Contributions, Distributions, Deductions, and Form 8889

By | March 2, 2015

The amount the taxpayer or any other person can contribute to the taxpayer’s HSA depends on the type of HDHP coverage, the taxpayer’s age, the date the taxpayer became an eligible individual, and the date the taxpayer is no longer an eligible individual. In addition, the contribution limit for an HSA is reduced by employer contributions.


When to use Form 8889?

  • Report health savings account (HSA) contributions (including those made on your behalf and employer contributions),
  • Figure your HSA deduction,
  • Report distributions from HSAs, and
  • Figure amounts you must include in income and additional tax you may owe if you fail to be an eligible individual.


What are Health Savings Accounts (HSAs)?

HSAs enable taxpayers to pay for current medical expenses and save for future qualified medical expenses on a tax-free basis. The following forms are used to report HSA activities:

  • Form 5498-SA to report contributions to a taxpayer’s HSA. Employer contributions will also be shown in Form W-2, box 12—may include employee contributions under a Section 125 Cafeteria Plan (pretax dollars).
  • Form 1099-SA to report HSA distributions for the year.
  • Form 8889, Health Savings Accounts, Part I, to report contributions and calculate the HSA deduction.
  • Form 8889, Health Saving Accounts, Part II, to report HSA distributions and report qualified medical expenses. Amounts that are taxable are calculated, and the 20% additional tax is also shown here.
  • Form 8889, Health Savings Accounts, Part III, is Income and Additional Tax for Failure to Maintain HDHP Coverage. This part of the form is out of scope. Refer taxpayers with these issues to a professional tax preparer.


Rules about Funds in HSAs and Form 8889

Funds in an HSA can remain in the account and are carried over, without limit, from year to year until the taxpayer uses them. Interest or other earnings on the assets in the account are tax-free. Taxpayers can receive tax-free distributions from their HSA to pay or be reimbursed for qualified medical expenses that are incurred after establishing the HSA. Qualified medical expenses are those expenses that would generally qualify for the medical and dental expense deduction on Schedule A of Form 1040. There are recordkeeping requirements for HSA distributions. See Publication 969 for additional information.


Other Items Related To Form 8889

  • Publication 502, Medical and Dental Expenses – This publication explains the itemized deduction for medical and dental expenses that you claim on Schedule A (Form 1040).
  • Publication 590, Individual Retirement Arrangements (IRAs) – After tax year 2013, Publication 590 will be split into two separate publications as follows. Publication 590-A, will focus on contributions to traditional IRAs as well as Roth IRAs. This publication will include the rules for rollover and conversion contributions. Publication 590-B, will focus on distributions from traditional IRAs as well as Roth IRAs. This publication will include the rules for required minimum distributions and IRA beneficiaries.
  • Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans – This publication explains health savings accounts (HSAs), medical savings accounts (Archer MSAs and Medicare Advantage MSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs).


Other Tax Forms Related to IRS Form 8889

  • Form 1040, U.S. Individual Income Tax Return – Annual income tax return filed by citizens or residents of the United States.
  • Form 1040NR, U.S. Nonresident Alien Income Tax Return – You may need to file Form 1040NR if you were a nonresident alien engaged in a trade or business in the United States, represented a deceased person who would have had to file Form 1040NR, or represented an estate or trust that had to file Form 1040NR.
  • Form 8853, Archer MSAs and Long-Term Care Insurance Contracts – Use this form to report Archer MSA contributions, figure your Archer MSA deduction, report distributions from Archer MSAs or Medicare Advantage MSAs, report taxable payments from long-term care (LTC) insurance contracts, or report taxable accelerated death benefits from a life insurance policy.