HSA Tax Forms, Facts, and Rules to Know

HSA Tax Forms, Facts, and Rules - 1040 Tax Form Banner

Health Savings Accounts (HSAs) can help you offset rising out-of-pocket medical costs. Your payroll contributions go into an account before they are taxed, grow tax-deferred, and can be withdrawn tax-free to pay for qualified medical expenses, including deductible and health costs not covered by your plan.

The significant tax benefits HSAs offer require certain IRS reporting. Below are easy reminders about tax documents, forms and other tax issues you should know.

HSA Tax Limits

  • Contribution limits are set by the IRS each year and include both employer and employee contributions. It is your responsibility to ensure you do not exceed that year’s total contribution limit.
  • Maximum limits for 2016 are $3,350 for individual coverage and $6,750 for family coverage. Individuals 55 or older may make additional catch-up contributions up to $1,000.
  • You should not owe taxes or penalties on HSA distributions (money you used) for qualified medical expenses. If you used HSA funds for non-qualified medical expenses, you may owe income tax and will likely have to pay an additional 20% penalty on those distributions. 

There’s Still Time for 2016 Contributions

The IRS allows you to make 2016 tax year HSA contributions in 2017, assuming you are within contribution limits, the contribution posts to your account prior to the tax filing deadline, and you have not yet filed for the 2016 tax year.

We recommend that any additional 2016 contributions be made by April 1, 2017 to ensure time for processing.

For ConnectYourCare account holders, here is our quick and easy process to make additional contributions in your online account.

  • Log into your ConnectYourCare account
  • Click “Manage HSA Contributions” under Accounts & Balances.
  • Click “Add or Change Contributions,” then enter your one-time contribution. On the next screen, select the tax year in which you want the contribution to be applied.
  • Enter 2016 contributions by April 1, 2017 to ensure funds are processed in time to qualify for the 2016 tax year.
  • Contributions made outside a payroll deduction are after tax and, as such, must be reported on Form 8889 to receive a tax benefit (see below).

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Applicable Tax Forms 

Here’s a handy list of which forms you should receive, when you should receive them, from whom, and what you should do with them:

  • Form W-2 – Wages, Taxes and HSA Contributions through year end, from your employer by 1/31 – Your W-2 shows your wages and taxes withheld. In addition, Box 12-W will show pre-tax HSA contributions made to your account by you and your employer through payroll, and may be used to complete Form 8889. Only contributions made by you or your employer through payroll will appear on your W-2. Other contributions, like those made after-tax (see additional information below), will not appear on your W-2 and should be reported by you on Form 8889.
  • Form 1099-SA – Total HSA Distributions, from your HSA banking custodian by 1/31 – You should receive a Form 1099-SA, which reports the total distributions from your HSA for the year. This total includes funds spent using your health care payment card and money withdrawn through online reimbursement requests. You should use Form 1099-SA to help complete IRS Form 8889. If you did not use any HSA funds, you will not receive Form 1099-SA.
  • Form 5498-SA – Total HSA Contributions, from your HSA banking custodian by 5/31 – By May 31st, you should receive Form 5498-SA, which reports the total contributions made to your HSA for the 2016 tax year. This form is usually created after the tax filing deadline (typically April 15th) to include any contributions made to your HSA up to the tax filing deadline. This form is also submitted by your custodian to the IRS. You do not need Form 5498-SA to file your income tax return, but you should confirm the contribution amount and keep this form for your records.
  • IRS Form 1040 – Individual Income Tax Return – HSA participants need to use the 1040 long form to file your taxes; you cannot use the 1040 EZ form.
  • IRS Form 8889 – HSA Contribution and Distribution Worksheet – This form should be submitted with your 1040 long form, and it reports contributions to and distributions from your HSA for the tax year. This form also allows you to report if any of your HSA funds were used for non-qualified medical expenses. Refer to the IRS Instructions for Form 8889 at http://www.irs.gov/pub/irs-pdf/i8889.pdf or contact your tax advisor for details on how to complete Form 8889.
  • IRS Form 5329 – Excess HSA Contributions – You need to submit this form, along with Form 1040, to report excess HSA contributions that are not withdrawn from your HSA prior to the tax filing deadline, if applicable. Refer to the IRS Instructions for Form 5329 at http://www.irs.gov/pub/irs-pdf/i5329.pdf

Don’t forget to check that you’ve received all necessary tax documents before filing your tax return!

State-Specific HSA Tax Considerations

Health Savings Accounts (HSAs) are tax exempt for purposes of your federal income tax filings. HSAs are also tax exempt for most state income tax filings. However, some states do tax your HSA contributions and even potentially the earnings and capital gains.  Again, most states do not tax any aspect of the contributions nor the earnings and capital gains on HSA accounts, so it is important that you check with the particular rules in your state of domicile.

The chart below is provided as an aid to give you a general idea of what to expect as to the state tax rules and duties given where you live. Please always consult your tax advisor on what your filing responsibilities are.

State Currently Taxes Relevant Forms
Alabama
  • HSA contributions
  • HSA earnings and dividends
Form 40
California
  • HSA contributions
  • HSA earnings and dividends
Schedule CA 540
New Hampshire
  • HSA contributions
Form DP-10
New Jersey
  • HSA contributions
  • HSA earnings and dividends
Form NJ 1040

You should be able to answer most state-specific questions using the federal forms you receive from your employer and your HSA Custodian.

If those tax forms do not contain sufficient information regarding your HSA’s interest, earnings, or dividends, and should you have additional questions, please consult your HSA statement, issued by your HSA Custodian.

> Employee Next Steps: Interested in learning more about HSAs? Download our HSA For Dummies® eBook to learn more about eligible expenses, contribution rules, and much more.

Get the eBook

> Employer Next Steps: If you’re an employer interested in improving and expanding upon your company’s consumer-directed benefits, contact us to learn how ConnectYourCare’s offerings and services can help your employees.

Written by Andrew Gertz; published in the HSAs category

ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.