HSAs and Filing Your Taxes Blue Cross and Blue Shield of Vermont Learning Center

Optum Financial, Inc. is not a bank or an FDIC insured institution. HSAs are subject to eligibility requirements and restrictions on deposits and withdrawals to avoid IRS penalties. You must always file a Form 8889 in any year you or an employer contributes money to your HSA or you make withdrawals from the account. The deduction you calculate on Form 8889 is taken on the first page of your income tax return. Generally, “qualified medical expenses” for HSA purposes are unreimbursed medical expenses that could otherwise be deducted on Schedule A .

Form 8889 is the only one you need to submit with your taxes. You can find IRS tax form 8889 in the «Statements & Docs» section after signing in to your account. A. You are responsible for monitoring the amount deposited into your HSA each calendar year. Keep in mind that if your employer contributes funds, those also count toward the maximum. If you exceed the maximum contribution limit, there is a penalty imposed by the IRS. You can find IRS tax form 8889 in the “Statements & Docs” section after signing in to your account.

Why doesn’t my W-2 match Form 5498-SA?

Withdrawals from HSAs for eligible medical expenses will avoid income tax consequences to the HSA holder. That’s why the IRS requires these withdrawals to be reported. To make reporting withdrawals easier, the IRS offers forms to be used by the parties involved. This communication is not intended as legal or tax advice.

• If an individual/employee establishes a HSA and s/he is not otherwise eligible, s/he will be subject to adverse tax consequences.
• Even though not taxable to the employee, employers are required to report the amount of the HSA contribution on the employee’s W-2.
• If an upcoming employer contribution will go over the limit, you must make every reasonable effort to notify your employer before the contribution is made.
• Funds used for nonqualified expenses will be taxed as income and subject to a 20% penalty.
• Enter on line 17b, 20% of the amount of these distributions included on line 16.
• We will send you a revised 5498-SA by June 30th if you do make more contributions that count back to the previous tax year.

These contributions should be shown in box 12 of Form W-2 with code W. If either of the following apply, complete the Employer Contribution Worksheet. Refigure the contribution limit that would have been entered on line 5 if you had entered on line 3 the total of the worksheet amounts only for the months you were treated as having family coverage. When refiguring line 5, use the same amount you previously entered on line 4. If you were covered, or considered covered, by a self-only HDHP and a family HDHP at different times during the year, check the box for the plan that was in effect for a longer period. If you were covered by both a self-only HDHP and a family HDHP at the same time, you are treated as having family coverage during that period.

Do you have to file Form 8889?

However, if you have enough medical expenses not paid with the HSA you may be able to claim them as an itemized deduction. In order to itemize, deductible expenses must be more than 7.5% of your adjusted gross income . An HSA contribution deduction lowers your AGI which could make it easier for you to pass the 7.5% hurdle. If you have a Health Savings Account , you may have questions about how they affect your annual tax return. HSAs provide a tax-advantaged financial tool for reducing out-of-pocket healthcare expenses and saving for retirement.

From retirement account contributions to self-employment expenses, learn more about the five most common tax deductions with the experts at H&R Block. You are eligible for a tax deduction for additional contributions you made to your HSA even if you do not itemize your deductions. Each state can decide to follow the federal tax guidelines for HSAs or establish its own.

Part III – Penalties and Taxes

The calculators are not intended to offer any tax, legal or financial advice and do not assure the availability of or your eligibility for any specific product offered by Bank of America or its affiliates. Please consult with qualified professionals to discuss your situation. This site may contain links to third-party content, which may be articles, videos, or calculators, regarding health plans only as a convenience. Some articles, videos and calculators may have been written and produced by third parties not affiliated with Bank of America or any of its affiliates.

Line 15 determines how much was spent on qualified medical expenses; any amount greater than box 14c will be penalized. If the subtraction on line 16 is a positive number, you will owe tax and penalty on the amount 8889-t tax form (20%). Please contact a legal or tax professional for advice on eligibility, tax treatment, and restrictions. Please contact your plan administrator with questions about enrollment or plan restrictions.

Form 8889 Instructions—Part I

An HSA provides triple tax savings — the money you contribute to your HSA goes in, grows and comes out income tax free when used for qualified medical expenses. Account earnings from interest and investments are also tax free. The IRS pays close attention to all financial tools that enable tax-free contributions, so it’s important to file correctly. If you have questions about your forms, or about HSAs and filing your taxes, contact your employer’s HR department or your benefits administrator. If you need assistance with tax filing, contact a tax preparation specialist.

We recommend that applicants and employers contact qualified tax or legal counsel before establishing a HSA. Deposits paid directly to your health savings account can result in an HSA tax deduction. However, contributions paid through your employer are already excluded from your income on your W-2. So, the HSA deduction rules don’t allow an additional deduction for those contributions. This portion of HSA Form 8889 covers contributions and deductions.

Learn more about HSA tax forms

You do not need to enter the information on your tax forms. However, it can be helpful to have close at hand when completing Form 8889. The penalty is the income tax you would have owed on part of the HSA contribution plus a 10% penalty tax. But there is one wrinkle called the “testing period” for ttps://turbo-tax.org/ HSA coverage. Essentially, you have to maintain high-deductible health insurance coverage for an entire tax year to qualify for the full contribution amount in both the current tax year and the previous tax year. In line 2 of Form 8889, it says to enter the amount you contributed to an HSA.