HSA Tax Reporting for the Account Holder

Note for Employers: Health Savings Accounts (HSAs) are becoming a more common part of average Americans’ lives. Paired with HSA-qualified health plans, they cover a growing number of Americans’ health care costs and play an important role in their future.

This post is one of several in a series to help your employees understand HSAs better and use them strategically. The posts are excerpts from “HSA Owner’s Manual, Second Edition” by Todd Berkley (published by Tate Publishing, 2015). Todd Berkley is Senior Vice President and Managing Director for BenefitWallet®.

At this time of year, BenefitWallet receives many questions from our account holders about reporting a Health Savings Account (HSA) on their tax returns. Here’s some important information account holders need to know:

“Questions about reporting a Health Savings Account (HSA) on your tax return? Here’s some important information account holders need to know.” Todd Berkley, Senior Vice president and Managing Director, BenefitWallet.

You are responsible for HSA tax reporting. You own your HSA, and the reporting requirements are similar to those that you face if you own an IRA.

Your employer reports all contributions through a Cafeteria Plan on your W-2 form.

You receive a copy of Form 1099-SA from your HSA trustee by January 31 each year so that you can refer to it as you complete your personal income tax return. The trustee forwards a copy of Form 1099-SA to the IRS.

Form 1099-SA does not break down withdrawals for eligible expenses and non-eligible expenses. What matters most is how you categorize your spending to the IRS on Form 8889. You are responsible for tracking eligible and non-eligible expenses.

You receive a copy of Form 5498-SA by May 31 each year. This document reports the total contributions to the account during the prior tax year and the fair market value of the HSA. The trustee forwards a copy of this form to the IRS.

Trustees are not required to issue Form 5498-SA until May 31 because you can continue to make contributions  for a calendar year up to the date you  file your income tax return or the due-date for federal tax returns (usually April 15), whichever comes first. That means you must rely on other documentation (W-2s, account statements, and web-based transaction searches) to report your HSA contributions on your income tax returns.

You complete and submit Form 8889 as part of your federal income tax return. You indicate the total value of withdrawals for both eligible and non-eligible expenses. You calculate any additions to taxable income, penalties for withdrawals for non-eligible expenses, and testing period violations.

Your turn: Are your employees struggling to understand HSAs? Use the comment box below to tell us their experience.



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