Health Savings Accounts and Filing Your Taxes

Health Savings Accounts and Filing Your TaxesThe tax filing deadline is two weeks away (April 17). Here’s the information you need for Health Savings Accounts and filing your taxes.

As you prepare and compile tax documents, it’s important to know what forms you may need to file if you have a Health Savings Account (HSA). In addition to Form 1040, there are two other very important documents – Form 1099-SA and Form 8889.

Health Savings Accounts and Filing Your Taxes

Receiving the HSA tax deduction requires submitting Forms 1099-SA and 8889 with your tax returns. HSA owners should also receive a Form 5498-SA, though it is for informational purposes only.

Form 1099-SA

Your HSA administrator will send you Form 1099-SA, which provides a list of all the withdrawals from your account. Use the numbers from Form 1099-SA to help fill out Form 8889. Submit Form 1099-SA to the IRS along with your Form 1040. Download instructions for Form 1099-SA.

Form 5498-SA

HSA owners should also receive a Form 5498-SA from their HSA trustee or custodian, which provides a list of all contributions made to your HSA during the previous tax year. Form 5498-SA is helpful in filling out Form 8889, but it is not submitted to the IRS.

Form 8889

Use Form 8889 to report all contributions and withdrawals associated with your HSA in 2017. This form is to be used if:

  • You or anyone else made contributions to your HSA
  • You received distributions, or
  • You acquired an interest in an HSA due to the death of the account beneficiary.

On Form 8889:

  • Report all HSA contributions, even those made on your behalf and employer contributions
  • Calculate your HSA deduction
  • Report distributions from HSAs
  • Calculate amounts you must include in income and any additional taxes you may owe

Download instructions for Form 8889.

Tax Filing Deadline

In 2018, taxpayers get two extra days to file since the IRS has extended the tax filing deadline to Tuesday, April 17. Generally, the annual filing deadline is on April 15, however, when that date falls on a Saturday, Sunday, or legal holiday, the IRS moves the date to the next business day. This year, April 15 falls on a Sunday and Emancipation Day is Monday, April 16, in Washington, D.C.

That’s all the important stuff you need to know regarding Health Savings Accounts and filing your taxes. Of course, there are additional tax benefits to owning an HSA.

Three Tax Advantages

Thanks to their tax-favorable design, HSAs provide what is often referred to as the “triple tax advantage.”

1. Tax-Deductible Contributions

All HSA contributions are tax-deductible. This reduces your taxable income, thereby lowering your taxes. In some cases, this can put you in a lower tax bracket, where you get taxed at a lower rate.

*All contributions should be listed on Form 5498-SA and filled out and submitted on Form 8889.

2. Tax-Free Withdrawals

All HSA withdrawals are tax-free as long as you use them for qualified medical expenses. “Qualified” covers a wide range of medical and dental expenses, from regular checkups and office visits to surgeries, diagnostic treatments, eyeglasses, physical therapy, psychiatric care and much more.

*All withdrawals should be listed on forms 1099-SA and 8889.

3. Tax-Free Earnings

Perhaps the biggest advantage is that the earnings on any unused balance in your HSA account are tax-deferred. You can’t withdraw the money until age 65 or older unless you use it for medical expenses. However, beginning at age 65 you can withdraw funds for any reason. You are likely to be in a lower tax bracket then, meaning you’ll have a lower tax rate and pay less taxes on any withdrawals.

Why pay more taxes when you don’t have to? HSAs are easy to set up and manage, they help cover medical expenses, unused funds roll over from year to year, and they offer multiple tax advantages to reduce your tax burden.

Note: This blog was updated 4/2/2018.

DataPath Summit is an all-in-one HSA administration solution, with full HSA management, including banking and investments in a single platform.

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