When being reimbursed from your HSA for eligible medical expenses, you do not pay tax on the withdrawal. You must pay income taxes plus an additional tax of 20 percent on any HSA amount used for non-eligible medical expenses, unless you’re disabled, age 65 or older or die during the year. If you become disabled or reach age 65, withdrawals can be made for non-medical reasons without penalty, but amounts must be reported as taxable income. If withdrawals for the year are less than or equal to the eligible medical expenses that were paid, there are no tax requirements on those withdrawals.
What tax forms will I need for my HSA?
You will receive the following IRS forms from Horizon as your Combined HSA Tax Statement:
In late January or early February, you should receive a 1099-SA form. It is available on the online portal and will also be mailed by January 31st. This form reports any withdrawals you made from your HSA throughout the tax year.
At the same time you receive the 1099-SA, we will also send a 5498-SA. This form will also be available on the online portal. This form reports all of the contributions to your HSA throughout the tax year. We will send you a revised 5498-SA by June 30th if you do make more contributions that count back to the previous tax year.
If you do receive a revised 5498-SA in June, you do not have to file an extension and postpone filing your taxes until you receive it. You can file your taxes on time with your own records, or use the information from your annual statement. This form can be used for confirmation and record-keeping. If you’re unsure about what to file, please consult a tax advisor.
When you have collected your documentation, you will need to fill out Form 8889 and attach it to Form 1040. Form 8889 reports all of your HSA contributions and withdrawals to the IRS to ensure you receive your appropriate tax benefits. If you choose to use tax preparation services, many will fill this form out for you if you can provide your contribution and withdrawal information for the year. All of your contributions and withdrawals should be on your Annual Statement, which should match your 1099-SA and 5498-SA.
To find your Annual Statement
- Sign in at www.hellofurther.com. (this will include additional sign-in steps for SSO partner portals)
- Select your account
- Click Statements
- Choose a tax year and timeframe
- Select your statement.
You are responsible for keeping records to support withdrawals and to complete Form 8889 and attach it to Form 1040. You won’t need receipts from HSA purchases to file your taxes, but the IRS does require you to keep them for seven years in case you are audited. Further® can help you organize your receipts with our My Records and Receipts feature.
In addition to the required government forms mentioned above, Horizon also provides you with an Explanation of Payment Report, which details the results of all withdrawals (payments) and also includes information about your HSA balance. This statement is available when you sign into your account at www.horizonblue.com. In rare situations, you may receive a paper version of this statement.
Health savings accounts offer deductions on federal income tax for any deposits made to the account. Most states also offer the same deductions on state income taxes. However, since HSAs were set up as a federal program, the individual states can choose to comply with the federal guidelines concerning tax treatment of HSAs, or establish their own rules. At the time this guide was prepared, the states of California, and New Jersey did not allow an HSA tax credit for state income taxes. New Hampshire and Tennessee tax HSA earnings (interest and dividends). Be sure to check with your tax advisor to determine your state’s current status and guidance in preparing your tax returns.
IRS reporting requirements
- The IRS states that HSA contributions and withdrawals are reportable transactions. Tax deductions are generally available either to the eligible individual and/or the employer. Withdrawals from HSAs for eligible medical expenses will avoid income tax consequences to the HSA holder. That’s why the IRS requires these withdrawals to be reported. To make reporting withdrawals easier, the IRS offers forms to be used by the parties involved.
- Regardless of whether HSA contributions are made by you or your employer, the contributions must be reported on your tax return. Contributions to and withdrawals from HSAs are reported by the account holder on Form 8889.
- The employer is required to report employer HSA contributions to the IRS on the tax return that is filed by the employer. Employer HSA contributions, including employee pretax contributions through a cafeteria plan, are also reported on the W-2 (Box 12, code W) for each employee.
HSA information in this guide is not intended as legal or tax advice. HSAs are authorized by federal legislation.
State and/or federal laws could be passed in the future that affect the tax benefits of an HSA. Tax benefits may also be affected by failure to comply with eligibility and withdrawal requirements. Refer specific questions about federal and state tax ramifications, as they relate to a particular circumstance, to your tax advisor each year.
How individual HSA contributions are treated on your tax return
Contributions made by an eligible individual to an HSA are deductible in computing your federal adjusted gross income. The contributions are deductible whether or not you itemize deductions. A self-employed person’s HSA contributions are subject to SECA taxes (the Social Security taxes applicable to the self-employed).
Contributions made by an employer or employee through a cafeteria plan are excluded from federal gross income, are not subject to withholding for federal income tax and are not subject to other employment taxes (for example, Social Security tax). Even though not taxable to the employee, employers are required to report the amount of the HSA contribution on the employee’s W-2. An employee who elects to make HSA contributions under a cafeteria plan may start or stop the election or increase or decrease the amount at any time as long as the change is effective prospectively (that is, after the request for the change is received).
Additional rules regarding tax treatment of your HSA dollars include:
- Tax treatment of earnings on amounts in an HSA – Earnings on amounts contributed to an HSA are generally not taxable to the HSA holder. At the time this guide was prepared, New Hampshire and Tennessee tax HSA earnings (interest and dividends), but not eligible contributions.
- Withdrawals from an HSA – There is no restriction on when and how often you may request withdrawals from the HSA. When you or your dependents incur an eligible medical expense, a withdrawal from the HSA may be made to reimburse you for the expense.
- Non-eligible withdrawals – Withdrawals that are not for eligible medical expenses are always included in your gross income. In addition, such withdrawals are generally subject to an additional 20 percent penalty, unless the withdrawal is made after death, disability or reaching age 65.
HSA legislation and tax advantages are based on federal law. Almost all states with a state income tax follow the federal tax treatment. At the time this guide was prepared, only California and New Jersey were believed to include HSA contributions in gross income for state income taxes. Horizon does not provide tax advice. You should rely on your own tax professional for more information on your state’s tax requirements and your tax preparation.
What if I over-contributed to my HSA?
Any contributions over the IRS’s limit for the year are excess contributions. A 6% excise tax is imposed on the account holder for excess individual or employer contributions for each tax year.
If an upcoming employer contribution will go over the limit, you must make every reasonable effort to notify your employer before the contribution is made.
If excess contributions have been made, you won’t pay a six percent excise tax on the excess amount if you:
- Withdraw the excess contributions by the due date of your tax return and
- Withdraw any earnings on the withdrawn contributions and include the earnings in “other income” on your tax return for the year
To withdraw the excess contribution, sign into your account at hellofurther.com and click Submit a Claim. Choose HSA Withdrawal Request and the distribution type Excess Contribution. Further will compute the taxable earnings on the excess contributions for you on your next 1099-SA IRS reporting. If contributions are made with pretax dollars, then both the withdrawal and the earnings are included in your taxable income.
Frequently asked questions
- Can withdrawn excess contributions be claimed as a deduction on Form 1040?
No. When withdrawing excess contributions, you must inform Horizon that the withdrawal is for that purpose. Horizon will compute the earnings on the excess contributions for you. The total withdrawal will include the earnings portion.
If contributions are made with pretax dollars, then both the withdrawal and earnings are included in your taxable income. The withdrawal for excess contributions and the earnings will be reported to the account holder on IRS Form 1099-SA.