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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 2020, $3,550/self-only coverage and $7,100/family coverage) and what constitutes a qualified consumer-driven health plan for having an HSA (for 2020, 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.
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 accountholders who made withdrawals (also called distributions) in the prior year. Form 1099-SA shows all HSA distributions for the prior year, including withdrawals for qualified medical expenses, withdrawals for non-qualified expenses, and removals of excess contributions.
Form 1099-SA helps HSA accountholders 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 2018, including HSA rollovers (but not HSA transfers).
Box 2: If you made an excess HSA contribution in 2018 and withdrew that excess contribution by April 15th, 2019, 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:
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 accountholders (unless the accountholder took all the funds out of their HSA that year and didn’t make any contributions).
Form 5498-SA is sent out at the end of August (for 2020 only, typically the form 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 2019 to your HSA. Important: This includes any IRA-to-HSA transfers and any contributions made in 2019 for 2018.
Box 3: This box shows the total contributions to your HSA made in 2020 for 2019.
If the sum of Box 2 and Box 3 is higher than the 2019 contribution limit ($3,500 for self-only coverage, $7,000 for family coverage), that doesn’t automatically mean you contributed too much in 2019. Remember that Box 2 also includes any contributions made in 2019 for 2018. If you have a question about your contributions, your HSA provider can help.
Box 4: This box shows any HSA rollovers made in 2019. If you made a direct HSA-to-HSA transfer in 2019, 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, 2019.
Box 6: This box shows what type of savings account you have.