1099-SA – Distribution Report
Your HSA custodian is required to send you and the IRS Form 1099-SA for the years you withdraw from your HSA. If you only withdrew HSA money to pay for eligible expenses, you won’t owe taxes on the money you took out or have a penalty. That’s coded as normal or code 1.
Oddly, expenses that are not qualified, like buying a couch, show up lumped together with qualified expenses, like seeing a doctor. You need to clarify your withdrawals using Form 8889. Besides code 1, there’s also code 2 (excess), code 3 (disability), and code 4 or 6 (death distribution).
Form 5498-SA- Contribution Report
Your HSA custodian must also send you and the IRS Form 5498-SA to show your HSA deposits, but your copy isn’t mailed until after you file tax returns. Your HSA contributions will be on your HSA statements. And, if your employer contributed to your HSA, your W-2 should show that.
1040 Line 25
Here’s where you claim your deduction for your HSA deposits. And, you get the deduction even if you don’t itemize. You can’t include pre-tax contributions or pre-tax payroll deferral here. Your employer will exclude them from your income on your W-2. That should appear in box 12 with Code W.
Form 8889 – Schedule to 1040
You need to attach Form 8889 to the 1040 you file if you put money in or took it out of your HSA. Your contributions are detailed on line 1 through 13 (Part I) of Form 8889. That determines what you need on line 25 on the 1040. Usually, what your employer contributes to your HSA is pre-tax. It’s not included as taxable income on your W-2, so you cannot deduct it on the 1040.
Part II (lines 14 through 17) of the 8889 validates whether your HSA withdrawals are for qualified health care. On line 15, enter the amount of eligible expense withdrawals. If that doesn’t match your 1099-SA total HSA distribution, you’re looking at taxes on unqualified withdrawals plus a 20-percent penalty.
If you have any questions, just let me know.