The second group needs to hang onto the receipts even longer, until they actually take a distribution from the HSA. Years or even decades from now, those receipts could keep you from paying extra taxes on HSA distributions. You must always file a Form 8889 in any year you or an employer contributes money to your HSA or you make withdrawals from the account. The deduction you calculate on Form 8889 is taken on the first page of your income tax return. Since this is an adjustment to your income, there is no requirement that you be eligible to itemize deductions to claim it. There are some additional reminders you and your employees need to be aware of when it comes to how HSA contributions can impact tax filing. If you were ineligible to make tax-free contributions for any part of 2020 you will need to determine if you made any contributions to your HSA that exceed the pro-rated annual IRS contribution maximum.
Since using an HSA correctly can lead to significant tax savings, it’s important to fill out the Form 8889 each year you use the HSA. Auto, homeowners, and renters insurance services offered through Credit Karma Insurance Services, LLC (dba Karma Insurance Services, LLC; CA resident license # ). If you ended your eligibility, you’ll generally also need to disclose any direct transfers from a retirement account to your HSA and calculate a 10% tax. You’ll use Part III if you changed or ended your coverage during the year, altering your eligibility for an HSA and potentially subjecting you to more taxes. On the second part of Form 8889, you report distributions from HSAs. But if you were only covered by a high-deductible plan, or HDHP, for part of the year, your maximum contribution will be prorated by month.
And while their participation ends once they’re enrolled in Medicare, they can continue to keep their account open and use the HSA funds they’ve accumulated in the account as needed without penalty. If you offer your employees a health savings account program, that means there are some things you—and your employees—need to know when it comes to how an HSA impacts their tax filing. Luckily, if you’ve partnered with Bend, we provide the necessary HSA tax forms and HSA tax filing instructions directly to your employees. Tax form 8889 is the document you submit to the IRS that determines what additional taxes you’ll have to pay.
That means the amount you withdrew matched the amount you spent on eligible expenses. Once you enter all the information into Form 8889, you’ll see your deduction in line 13. Come tax time, anyone who contributed to or received a distribution from an HSA will need to fill out Form 8889. Instead, you’ll probably use a tax software program like H&R Block or TurboTax. Unlike many tax-advantaged investment accounts, you may use your HSA long before retirement. If you break an arm, have a baby, or have some other medical need, you may decide to take a distribution from your HSA.
In line 2 of Form 8889, it says to enter the amount you contributed to an HSA. This only includes contributions you made outside of payroll deductions. Contributions through payroll deductions show up on line 9 — employer contributions to HSAs. The other camp tries to keep as much money as possible in the HSA to let it grow through investments . This can lead to massive account balances, and could reduce your need for long-term care insurance later in life.
Keep An Eye Out For Hsa Tax Documents
For 2019, this is $3,550 for self-only coverage and $7,100 for family HSAs. People who are 55 and older and not covered by Medicare may be able to add an additional $1,000 for the year. You stopped being eligible for an HSA during the year — for example, you stopped being covered by a high-deductible health plan. A high-deductible health plan is one that has a higher deductible than other health plans. And it has a maximum amount for the total of the annual deductible and out-of-pocket expenses (like co-pays and other amounts). The Federal Information Worksheetwill display and all the forms in your return will be listed on the left side. Line 12b on the 8889 is the excess amount of contributions withdrawn after the end of the year.
If you’re either self-employed or you made contributions outside of payroll deductions, then you’ll need to account for those HSA contributions separately. You can almost always find information about these from an annual statement from the company that houses your HSAs. If you’re young, healthy, and not hoping to give birth anytime soon, one of the best ways to save money is to go on a high-deductible health insurance plan with a Health Savings Account . If you’re in a high-deductible health care plan, it makes sense to put money into an HSA. Be sure you understand the rules for HSAs, including whether you’re eligible to have one — not everyone is. But not every health-related cost will be eligible for the deduction.
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This tax applies to each tax year the excess contribution remains in the account. Whether you’re in the first camp or the second camp, you need to save your medical receipts. The first group will use the medical receipts during tax season to prove they used the funds for qualified medical expenses.
If you have a Health Savings Account , you might be a bit confused come tax season. You’re probably already aware that a tax-sheltered HSA offers incredible financial benefits, but figuring out how to get the most out of your tax savings can become a little fuzzy. To ensure your contributions are tax exempt, you must file Form 8889. Doing so also prevents you from paying penalties and enables you to claim certain deductions. Keep reading to learn all about the HSA Form 8889 instructions and see how you can make the most out of this tax year. IRS Form 8889 is used to report HSA contributions, distributions and your tax deductions.
These IRS tax forms are also available in the Member Website. 1 TaxSlayer Pro through SurveyMonkey surveyed 757 users of TaxSlayer Pro online tax preparation software 4/1/19 through 4/17/19.
Please note that you do not receive form 8889 from your HSA administrator. Instead, form 8889 is generated by TurboTax in the process of creating your 1040 tax return, using data from your W-2, form 1099-SA, and entries you make in the HSA interview in TurboTax. You may use TurboTax Online without charge up to the point you decide to print or electronically file your tax return. Printing or electronically filing your return reflects your satisfaction with TurboTax Online, at which time you will be required to pay or register for the product. If you were covered by both a self and family plan at different parts of the year, pay special attention to Lines 1 and 3. On Line 1, mark the plan under which you were covered for the most time during the year, and on Line 3, follow the IRS instructions for calculating your contribution limit for 2019. IRS Form 5498-SA provides you with a summary of the contributions made to your HSA during the tax year.
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Any excess contributions that are not withdrawn from your account before year end will be subject to a 6% excise tax until removed. On Line 20, you’ll complete the calculation to determine what contributions count as additional income and on Line 21, you’ll multiply that number by 10% to determine the additional tax penalty for which you’re responsible.
If you contribute in the new year for the previous tax year, you will also get another 5498-SA form in May. However, if you only have partial HDHP coverage, then you can only make a partial contribution. You basically take the maximum annual contribution and multiply by the number of months you’re eligible to make the correct contribution and avoid the penalty. But what if you change insurance part of the way through the year? Basically, each month you have high-deductible health insurance, you can contribute 1/12 of the overall limit. So if you have high-deductible health insurance for six months, your limit is $1,750 for an individual. But even if you use software, it’s important to understand the form.
It can lead to some tax penalties if you aren’t careful about maintaining your high-deductible eligibility. These limits also apply if you’re on a high-deductible health plan on December 1st of the tax year. The other confusing part of this section has to do with line 3 — your contribution limit for the year. If you’re on a high-deductible health plan for the whole year, your contribution limit is $3,500 for individual coverage ($4,500 if you’re over age 55) or $7,000 for family coverage ($8,000 for age 55 or over).
If you make any mistakes, you could be subject to penalties so it’s important to get it right. If you’re unsure of your calculations or if something doesn’t make sense to you, don’t hesitate to reach out to a tax professional.
If your contributions were more than the maximum, you may need to pay taxes on the excess contributions. You can use the money in your HSA for a variety of health-related expenses for yourself, your spouse or your dependents, including preventative care, surgery, and even orthodontics. However, you cannot use the money in an HSA to pay medical insurance premiums unless you are paying COBRA coverage after losing your job, or paying premiums while collecting unemployment.
But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That’s why we provide features like your Approval Odds and savings estimates.
- This means you can pay for your medical expenses with tax-free dollars.
- If you’re not satisfied, return it to Intuit within 60 days of purchase with your dated receipt for a full refund.
- In addition to high deductibles, the plan must impose maximum annual out-of-pocket cost ceilings that also satisfy IRS limitations.
- If you make any mistakes, you could be subject to penalties so it’s important to get it right.
- This can be adjusted in the tax program if necessary.Line 5 – Used if the Taxpayer also has an Medical Savings Account that their employer made contributions to.
Flexible spending accounts and health reimbursement accounts are administered by OptumHealth Financial Services and are subject to eligibility and restrictions. The content on this website is not intended as legal or tax advice. Federal and state laws and regulations are subject to change. While health savings accounts were created by the federal government, states can choose to follow the federal tax treatment guidelines or establish their own. If you are 65 or older or enrolled in Medicare, you can use your HSA for nonmedical expenses without incurring a tax penalty.
For example, if you had to pay for contact lenses and that cost wasn’t covered by any insurance, that expense could be eligible. You’ll start by tallying up your total distributions for the year from all your HSAs (it’s possible to have more than one). Then you’ll add up all the qualified medical expenses that you paid for with HSA distributions. I asked what do I need to put on tax form 8889-T what do I need to put on line 12? Line 12B contains the amount of excess HSA contributions that you told TurboTax that you would withdraw before the due date of the return.
For information on the interaction between a health FSA and an HSA, check out IRS Publication 969 (see the section “Other employee health plans”). TaxSlayer Pro makes tax filing simpler and less stressful for millions of Americans with exceptional, easy-to-use technology. An authorized IRS e-file provider, the company has been building tax software since 1989. With TaxSlayer Pro, customers wait less than 60 seconds for in season support and enjoy the experience of using software built by tax preparers, for tax preparers. Line 7 – The amount of the HSA distribution that is taxable and will be carried to Form 1040, Line 62 with box C checked and marked HSA and the taxable amount. IRS Form 5498-SA is typically available around the end of January.
And if you’re not current working with us, we hope you consider a partnership with Bend. Contact us today to request a demo and to learn more about all our top-ranked Bend HSA platform has to offer. But that doesn’t mean you shouldn’t still proactively communicate to your employees who participate in your HSA program to make sure they’re aware of and understand what they need to do from an HSA tax filing perspective. Indiana University is an equal employment and affirmative action employer and a provider of ADA services. Department of Education Office for Civil Rights or the university Title IX Coordinator.See Indiana University’s Notice of Non-Discrimination here which includes contact information. Once you turn 65 or become disabled, there are no restrictions on how you use your HSA money. Once you’ve gathered your necessary paperwork, carefully follow the Form 8889 instructions line by line; failing to do so could result in an error, which might then require tax resolution.
If you didn’t (or don’t) maintain eligibility for that time, you will have to include the excess contributions in your gross taxable income. Under the IRS “Last Month Rule,” you may be eligible for an entire year if you’re considered an eligible individual on the first day of the last month of the tax year . If you fail to remain eligible for an HSA—for reasons other than disability—you will be required to include in income the total contributions made to your account. This additional amount of income is subject to a 10% added tax which can be calculated on Part III of HSA Form 8889. If you do make excess contributions, you can prevent being penalized by completing an Excess Contribution and Deposit Correction Request Form to have excess funds returned to you. This and other account forms are available after you sign in. A. If you contribute more than the allowable amount, you will have to count the extra amount as taxable income, and the IRS may have you pay a 6 percent excise tax on the excess contributions.
She gets the tax advantages of the HSA while paying off debt. But when it comes time to file your taxes, it’s important to have all of your forms in order to maximize the tax benefits of your HSA and avoid penalties. Once you’re done with Form 8889, you’ll attach it to your Form 1040 — the form everyone uses to file their taxes. You’ll include your HSA deduction on Form 1040 Schedule 1, a common form used to adjust income. If you have any distributions for non-qualified expenses, you’ll need to pay a 20% tax on them. You don’t receive form 8889 in the mail or online; it is created by TurboTax as part of your tax return process. You are allowed to use the money to pay for long-term care insurance and, if enrolled in Medicare, to pay deductibles, co-pays and coinsurance.