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Distributions From an MSA: Health Accounts and Taxes (2025 IRS Guide)

This guide covers “Distributions From an MSA” within health accounts and taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Archer MSAs were created to help self-employed individuals 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).

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 eligible for Medicare.

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.

Tip:

If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse 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 on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA.

Qualified medical expenses.

In general, “qualified medical expenses” means amounts paid by the MSA holder for “medical care” (as defined in Code section 213(d)) for the individual, the spouse of the individual, and any dependent of the individual, but only to the extent the amounts are not compensated for by insurance or otherwise. Amounts paid for menstrual care products are treated as paid for medical care.

Qualified medical expenses include 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:

    1. The person filed a joint return;

    2. The person had gross income equal to or more than the exemption amount; or

    3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2025 return.

Tip:

For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child’s exemption.

Caution:

You can’t deduct qualified medical expenses as an itemized deduction on Schedule A (Form 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 premiums 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.

Deemed distributions from Archer MSAs.

The following 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 2025. Your account ceases to be an Archer MSA as of January 1, 2025, and you must include the fair market value of all assets in the account as of January 1, 2025, on Form 8853.

  • You used any portion of any of your Archer MSAs as security for a loan at any time in 2025. 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 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 sufficient to show that:

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

  • The qualified medical expenses hadn’t been previously paid or reimbursed from another source, and

  • The medical expenses hadn’t been taken as an itemized 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 expenses.

  • 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.

Caution:

If an amount (other than a rollover) is contributed to your Archer MSA this year (by you or your employer), you must also report and pay tax on a distribution 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 incurred.

Rollovers.

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

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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