A health savings account (HSA) is an account set up with a qualified HSA trustee that is used to reimburse qualified medical expenses incurred by an individual, their spouse, and their dependents. HSA accounts are used by eligible individuals that have medical coverage under a high deductible health plan (HDHP), and distributions from the plan to pay for qualified medical expenses are excludible from gross income.
Form 8889 is used to report the contributions to and distributions from the HSA for the purpose of determining the HSA deduction and if any distributions are taxable.
An eligible individual is:
See the Form 8889 instructions for the kinds of products and services that qualify. Note that a qualified medical expense paid for by an HSA cannot also be included as an itemized deduction on Schedule A (Form 1040). Qualified medical expenses do not include expenses incurred prior to when the HSA was established, nor expenses paid for by insurance or other coverage.
An individual who received distributions from an HSA must file an income tax return, even if they had no taxable income or had no other reason to file a return.
The Form 8889 has three distinct sections:
Part I – HSA Contributions & Deductions - This section of Form 8889 is used to report contributions that were made to an HSA by the taxpayer, their employer, or a trustee-to-trustee funding distribution from a traditional or Roth IRA. Employer contributions are reported on the taxpayer’s W-2 in Box 12 with code W. The taxpayer's contributions are reported on Form 5498-SA (but generally not until after the original filing deadline of their individual tax return.) Contributions are deductible up to annual contribution limitations.
Part II – HSA Distributions - The distributions menu is used to report any distributions made from an HSA. These distributions will be reported to the account owner on Form 1099-SA. Distributions can be made either to the taxpayer or a designee and are to be used to cover medical expenses or to reduce the amount in an HSA account due to excessive contributions. Distributions used to pay for qualified medical expenses are not taxable, however distributions used for ANY other purpose are taxable and may be subject to an additional 10% penalty.
Part III – Failure to Maintain HDHP Coverage - Use Part III to figure any income and additional tax that must be reported on Form 1040 or Form 1040-NR for failure to be an eligible individual during the period.
The distribution code in Form 1099-SA Box 3 indicates the kind of distribution made and its tax ramifications. Depending on the code, the taxpayer may also be subject to an additional taxes.
| 1 | Normal distribution. |
| 2 | Excess Contributions: This code denotes that the taxpayer, employer, or others on the taxpayer’s behalf have made more than the allowed contributions for the year and they made the distribution of the excess amount. This amount may be subject to additional taxes. |
| 3 | Disability: This code shows the taxpayer became disabled and is not subject to the additional tax on a distribution. |
| 4 | Death distribution other than code 6: This distribution was made due to the taxpayer's death and is not subject to additional tax. |
| 5 | Prohibited Transaction |
| 6 | Death distribution after year of death to a non-spouse beneficiary. |
HSA contributions can be made for a given tax year, up to the original due date of the tax return for that year. The annual contribution limits are subject to an annual adjustment. Recent year limits are as follows:
| 2022 | 2021 | 2020 | 2019 | 2018 | |
| Contribution Limit (Single) | $3,650 | $3,600 | $3,550 | $3,500 | $3,450 |
| Contribution Limit (Family) | $7,300 | $7,200 | $7,100 | $7,000 | $6,850 |
| Additional Catch-Up Contribution | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 |
To enter contributions to a HSA in Software from the Federal Section select:
Total HSA distributions received during 2021 - Enter the amount of distributions indicated on the individual’s Form 1099-SA in Box 1. If there are multiple Forms 1099-SA, enter the sum of the Box 1 amounts.
Distributions used for qualified medical expenses - Enter the total of the qualified medical expenses that were paid for with HSA distributions.
Distributions you received in 2021 that you rolled over into another HSA - Enter the amount of distributions received that was rolled over into another HSA account, if any.
I meet at least one of the exceptions to the 20% tax - HSA distributions not used for qualified medical expenses are subject to an additional 20% tax, however there are several exceptions:
If the taxpayer meets one of the exceptions, select this line, answer Yes to the exception question, and enter the amount that qualifies.
Line 3 Limitation - The amount entered in this field adjusts the amount reported on Form 8889 line 3. It is the greater of:
Line 6 adjustment - The amount entered in this field adjusts the amount reported on Form 8889 line 6. If the taxpayer and spouse had separate HSAs and also had family coverage under an HDHP, see the Form 8889 instructions for how to calculate the adjustment to enter here.
Line 7 amount - If the taxpayer is ag 55 or older at the end of the tax year, is married, and the taxpayer or spouse had family coverage under an HDHP at any time during the year, enter the additional contribution amount here, if any.