Health Savings Account (HSA) contributions are reported to the account owner on Form 5498-SA. This form is issued by the financial institution. Pre-tax contributions made through the payroll deduction process are reported on Form W-2 in Box 12 with a “W” code. This form is issued by the university.
HSA distributions are reported to the account owner on Form 1099-SA. This form is issued by the financial institution.
Form 8889 must be filed with your annual Form 1040 federal tax filing if you make contributions to or take distributions from an HSA. You must file IRS Form 1040 for your HSA contributions, not the short Form 1040A or 1040EZ.
After-Tax Contribution
If you contribute to your HSA with after-tax dollars, you may deduct the contribution amount, subject to the maximum annual contribution limits, from your taxes at filing time. This is commonly referred to as an “above the line” deduction and reduces your taxable income regardless of whether you itemize or use the standard deduction on your income tax filing.
Qualified Distributions Are Excluded From Gross Income
Distributions from your HSA that are used exclusively to pay for qualified medical expenses for you, your spouse, or tax-qualified dependents are excludable from your gross income. Your HSA funds can be used for qualified expenses and will continue to be free from federal taxes and state taxes for most states even if you are not currently eligible to make contributions to your HSA.
Keep Records of All HSA Distributions
If you take qualified distributions from an HSA you must keep records (such as receipts) sufficient to show that:
- the distributions exclusively paid or reimbursed qualified expenses,
- the qualified expenses had not been previously paid or reimbursed from another source and
- the medical expenses had not been taken as an itemized deduction in any year.
Note: Do not send these records with your tax return—keep them with your tax records.
Taxation Of Non-Qualified Distributions
If you take a non-qualified distribution, you are subject to ordinary income tax on the distribution and a 20% penalty tax. If you are age 65 or older, disabled, or for the year in which you die, the penalty may not apply. The taxpayer is responsible for reporting non-qualified distributions.
