HSA for America

How to Prepare Tax Returns to Get Your HSA Tax Benefits

March 3, 2011
Vol. 7, Issue 2

Update 3-30-15: Now that individuals are required to carry health insurance, filing taxes is a little more complicated. See my blog post, April 15 is Approaching – Maximize Your HSA Contribution!, for more information.


If preparing tax returns that include HSA tax benefits is new to you, here’s a quick review of a few forms you will need. It’s pretty simple. Your HSA custodian should send you two forms (one showing contributions and one showing distributions). You’ll need to take your HSA contribution deduction on line 25 of the 1040 form and attach IRS Form 8889 to your 1040.

Forms from Your HSA Custodian

HSA custodians are required to send IRS Form 5498-SA to you and the IRS to show how much you contributed to your HSA. The IRS uses this information to make sure you do not claim a deduction that exceeds the amount you actually contributed to your HSA.

You will not get this form until after tax season (required by June 1) because the IRS wants custodians to record all 2010 contributions, even those made in April of 2011.  (There is still time to maximize your contribution!).

Your HSA custodian is also required to send an IRS Form1099- SA to you and the IRS if you take a distribution from your HSA. Most HSA distributions are considered "normal" or "code 1" distributions. That includes distributions for both eligible health care expenses (like a doctor’s appointment) and non-eligible expenses (such as a car muffler). Many people are surprised to see that qualified distributions are lumped together with non-qualified distributions.

In addition to the code 1 for normal distributions, you may see other codes, such as excess (code 2), disability (code 3) and death distribution (code 4 or 6).

Show Your HSA Contribution on Form 1040

HSA tax deductions are not based on income thresholds. You take your HSA contribution deduction on line 25 of the 1040 form. It's an "above-the-line" deduction, which means that you get the deduction whether or not you itemize.

Pre-tax employer contributions and pre-tax payroll deferral are not to be included on line 25. Your employer has already excluded them from income on the Form W-2. If you look in box 12 of your W-2, Code W refers to amounts that your employer put into your HSA as pre-tax dollars (that includes both employer and employee payroll deferral amounts).

Attach IRS Form 8889 to Your 1040

The IRS expects you to clarify distributions on Form 8889. You must attach it to your 1040 if you make a contribution to or take a distribution from your HSA.

If all of your HSA distributions were for eligible health care expenses, you will not owe any taxes or penalties on those distributions. Remember that you may have to pay taxes plus a 20-percent penalty for non-eligible distributions.

If you use tax preparation software, it should generate an 8889 for you. In any case, you’ll need to attach Form 8889 to your 1040 if you contributed to or took a distribution from your HSA in 2010.

Line 15 on Form 8889 is very important. You must write the dollar amount of your eligible health care expense distributions from your HSA on this line. This amount will match your 1099-SA total distribution if you only used your HSA to pay for qualified health care expenses.

On line 15, you only include HSA distributions that were used to pay for qualified health care expenses that were not reimbursed by insurance or other coverage.

It’s that simple to lower your taxes by turning health care expenses into tax deductions.


To your health and wealth!

Wiley Long
President - HSA for America


HSA for America
749 S. Lemay Ave, Suite A3-116
Fort Collins, CO 80524
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