on excess contributions are taxable income in the year received, even if used for qualified medical expenses. If excess contributions and earnings are withdrawn by the income tax return due date (including extensions), the excess contribution avoids the 6% excise tax, but the earnings remain taxable.
If excess contributions remain in the account after the deadline, a 6% excise tax under IRC section 4973 applies each year the excess remains. Recipients report this excise tax on Form 5329, filed with Form 1040.
4. Select the Correct Distribution Code (Box 3)
Enter the appropriate distribution code based on the nature of the 2011 distribution:
- Code 1 – Normal distribution
- Code 2 – Excess contributions withdrawn from an HSA or Archer MSA
- Code 3 – Disability distribution
- Code 4 – Death distribution other than Code 6
- Code 5 – Prohibited transaction
- Code 6 – Death distribution made after the year of death to a nonspouse beneficiary
5. Complete Box 4 – Fair Market Value on Date of Death
If the account holder died in 2011, enter the fair market value of the account on the date of death in Box 4.
For nonspouse beneficiaries, this amount is includible in gross income for the 2011 tax year, even if the distribution occurs in a later year.
6. Identify Account Type in Box 5
Check the appropriate box to indicate the account type:
- Health Savings Account (HSA)
- Archer Medical Savings Account
- Medicare Advantage MSA
This classification determines which form the recipient must file with Form 1040:
- Form 8889 for HSA distributions
- Form 8853 for Archer MSA and MA MSA distributions
Recipients use these forms to calculate taxable amounts and any Additional tax for nonqualified distributions. Qualified medical expenses defined in Publication 502 reduce taxable distributions.
7. Furnish Copy B to Recipients
Provide Copy B to recipients by January 31, 2012. The statement must include the recipient’s name, address, taxpayer identification number, and all completed boxes.
Recipients use this information to complete Form 8889 or Form 8853 when filing their 2011 Form 1040. Taxable distributions not used for qualified medical expenses may be subject to Additional tax penalties.
8. File Copy A with the IRS
File Copy A with the Internal Revenue Service by February 28, 2012, if filing on paper. The electronic filing deadline is April 2, 2012.
Electronic filing requires software that produces files compliant with Publication 1220 specifications. The IRS does not provide a fill-in option for electronic filing.
Do not print Copy A from the IRS website. Paper forms are scanned during IRS processing and must be official, pre-printed forms obtained from the IRS or an approved vendor.
2011 Tax Year Guidance
Recipients must report Form 1099-SA distributions on:
- Form 8889 for HSAs
- Form 8853 for Archer MSAs and Medicare Advantage MSAs
These forms are filed with Form 1040, even if distributions are fully nontaxable. Distributions used for qualified medical expenses as defined in Publication 502 are generally tax-free. Nonqualified distributions are includible in gross income and may be subject to Additional tax unless an exception applies for disability, death, or Medicare eligibility.
Employer contributions to HSAs are reported on Form W-2 and are generally excluded from gross income. Recipients must maintain records of qualified medical expenses to substantiate tax-free treatment of distributions and must satisfy annual high-deductible health plan requirements to remain HSA-eligible.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
