Your Hsa And Tax Forms: Everything You Need To Know
The triple tax savings with health savings accounts 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 and what constitutes a qualified consumer-driven health plan for having an HSA . It also means youre responsible for accurately reporting your HSA usage on your annual tax return.
Instructions For Forms 1099
For the latest information about developments related to Forms 1099-SA and 5498-SA and their instructions, such as legislation enacted after they were published, go to IRS.gov/Form1099SA and IRS.gov/Form5498SA.
In addition to these specific instructions, you should also use the 2021 General Instructions for Certain Information Returns. Those general instructions include information about the following topics.
Who must file.
When and where to file.
Form 1099-SA and its instructions are continuous use. Both the form and instructions will be updated as needed. For the most recent version, go to IRS.gov/Form1099SA.
Due to the very low volume of paper Forms 1099-SA and 5498-SA received and processed by the IRS each year, these forms have been converted to an online fillable format. You may fill out the forms, found online at IRS.gov/Form1099SA and IRS.gov/Form5498SA, and send Copy B to the recipient. For filing with the IRS, follow the applicable procedures if you are required to file electronically. For Forms 1099-SA and 5498-SA only, if due to a low volume of recipients, you are filing the form on paper, you can send in the black-and-white Copy A with a Form 1096 that you also printed from the IRS website.
I Contributions And Deduction
This part of the form asks you to verify that you were covered under a high deductible health plan during the year in question, how much you and then your employer contributed, and calculates your contribution amount was for the year. This contribution amount is the actual amount you can deduct from your taxable income, so it is very important. This calculation occurs on Line 3 of Form 8889 and can be tricky, so pay attention there.
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Filing Your Taxes With An Hsa
You know that HSAs are great for saving for retirement, both future and current medical costs, and much more. But what about filing taxes with an HSA?
Tax time isnt an officially recognized season, but that doesnt stop me from calling it The Procrastination Season! Its that time of year when you have everything you need to complete your income tax return but you just cant bring yourself to do it. Sound familiar? Welcome to the club!
Membership is not exclusive and there are no real benefits, besides getting to watch a lot of Netflix while youre putting off what you should really be doing.
As you think about your taxes, dont forget about your health savings account . We often tell you that HSAs are about the best vehicle for saving for future medical and retirement costs, as well as saving on medical expenses in the here and now. But what makes these accounts so amazing is their tax treatment and anything that has tax treatment falls under the purview of the IRS.
What Taxes Do You Owe On Hsa Contributions And Withdrawals
It is important to know the basics of how HSAs work to file taxes correctly. In this section, well break down what constitutes a contribution, contribution limits, qualified withdrawals, and tax responsibility.
At the start of each plan year, check the latest IRS contribution limit for HSAs, so you dont exceed this amount. For 2020, the maximum amount you could contribute to an HSA was $3,550 for an individual plan and $7,100 for a family plan. If you were over age 55 in 2020, you could have added another $1,000 to those limits as part of the catch-up contribution program for those nearing retirement. This total contribution limit includes any contributions you made either through payroll or out-of-pocket, contributions your employer made, or any contributions made by others.
HSA contribution limits apply to the total of all contributions from every source contributing to every HSA you own. For instance, if you have two HSA accounts, and your employer contributes to one, and you alone contribute to the other, the total amount contributed to both accounts cant exceed the IRS maximum for the year. You can continue to contribute to the HSA up to the tax filing deadline for that tax season, which means that for the 2021 tax year, you can continue making contributions up to May 17.
HSA Mid-Year Enrollment Contribution Limits
HSA Tax Responsibility
HSA Interest and Earnings
Individual HSA Claim Your Tax Deduction!
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Want More Money In Retirement Reimburse Yourself Later
One of the major financial benefits of an HSA is that you can choose to reimburse yourself anytime. This gives you the opportunity to save the funds in your account. It also provides the opportunity to increase interest earned or provide more time for invested funds to grow.
Many people choose to pay for medical expenses out-of-pocket and reimburse themselves later. Since theres no reimbursement deadline, you can choose to reimburse yourself years later. Even during retirement.
This requires you to save your receipts and invoices for reimbursement. In the event that you ever get audited by the IRS, they will ask for proof. If youre unable to provide those records, you would have to pay regular income tax plus a 20% penalty on your reimbursements.
What Should I Do With Form 8889
Before you start filling out Form 8889, make sure you have all of the information you need.
Once the tax year ends, you should start receiving forms from your HSA administrator. Form 5498-SA will detail contributions you made, and your W-2 will have any employer HSA contributions. Form 1099-SA should detail all distributions. All this information will go on your Form 8889.
Once youre done with Form 8889, youll attach it to your Form 1040 the form everyone uses to file their taxes. Youll include your HSA deduction on Form 1040 Schedule 1, a common form used to adjust income.
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Filing Your Taxes Correctly Is Worth The Effort
While tax filing related to your HSA may seem daunting, it is worth it to do your taxes correctly and take advantage of the many tax benefits of an HSA. Not only does an HSA allow you to save tax-free money for medical expenses in the near-term, it also allows you to save money for retirement in the long-term. HSAs can be a valuable part of your financial plan, and getting your HSA taxes squared away will put you on a path to success.
What Documents Do You Need To Support Your Medical Expenses Claim
Do not send any documents with your tax return. Keep them in case the Canada Revenue Agency asks to see them later.
- Receipts Receipts must show the name of the company or individual to whom the expense was paid.
- Prescription The List of common medical expenses indicates if you need a prescription to support your claim. A medical practitioner can provide the prescription.
- Certification in writing The List of common medical expenses indicates if you need a certification in writing to support your claim. A medical practitioner can provide the certification.
- Form T2201, Disability Tax Credit Certificate The List of common medical expenses indicates if you need to have this form approved by the CRA for your claim. For more information about this approval process, see Disability Tax Credit.If the person for whom you are claiming the medical expense is already approved for the disability tax credit for 2019, you do not need to send a new Form T2201.
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Ask Penny: What Do I Need To Know About Filing Taxes If I Have An Hsa
There’s no “one-size-fits-all” when it comes to preparing taxes, but contributing to a Health Savings Account wont add much complexity to your tax situation. Tracking down the right forms is the best place to start.
Forms Youll Need
- Form W-2 – If you work for someone else, you should receive a W-2. This form includes a breakdown of your income, including what part of your earnings was put into your HSA.
- Form 5498-SA – When you put money into an HSA, the IRS wants to know about it and thats the purpose of Form 5498-SA. You can make HSA contributions until the tax deadline, so this form shows up later possibly even by the end of May. A copy goes to both you and the IRS.
- Form 1099-SA Any withdrawals or distributions from an HSA will be reported on this form, which is provided by your HSA custodian.
The three forms above track your activity for the year. Once you have them handy, it’s easy for you to complete these two:
- Form 5329 – There is a strict annual limit for HSA contributions. If you contributed too much in 2019, youll need to fill out Form 5329 .
- Form 8889 This form includes the year’s HSA contributions and withdrawals.
Now that you have gathered the necessary tax forms, its time to file! HSA contributions are reported on Line 25 of Form 1040. If you use a tax software, it will ask you a few questions and use your answers to calculate the number that goes on Line 25.
Filing Your Taxes With Hsa Information Is Easy With 1040com
We like keeping taxes simple, and that even goes if you have HSA information to report on your return. Just enter the distributions amount on the Health Savings Account screen on your 1040.com return, and youll be home free. Dont forget to or log in to file your taxes with 1040.com today!
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What Is A Flexible Spending Account
A flexible spending account is a workplace account you can use to pay for certain medical costs that come out of your own pocket, such as insurance copays, prescriptions and other items needed to meet your health policy’s deductible. You contribute to the account as a payroll deduction from your salary, and in return the IRS agrees not to tax that portion of your salary.
Qualifying For An Hsa
Not all taxpayers are eligible to have an HSA. To qualify, you must be enrolled in a health insurance plan that imposes high deductibles that meet or exceed IRS required amounts. In addition to high deductibles, the plan must impose maximum annual out-of-pocket cost ceilings that also satisfy IRS limitations.
If you have other first-dollar medical coverage, enroll in Medicare or are claimed as a dependent on another taxpayers return, then you arent eligible to use an HSA. However, disability, dental plans, vision, long-term care and catastrophic-disease policies, such as cancer insurance, will not disqualify you from having an HSA.
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What Happens If I Use My Hsa Funds On Something Other Than Medical Expenses
If you make a non-qualifying withdrawal meaning you used money for a non-qualifying expense youll get hit with an IRS penalty. The penalty is 20% of the withdrawal, which is a substantial amount.
Hows the penalty assessed? You must self-report any non-qualifying purchases on the Health Savings Account screen. Not claiming the non-qualifying expenses may lead to an audit and more penalties and fines.
How can I prevent avoid a penalty? First, check whether its actually a qualifying expense. Its also a good idea to keep receipts . If you use your HSA to pay for over-the-counter medications, keep a copy of the prescription provided by your doctor. Over-the-counter medications are not normally a qualifying expense, but they are if you have a prescription. Bottom line: if you use your HSA to make a payment or make a purchase, keep the paperwork.
Which Medical Expenses Can You Claim
To know for whom you can claim medical expenses, see How do you claim eligible medical expenses on your tax return?
You can claim only eligible medical expenses on your tax return if you, or your spouse or common-law partner:
- paid for the medical expenses in any12-month period ending in 2020
- did not claim them in 2019
Generally, you can claim all amounts paid, even if they were not paid in Canada.
For all expenses, you can only claim the part of the expense that you or someone else have not been and will not be reimbursed for. However, the expense can be claimed if the reimbursement is included in your or someone else’s income and the reimbursement was not deducted anywhere else on the tax return.
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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 2018 was $3,450 for individuals and $6,900 for families.
- Money held inside an HSA can be withdrawn at any time for medical expenses. Unlike a healthcare Flexible Spending Account, unused contributions roll over at the end of the year. This allows you to accumulate tax-free income for use later in life.
- Because HSA distributions for qualified expenses are tax-free, the IRS does not allow you to deduct medical expenses that were paid for with an HSA. Also, any medical expenses paid with an HSA account cant be applied toward the percentage of adjusted gross income needed to take medical deductions.
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Can I Still Make Hsa Contributions For The Last Tax Year
The IRS allows HSA contributions for a tax year up through the tax filing deadline, which is typically April 15 of the following year.
To make a contribution for 2021, you can log in at www.hellofurther.com and click Make a Deposit to transfer funds directly from a bank account. Or, you can send a check with a contribution form to Further.
Am I Required To Keep Receipts And Records
While youre not required to submit any receipts to HSA Bank for your HSA, you absolutely should save any receipts and Explanation of Benefits for IRS-qualified medical expenses for tax purposes. Using our online expense tracker, you can easily enter and track these expenses when you securely upload receipts and supporting documentation.
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Get Your Tax Forms Together To File By July 15
There are certain tax forms you will need if you are filing with an HSA. We will go over each of these forms briefly here to help you understand what forms you require and why.
W-2 Wage and Tax Statements
Form 1099-SA Distributions from an HSA
IRS Form 1040 U.S. Individual Income Tax Return
HSA participants need to use the 1040 long form to file taxes, not the 1040 EZ form.
IRS Form 8889 Health Savings Accounts
Form 8889 reports all contributions to and distributions from your HSA for the tax year. This form also allows you to report if any of your HSA funds were used for non-qualified medical expenses. Refer to the IRS Instructions for Form 8889 or contact your tax advisor for details on how to complete Form 8889.
IRS Form 5329 Additional Taxes on Qualified Plans and Other Tax-Favored Accounts
If applicable, you need to submit this form, along with Form 1040, to report excess HSA contributions that are not withdrawn from your HSA prior to the tax filing deadline. There are many reasons that you may have exceeded the IRS contribution limits for an HSA, including an error in filing, rollover from the previous year, and a shortened plan year . Consult your tax advisor if you have questions about this form.