Are Archer MSA's tax deductible?

An Archer MSA is similar to an IRA. Income in the account accumulates tax free.

Archer MSA contributions of self employed persons

A self employed person can deduct the health insurance premium element from his/her tax return. A tax deduction of 100% of the health insurance premium is deducted on Line 29 of Form 1040. 

Contributions to the Archer MSA's element are reported on Form 8853 and deducted on Line 23 of Form 1040. A tax deduction of 65% (75% of the deductible for families) of the health plan deductible is deducted. The contributions may not exceed net self employment income from that business.

Archer MSA contributions of or for employees

If a small business has an average of less than 51 employees in either of the prior two calendar years they can offer Archer MSA's for their employees. The employer can pay for everything or let the employee pay for the Medical Savings Account. If the employer pays for the entire cost of the plan the payments are not taxable to the employee on his/her tax return. If the employee contributes to the Medical Savings Account the employee reports the contributions on Form 8853 and deducts the contributions on Line 23 of Form 1040.

Archer MSA Distributions

A distribution from a Medical Savings Account is tax free if it is used to pay for qualifying medical expenses of you, your spouse, or your dependents. Qualifying medical expenses are costs that could be claimed as an itemized tax deduction on your tax return if you paid them directly. Premiums for long term care insurance, for health insurance while you are receiving unemployment benefits, or for COBRA coverage from a former employer qualify.

A taxable distribution is subject to a 15% tax penalty unless you are age 65 or older or disabled.