HSAs and Filing Your Taxes

Health Savings Accounts and Filing Your Taxes

If you have a Health Savings Account (HSA), you may have some questions about HSAs and filing your taxes.

HSAs provide a tax-advantaged financial tool for reducing out-of-pocket healthcare expenses and saving for retirement. However, because the money contributed to your account is pre-tax, it must be accounted for on your tax returns.

If you’re filing HSA tax information for the first time, you may be asking, “What is the 1099-SA form and where do I get it? What is the HSA Form 8889? What is Form 5498 used for?” Fortunately, all of these forms are relatively simple and we have the answers to your questions below.

HSAs and Filing Your Taxes

IRS Requirements

Let’s start with the basics. If you have an HSA, you need to include information from two IRS forms – Form 1099-SA and Form 8889 – on your 1040 tax form.

Form 1099-SA is used to report the amount of distributions (withdrawals) made from your HSA account during the taxable year. Form 8889 reports all contributions made to your account. Your employer or account custodian will provide the information needed to complete these forms; some of the information is also included on your W-2.

There is also a third tax form for HSAs. You should also receive Form 5498-SA from your employer or account custodian. Form 5498-SA reports contributions made to your HSA for informational purposes only.

IRS Form 1099-SA

When you withdraw funds from your HSA, the company that administers your account is required by the IRS to report all distributions that occurred during the year. The company will send you Form 1099-SA, which provides a list of all HSA withdrawals, including distributions made directly to a healthcare provider as well as those made to yourself.

Form 1099-SA is brief. If you use online tax preparation software, you can probably import the information directly into your 1040 file. Otherwise, it only takes a few minutes to type in the data by hand. You can also download instructions for Form 1099-SA from the IRS website. If you file your taxes by postal mail, be sure to attach a copy of the form with your returns.

IRS Form 8889

This form reports all contributions and distributions (withdrawals) associated with your HSA during the taxable year. Use this form if:

  • You or anyone else made contributions to your HSA
  • You received distributions (withdrawals) from your HSA
  • You acquired an interest in an HSA due to the death of the account beneficiary

Form 8889 allows you to:

  • Report all HSA contributions, including employer contributions and those made on your behalf
  • Calculate your HSA deduction
  • Report distributions (withdrawals) from HSAs
  • Calculate any amounts you must include in your income for tax purposes
  • Identify any additional taxes you may owe

For more information, download Form 8889 instructions at the IRS website.

IRS Form 5498

Since this document is for information purposes only, you might wonder, “What do I do with IRS Form 5498?” The best answer is to keep it with your tax return records. You do not need to enter the information on your tax forms. However, it can be helpful to have it close at hand when completing Form 8889.

Tax Filing Deadline

Whether you e-file or send your forms by mail, the last day to file income taxes in 2022 for calendar-year filers is Friday, April 15; if you file by mail, your returns must be postmarked no later than midnight.

If you can’t file your federal tax return by the deadline, you can request an automatic six-month extension. You will need to file IRS Form 4868 before April 15. Keep in mind that if you owe taxes, you should go ahead and pay them by April 15 or you will be charged interest on the unpaid tax amount until you file and pay your tax bill.

Other HSA Tax Considerations

Understanding how to correctly use Form 1099-SA and Form 8889 helps you avoid paying more taxes than you should or making mistakes that could result in IRS penalties. Keep the following in mind about HSAs and filing your taxes:

  • Withdrawals from an HSA are tax-free as long you use the money to pay for qualified medical expenses. Eligible expenses cover a wide range of medical and dental expenses, including regular checkups, office visits, surgeries, diagnostic treatments, eyeglasses, physical therapy, psychiatric care and much more.
  • HSA money spent on non-qualified healthcare expenses is considered taxable income by the IRS. Once you reach age 65, however, you can use HSA withdrawals for any reason without penalty on the distribution.
  • Contributions to your HSA that exceed the maximum allowable limit are also considered taxable income. The limit for 2021 is $3,600 for individuals and $7,200 for families; for 2022, it’s $3,650 for individuals and $7,300 for families.
  • Money held inside an HSA can be withdrawn at any time for medical expenses. Unlike a healthcare Flexible Spending Account, unused contributions automatically roll over in full at the end of each year. This allows you to accumulate tax-free income for use later in life.
  • All earnings from funds deposited in an HSA, including interest and investment returns, are tax-exempt at the federal level. Some states do not allow deductions for HSA contributions, while others tax earnings and capital gains over a certain annual amount.

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.

DataPath is a leading provider of cloud-based solutions for HSA administration, including account management, debit cards, investments and banking.

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