Tax season is here and if you have a Health Savings Account (HSA), there are some things to keep in mind as you prepare to file your taxes.
HSAs are a great way to save and pay tax-free for qualified health care expenses now, in the future and even during retirement. Your HSA payroll deductions are pretax and any additional contributions you make, up to the maximum allowed, are tax-deductible. If you’re 55 or older, you can contribute an additional $1,000.
Also, any interest earned on your HSA funds are tax-free. Additionally, you can make HSA contributions for 2017 up to the tax deadline of April 17, 2018.
“As people are increasingly being asked to be the chief financial officer of their health, it’s important to understand both the tax benefits and implications of HSAs,” said Erin Hatzikostas, Chief Executive Officer (CEO) and President of PayFlex, an Aetna company. “We’re trying to help people save and spend their HSA money more wisely. The tax-free benefits of an HSA really help make an appealing vehicle for saving, especially as a way to help mitigate those larger medical expenses many Americans face.”
As with any tax-advantaged account, there are filing implications account holders should remember. We’ve included some frequently asked questions and encourage you to speak with a tax advisor.
To learn more about HSAs, visit us at payflex.com.
Frequently Asked Questions
What are the necessary HSA tax forms?
The following are HSA tax-related forms:
- IRS Form 1099-SA
- This form shows your HSA distributions. This includes what you paid for with your debit card, payments to health care providers, and amounts paid to you from your HS
- You’ll use this form to complete IRS Form 8889. As an HSA accountholder you must complete Form 8889 when you file your federal tax return.
- IRS Form 1099-SA is typically available by January 31 and will be posted to your account unless you’ve opted for delivery by mail.
- IRS Form 5498-SA
- This form includes pre-tax contributions from your paycheck, any contributions you made on your own (post-tax), and any employer contributions.
- In May, we’ll post your Form 5498-SA online. We’ll send it to the IRS for you. If you didn’t elect the “paperless” option, we’ll mail it to you.
- You don’t need to include this form when you file your taxes.
- IRS Form 8889
- When you have an HSA, you need to file IRS Form 8889 with your federal tax return. You’ll need to report your HSA contributions and withdrawals on this form. You can find your withdrawal amount on your 1099-SA; it’s listed under “Gross distribution”. Your total contribution amount is on the member website, on your account dashboard. You can find IRS Form 8889 and its instructions on the IRS website.
What if HSA contributions for tax year 2017 are made in 2018?
HSA Contributions for tax year 2017 are allowed up to the tax deadline of April 17, 2018. You will need to account for these contributions in your 2017 tax filing (see the bullet above on IRS Form 8889 for detail) The 5498-SA you receive in May, 2018 will reflect total tax year 2017 contributions.
Do I need to keep receipts for services purchased with my HSA?
Due to the self-directed nature of Health Savings Accounts (HSA), accountholders should be ready to report activity to the IRS. It’s recommended that you keep track of your spending in case you have to prove that funds were used for qualified medical expenses. You should also keep track of your expenses and report any funds you use for non-qualified medical expenses, if asked.
What happens if I contribute too much?
For 2017, if you contribute more than the $3,400 individual or $6,750 per family maximum (or if age 55 or over, $4,400 individual or $7,750 per family) to your HSA by accident or because you ended coverage in a qualifying High Deductible Health Plan (HDHP) and/or no longer meet the other requirements defined by the IRS, you’ll have to count the extra amount as taxable income. And the IRS may have you pay a 6% excise tax on the excess contributions.
How much can I contribute if I change my HDHP coverage level during the year?
How much you can contribute depends on the coverage that you have when you start and end the year. If you have self-only coverage on January 1 and family coverage on December 1, the last-month rule applies. With the last-month rule, you can contribute as if you had family coverage under the HDHP all year. If you do contribute the family limit for the year, you’ll have to keep your HDHP coverage for 13 months. It includes the month of December and all of the next calendar year. If you don’t keep HDHP coverage for the full 13 months, the contributions you otherwise weren’t eligible to make are no longer tax-free.
Example: On January 1, 2017, you had self-only coverage. On July 1, you change to family coverage and you still have family coverage on December 1. You can contribute $6,750 for the year, based on the last month rule. You’ll have to remain eligible for the rest of 2017 and all of 2018. If you don’t remain eligible during that time, you’ll have to pay taxes on the difference between self-only and family for the months of January through June.
If you start the year with a family HDHP, but have self-only coverage by December 1, the Proration rule applies. Proration means that you have to break down the annual limit by month. This will help you figure out how much you can contribute for the year.
Example: From January 1 through July 31, 2017, you have a family coverage under an HDHP. From August 1 through December 31, 2017, you have self-only HDHP coverage. For January through July, you can contribute $3,937.50. ($6,750/12 = $562.50 x 7 months). For August through December, you can contribute $1,416.66 ($3,400/12 = $283.33 x 5 months). In this example, you can contribute $5,354.16 ($3,937.50 + $1,416.67) for the year.
What if I only enrolled for part of the year?
When you enroll in a qualifying HDHP plan and open an HSA before the first day of December, you can contribute the total allowable amount for that year. To take advantage of the tax savings, however, you must:
- Stay enrolled in a qualifying high-deductible health plan for the following 12 months.
- Not have other health care coverage that would make you ineligible to contribute to an HS.
Where can I find my state tax information?
Each state can decide to follow the federal tax guidelines for HSAs or establish its own. Consult a tax advisor regarding your state’s rules or visit your state’s Department of Revenue office for more information.
Where can I find helpful information from the IRS regarding Health Savings Accounts?
Visit the IRS website to read its guide, Health Savings Accounts and Other Tax-Favored Health Plans (IRS Publication 969).
What if I only enrolled for part of the year? Where can I find my state tax information?
Found via web search: https://taxfoundation.org/state-individual-income-tax-rates-brackets-2017/.
Where can I find helpful Information from the IRS?
You can find IRS Form 8889 and its instructions on the IRS website.
This material is for informational purposes only. It does not contain legal or tax advice. You should contact your legal counsel or your tax advisor if you have any questions or if you need additional information. Information is believed to be accurate as of the production date; however, it is subject to change. PayFlex cannot and shall not provide any payment or service in violation of any United States (US) economic or trade sanctions. For more information about PayFlex, go to payflex.com.
This material is for informational and educational purposes only. It does not contain legal or tax advice. You should contact your legal counsel or your tax advisor if you have any questions or if you need additional information. Information is believed to be accurate as of the production date; however, it is subject to change. PayFlex cannot and shall not provide any payment or service in violation of any United States (US) economic or trade sanctions.For more information about PayFlex, go to payflex.com.
This material is for informational purposes only and is not an offer of coverage. It contains only a partial, general description of plan benefits or programs and does not constitute a contract. It does not contain legal or tax advice. You should contact your legal counsel if you have any questions or if you need additional information. In case of a conflict between your plan documents and the information in this material, the plan documents will govern. Eligible expenses may vary from employer to employer. Please refer to your employer’s Summary Plan Description (“SPD”) for more information about your covered benefits. Information is believed to be accurate as of the production date; however, it is subject to change. PayFlex cannot and shall not provide any payment or service in violation of any United States (US) economic or trade sanctions.For more information about PayFlex, go to payflex.com.