HSA Tax Tips You Should Know Before You File

It is important to know the basics of HSA requirements to ensure you are using your account properly and filing taxes for it accurately. At the start of each plan year, check the latest IRS contribution limit for HSAs, so you don’t exceed this amount. For 2019, the calendar year for which you are filing, the maximum amount you could contribute to an HSA is $3,500 for an individual and $7,000 for a family. If you are 55 and over, you can add another $1,000 to those limits as part of the “catch-up” contribution program for retirement.

You should also know that in most states you do not have to pay taxes on the funds you contributed or withdrew from the HSA to pay for eligible health care expenses (see our handy HSA eligible expense sheet to check). However, regardless of where you live in the U.S., if you used HSA funds for something other than a medical expense, you would owe income tax plus an additional 20% penalty on that money you withdrew.

That said, the tax responsibility for HSAs does vary by state. Be sure to check your local state tax laws or check with your tax advisor to file correctly. You should also check to see if your state and local authorities have extended tax filing deadlines to match the federal extension.

There are certain tax forms you will need if you are filing with an HSA. We will go over each of these forms briefly here to help you understand what forms you require and why.

By January 31, you should have received your W-2 form from your employer stating your total income for the year and taxes withheld. If you have an HSA, you should check Box 12-W on the form to see what pre-tax HSA contributions were made to your account by you and your employer. This contribution total may be used to complete Form 8889 (we’ll get to that one). Only contributions made by you or your employer through payroll will appear on your W-2.

By January 31, you should have also received Form 1099-SA from your HSA custodian stating total distributions (money you withdrew) from your HSA for the year. This includes any HSA funds you spent on medical expenses with a payment card and money withdrawn through online reimbursement requests. If you did not use any HSA funds, you will not receive Form 1099-SA. It is possible that you may only receive this form electronically. (If ConnectYourCare is your HSA custodian, you can access this form online by logging into your account and selecting “View HSA Tax Information” under the “I want to” dropdown menu.)

HSA participants need to use the 1040 long form to file taxes, not the 1040 EZ form.

Form 8889 reports all 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 or contact your tax advisor for details on how to complete Form 8889.

If applicable, 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. There are many reasons that you may have exceeded the IRS contribution limits for an HSA, including an error in filing, rollover from the previous year, and a shortened plan year (if you signed up for the HSA halfway through the year but still contributed up to the limit). Consult your tax advisor if you have questions about this form.

By May 31, you should receive Form 5498-SA from your HSA custodian, reporting the total contributions made to your HSA for the 2019 tax year. This form is usually created after the standard tax filing deadline (typically April 15) to include any contributions made to your HSA up to that deadline. This form is also submitted by your HSA 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. Like form 1099-SA, this form could be provided electronically to you. You may also receive an updated Form 5498-SA if you make previous tax year contributions in the current tax year.