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Your HSA and Tax Forms: Everything You Need to Know
The triple tax savings with health savings accounts (HSAs) are unmatched. Contributions are either pre-tax or tax-deductible, interest grows tax-free, and withdrawals for eligible medical expenses are also tax-free. But with great benefit comes some responsibility. After all, HSAs are regulated by the IRS and therefore have certain rules that you must follow as an HSA owner.
For example, the IRS sets the annual maximum amounts you can contribute to your HSA each year (for 2021, $3,600/self-only coverage and $7,200/family coverage) and what constitutes a qualified consumer-driven health plan for having an HSA (for 2021, an annual deductible of at least $1,400/self-only coverage and $2,800/family coverage). It also means you’re responsible for accurately reporting your HSA usage on your annual tax return.
• IRS Form 1040 – This is your individual income tax return. Make sure to report your 2020 HSA contributions, all non-medical HSA distributions, and any excess HSA contributions on Page 2, if applicable. This is one of the forms you’ll mail back to the IRS for your tax return.
• IRS Form 8889 – This form is specific to HSAs. It’s required if any HSA contributions have been made to your HSA (from yourself, another person, or your employer), you have withdrawn money from your HSA (also referred to as distributions), or if you’ve received an HSA upon the death of the owner. For assistance completing your Form 8889, see our step-by-step instructions for how to complete your Form 8889. When you’re done, attach it to your IRS Form 1040 for your tax return.
• IRS Form 1099-SA – This form is sent to you at the end of January already filled out by your HSA custodian and should be used to help you complete your IRS Form 8889. Form 1099-SA documents your HSA distributions (also called withdrawals) for 2020; you’ll only receive this form if you made withdrawals from your HSA in 2020. You may receive multiple 1099-SA forms if you made withdrawals from multiple HSAs in 2020, switched HSA providers during the year, or inherited another person’s HSA. For example, if you changed employers this year and therefore had an HSA with two different administrators, you’ll receive two 1099-SA forms.
• IRS Form W-2 – This form is sent to you already filled out by your employer and includes salary documentation, as well as the amount of taxes that were withheld from your paycheck. It also shows the combined pre-tax contributions you and your employer made to your HSA for the tax year in Box 12-W, so make sure to use this amount when you complete your Form 8889. If you made separate post-tax HSA contributions, they will not be shown here. However, they still need to be reported on your Form 8889. This would include any contributions made outside of payroll deduction.
• IRS Form 5498-SA – This form will be sent to you from your HSA custodian at the beginning of June. It documents your personal HSA contributions during the tax year; it doesn’t need to be filed with your taxes and is sent for informational purposes only. We recommend comparing it to your tax return and keeping it for your records just in case you get audited.
• IRS Form 5329 – This form only applies if you’ve made excess HSA contributions. That means that you’ve contributed more to your HSA in 2020 than you’re eligible to make. If this applies to you, complete this form and submit it with your IRS Form 1040.
Whew! We know tax forms can be overwhelming, so don’t hesitate to contact us if you have additional questions. You can call us at (888) 354-0697 or email us at support@HealthSavings.com.
Note: This content should be used for informational purposes only and must not be considered legal or tax advice. Investors should consult an appropriate legal, investment, or accounting professional as needed.
How Your HSA Can Help You Save More This Tax Season
The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction for individuals (from $6,350 to $12,000) and married couples filing jointly ($12,700 to $24,000). For many taxpayers, this means choosing the new standard deduction (rather than itemizing their deductions) might help them get more money back on their 2018 tax returns.
However, one valuable feature of itemizing deductions is that taxpayers can deduct medical expenses exceeding 7.5% of their adjusted gross income (AGI) for the 2018 tax year. If you had high medical costs in 2018 and choose to itemize your deductions, you can get a tax deduction for any healthcare costs that are more than 7.5% of your AGI. By opting for the standard deduction, you lose the ability to get any additional medical deductions.
HSA accountholders have an ace up their sleeves, though; HSA contributions are either pre-tax if done through payroll withholding or tax-deductible if contributed after-tax. And better yet, you don’t have to itemize to get the tax deduction. That means you always get a tax break when you pay for qualified medical expenses with an HSA, regardless of what deduction you choose or whether your healthcare costs exceed the AGI threshold.
Also, if you don’t have enough funds in your HSA to cover a healthcare cost you incurred that year, you can pay out of pocket and reimburse yourself for that expense once you have more in your HSA. It’s like a tax deduction you can carry forward indefinitely; there’s no time limit on how long you can wait to use HSA funds to reimburse yourself for a medical expense.
If you’d like to choose the standard deduction on your tax return but also want tax breaks for your medical expenses, an HSA enables you to get both. And in addition to not being taxed upon contribution, HSA funds are tax-free as they grow, as well as when they’re withdrawn to pay for or reimburse qualified medical expenses. If saving on taxes matters to you, an HSA is the unquestioned best way to pay for your healthcare costs. Learn more about HSAs’ unparalleled tax advantages or get your own account here.
How To Understand Your 1099-SA Form
Each year, HSA providers are required to send a copy of Form 1099-SA by January 31st to all HSA account holders who made withdrawals (also called distributions) in the prior year. Form 1099-SA shows all HSA distributions for the prior year, including withdrawals for HSA-qualified and non-qualified medical expenses and removals of excess contributions.
Form 1099-SA helps HSA account holders report their HSA withdrawals in the prior year to the IRS on their tax returns.
Box 1: Shows the total amount of withdrawals from your HSA in 2020, including HSA rollovers (but not HSA transfers).
Box 2: If you made an excess HSA contribution in 2019 and withdrew that excess contribution by the 2020 tax return filing deadline, earnings from that excess HSA contribution are shown here (they will also be in Box 1).
Box 3: Shows one of the below distribution codes:
• 1 (Normal distributions): This code refers to regular HSA distributions and any direct payments to a medical service provider.
• 2 (Excess contributions): This code refers to excess HSA contributions that were distributed back to you (the accountholder).
• 3 (Disability): This code refers to distributions made after the accountholder was disabled.
• 4 (Death distribution): This code refers to payments to a deceased accountholder’s estate in the year of death or after the year of death.
• 5 (Prohibited transaction): This code refers to a prohibited transaction made using HSA funds (see questions 34 – 37 on IRS Notice 2008-59 for a list of prohibited HSA transactions).
• 6 (Death distribution after year of death to a non-spouse beneficiary): This code refers to payments to a deceased accountholder’s non-spouse beneficiary, other than an estate, after the year of death.
Box 4: Shows the fair market value (FMV) of the HSA on the accountholder’s date of death, if applicable.
Box 5: Shows what type of medical savings account you have.
Q: Why didn’t I receive a Form 1099-SA?
A: If you didn’t make any withdrawals from your HSA in the previous year, you won’t receive a Form 1099-SA.
Q: Why did I receive multiple 1099-SA forms?
A: You’ll receive multiple 1099-SA forms if you had an excess contribution returned to you in the prior year. The first 1099-SA form will show your regular HSA distributions, and the second form will show the returned excess contribution.
You’ll also receive multiple forms if you made distributions from multiple HSAs during the prior year (if you owned multiple HSAs, switched HSA providers mid-year, or inherited another person’s HSA).
How To Understand Your 5498-SA Form
Each year, HSA providers are required to send a copy of Form 5498-SA to all HSA account holders (unless the account holder took all the funds out of their HSA that year and didn’t make any contributions).
Form 5498-SA is sent out at the beginning of June. It doesn’t need to be filed with your taxes; it’s provided for informational purposes. We recommend comparing it against your tax return and keeping it for your records.
Trustee information: You’ll see the name, address, and number of your HSA trustee here. If you have an HSA through HealthSavings, you’ll see FPS Trust listed here.
“Void” box: If this box is checked, your HSA provider is informing the IRS that your HSA is void.
“Corrected” box: If this box is checked, the IRS had previously received incorrect information and your HSA provider is correcting the information.
Box 1: This box is only for contributions made to Archer MSAs. If you don’t have an Archer MSA, you’ll get a value of zero for this box.
Box 2: This box shows the total contributions made in 2020 to your HSA. Important: This includes any IRA-to-HSA transfers and any contributions made in 2020 for 2019.
Box 3: This box shows the total contributions to your HSA made in 2021 for 2020.
If the sum of Box 2 and Box 3 is higher than the 2020 contribution limit ($3,550 for self-only coverage, $7,100 for family coverage), that doesn’t automatically mean you contributed too much in 2020. Remember that Box 2 also includes any contributions made in 2020 for 2019. If you have a question about your contributions, your HSA provider can help.
Box 4: This box shows any HSA rollovers made in 2020. If you made a direct HSA-to-HSA transfer in 2020, you won’t see that here. See the differences between HSA rollovers and transfers here.
Box 5: This box shows the fair market value of your account as of December 31st, 2020.
Box 6: This box shows what type of savings account you have.