An Archer MSA is a trust created or organized in the United States as a medical savings account exclusively for the purpose of paying the qualified medical expenses of the account holder (26 U.S.C. 220(d)(1)). Section 220 opens it to a narrow group: an eligible individual is covered by a high deductible health plan as that section defines one, holds no other health coverage beyond a short permitted list, and is either self-employed or an employee of a small employer, which the section sets at an average of 50 or fewer employees on business days during either of the two preceding calendar years (26 U.S.C. 220(c)).
The door closed at the end of 2007. After December 31, 2007, contributions cannot be made to an Archer MSA for a taxpayer unless the taxpayer was an active Archer MSA participant for a tax year ending before January 1, 2008, or became an active participant for a tax year ending after December 31, 2007 because of coverage under a high deductible health plan of an Archer MSA participating employer (IRS, Instructions for Form 8853 (2025)). The Code gets there through its cut-off year rule, which sets that year as the earlier of calendar year 2007 or an earlier year in which the numerical limit was determined to have been exceeded (26 U.S.C. 220(i)).
Who Section 220 Treats as an Eligible Individual
Three tests run at once, and eligibility is settled month by month, with the plan coverage read as of the first day of the month. The individual is covered under a high deductible health plan on that day, is not also covered by another health plan that fails the high deductible test and that covers a benefit the first plan covers, and either works for a small employer that established and maintains the plan or is self-employed within the meaning of section 401(c)(1) and holds a plan no employer established (26 U.S.C. 220(c)(1)(A)).
The second of those tests ignores a defined list. Permitted insurance, meaning cover for workers’ compensation, tort or property liabilities, for a specified disease or illness, or for a fixed amount per day of hospitalization, does not break it, and neither does separate cover for accidents, disability, dental care, vision care or long-term care (26 U.S.C. 220(c)(1)(B) and (c)(3)).
A small employer that grows keeps the status. An employer that met the 50-employee test for a year after 1996, made a contribution for that year that was excludable or deductible, and has averaged 200 or fewer employees in every year after 1996 still counts as one (IRS, Publication 969 (2025)).
Medicare ends the contributions rather than the account. The monthly limitation is zero for the first month the account holder is entitled to Medicare benefits and for every month after it (26 U.S.C. 220(b)(7)).
The Deduction and Its Annual Limit
The deduction is the cash the eligible individual paid into the account during the year (26 U.S.C. 220(a)). It is capped by the sum of the monthly limitations for the months the person qualified, and each monthly limitation is one twelfth of 65 percent of the plan’s annual deductible for self-only coverage, or one twelfth of 75 percent of it for family coverage (26 U.S.C. 220(b)(1) and (b)(2)).
Two further caps sit behind that one. The deduction cannot exceed the compensation paid by the employer maintaining the plan, or, for a self-employed person, the earned income from the trade or business the plan was established under (26 U.S.C. 220(b)(4)). And only one side may fund the account in a year, because no deduction is allowed for a year in which any amount excludable under section 106(b) was contributed (26 U.S.C. 220(b)(5)).
A cafeteria plan cannot carry the contribution either, because section 125(f)(1) carves section 106(b) out of the qualified benefits such a plan may offer (26 U.S.C. 125(f)(1)), which cafeteria plan works through in full. On the return the deduction is an adjustment to income, available whether or not the client itemizes (IRS, Publication 969 (2025)), and its class is set out in above-the-line deductions.
The limit tracks the plan’s own deductible, so two clients on the same coverage tier can land on different numbers. Say one held self-only coverage and another held family coverage, each for all twelve months of the year.
self-only plan, 12 months
annual deductible 3,600
annual limit 3,600 x 0.65 = 2,340
monthly limit 2,340 / 12 = 195
family plan, 12 months
annual deductible 6,400
annual limit 6,400 x 0.75 = 4,800
monthly limit 4,800 / 12 = 400The Section 220 High Deductible Health Plan
Section 220 carries its own definition of a high deductible health plan, with its own dollar bands (26 U.S.C. 220(c)(2)). Section 223 carries a different one for health savings accounts, so a plan can satisfy one section and fail the other, and the section 223 test set out in high-deductible health plan is not a substitute for this one. Both sets of figures are adjusted for inflation each year (26 U.S.C. 220(g)).
For taxable years beginning in 2026 the bands sit where the table shows, with the prior year beside them for returns still on extension.
| Section 220 limit | 2026 self-only | 2026 family | 2025 self-only | 2025 family |
|---|---|---|---|---|
| Minimum annual deductible | $2,900 | $5,850 | $2,850 | $5,700 |
| Maximum annual deductible | $4,400 | $8,750 | $4,300 | $8,550 |
| Maximum annual out-of-pocket expenses, premiums excluded | $5,850 | $10,700 | $5,700 | $10,500 |
Source: IRS, Rev. Proc. 2025-32 for 2026 and IRS, Publication 969 (2025) for 2025.
Distributions and the Additional Tax
A distribution used exclusively to pay the account holder’s qualified medical expenses is not includible in gross income, and anything else is (26 U.S.C. 220(f)(1) and (f)(2)). Qualified medical expenses are amounts paid for medical care as section 213(d) defines it, for the holder, the holder’s spouse and the holder’s dependents, and only so far as insurance or another source has not compensated them (26 U.S.C. 220(d)(2)). Premiums sit outside that, apart from continuation coverage required under federal law, a qualified long-term care insurance contract, and a health plan held during a period of unemployment compensation (26 U.S.C. 220(d)(2)(B)).
The tax for a year carrying a taxable distribution is increased by 20 percent of the amount included, and that additional tax stops applying once the account holder becomes disabled, reaches age 65 or dies (26 U.S.C. 220(f)(4); IRS, Publication 969 (2025)).
Excess contributions are not deductible, an employer’s excess lands in gross income, and a 6% excise tax applies for each year the excess stays in the account unless it is withdrawn with its earnings by the due date of the return, including extensions (IRS, Publication 969 (2025)).
Where the Term Lands in a Firm’s Work
Four forms carry the account through a return. Contributions, distributions and the deduction go on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, filed with Form 1040, 1040-SR or 1040-NR, and the deduction computed in Section A is also entered on Schedule 1 (Form 1040), line 23 (IRS, Form 8853).
The trustee files the other two. It reports the year’s contributions on Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, and the year’s distributions on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA (IRS, Publication 969 (2025)).
An employer’s contribution never reaches the deduction line, because it is already outside income. It shows in box 12 of Form W-2 with code R (IRS, Publication 969 (2025)), and a contribution made by the unextended due date of the return can still be designated for the prior year (IRS, Form 8853).
What Is the Difference Between an HSA and an Archer MSA?
Who is allowed to fund the account, and on what terms. An HSA under section 223 has no small-employer or self-employment gate, and its annual limit is a flat indexed dollar amount rather than a percentage of the plan’s deductible (26 U.S.C. 223(b)). For an employee’s HSA the employee, the employer, or both may contribute in the same year, while an Archer MSA takes contributions from the eligible individual or from the employer but not both (IRS, Publication 969 (2025)). A balance can be rolled from an Archer MSA into an HSA (26 U.S.C. 220(f)(5)).
A Medicare Advantage MSA is the third account those forms cover. It is an Archer MSA designated by Medicare, used solely to pay the qualified medical expenses of an account holder enrolled in Medicare, and only Medicare contributes to it (IRS, Publication 969 (2025)). It is reported in Section B of Form 8853 rather than Section A (IRS, Form 8853).
Common Questions
It is the current statutory label for the account section 220 created. The section’s amendment notes record that “Archer MSA” was substituted for “medical savings account” wherever that phrase appeared, and in the section heading as well, so the two names describe one account rather than two (26 U.S.C. 220).
Once in a 1-year period. A distribution rolled into another Archer MSA or into an HSA is not taxable if the rollover is completed within 60 days, and an Archer MSA or an HSA can receive only one rollover contribution during a 1-year period (IRS, Publication 969 (2025)).
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