Health Savings Accounts (HSA) Overview What You See Taxpayer presents a W-2 with a W in box 12. This represents his and/or his company s contribution to the HSA. This contribution has already been deducted from the employee s earnings, and are therefore not subject to tax. Taxpayer presents a Form 5498-SA. This shows his after-tax contributions to the HSA. This contribution is eligible for an adjustment to the taxpayer s Adjusted Gross Income. Taxpayer presents a Form 1099-SA. This shows his distributions from his HSA. The distributions are not taxable as long as they are used for qualified medical expenses. Since most HSA s issue a debit card which the holder presents for medical expenses, nonqualified distributions will be rare. What You Do This amount is carried over to Form 8889. You need do no more with this. Manually enter the contribution on line 2 of the 8889. The amount will automatically transfer to line 25 of Form 1040 as an adjustment to income. Caution: Be aware of contribution limits to remain in scope Enter the amount of distributions on Form 8889, line 14a. Enter the medical expenses on line 15 of Form 8889. If (rarely) the distributions exceed expenses, a 20% penalty will show up on line 17 of Form 8889 and on line 59 of Form 1040. The amount of unqualified distributions will also appear on line 21 of the 1040 and must be labeled Excess HSA Distribution. Webster, NY TaxHelper -1-
An HSA is a tax favored medical savings plan set up with a qualified HSA trustee (bank or other financial institution) An HSA is created by Enrolling in an HSA-eligible high-deductible Health Plan (HDHP) Opening a tax-exempt account with a qualified HSA trustee HSA Benefits Health Savings Accounts (HSA) Contributions made by taxpayer or someone other than an employer are deductible, even if taxpayer does not itemize Contributions may by an employer can be excluded from gross income The contributions remain in the account from year to year until the taxpayer uses them. The interest and other earnings on the assets in the account are tax-free. Distributions may be tax-free if used to pay unreimbursed qualified medical expenses. An HSA is portable so it stays with taxpayers even if they change employers or leave the work force. Webster, NY TaxHelper -2-
Health Savings Accounts Eligibility Eligibility requirements for HSA Must be covered by HSA-eligible health plan on first day of month (HSA plans have a minimum annual deductible and a maximum limit on out-ofpocket expenses) Min. deductible and max. out-of-pocket amounts change each year and are different for self-only coverage and family coverage Taxpayer should know if his plan qualifies Not covered by other health insurance (see pub 969 for exceptions) Not enrolled in Medicare Not eligible to be claimed as dependent on someone else s tax return Married Individuals must open separate HSA s Joint HSA s are not allowed Distributions from a married individual s HSA can be used to cover qualified expenses of the spouse Webster, NY TaxHelper -3-
Health Savings Accounts Contributions Form 5498-SA reports HSA contributions Taxpayer must have own records of contributions, since this form is usually issued after tax season completed Any person can make a contribution on behalf of an eligible individual An employer may set up and contribute to an employee s HSA, but the Taxpayer must reduce the amount that he or any other person contributes to the HSA by the amount excluded from income and contributed by the employer Taxpayers with excess contributions (contributions over the limits) must withdraw the excess to avoid an additional tax. If the excess was not timely withdrawn, refer the taxpayer to a professional tax preparer. Webster, NY TaxHelper -4-
Health Savings Accounts Contributions Form 8889 Part I Contributions reported on Form 8889, line 2 Contribution limits reported on Form 8889, line 3 (if married and older than 55, additional contribution amount reported on line 7) 2016 18, 2016 see next 2 slides for determination of contribution limits Webster, NY TaxHelper -5-
Health Savings Accounts Contribution Limits If taxpayer and/or spouse had an HSA-eligible plan for the entire year then contribution limits (Form 8889 line 3) are given in the chart below Catch-up contribution for taxpayers over age 55 For all taxpayers, except those who are married with family coverage, catch-up contribution is included on Form 8889 line 3. For married individuals with family coverage, catch-up contribution is figured on Form 8889 line 7. (Line 7 entry requires specifying the no of months for which you were an eligible individual on the first day of the month) Limitation on HSA Contributions Self-Only Coverage Family Coverage Annual Contribution Limit $3,350 $6,650 Catch-up Contribution (55 or older)* $1,000 $1,000 * Spouses 55 or older each make the additional contribution to their own HSA. Webster, NY TaxHelper -6-
Health Savings Accounts Contribution Limits If taxpayer and/or spouse had an HSAeligible plan for only part of the year the contribution limit is the greater of: Last month rule Full contributions for entire current tax year is allowed if individual had an HSA-eligible plan on Dec 1 of current tax year and remains (expects to remain) eligible through Dec 31 of the following year. Sum of monthly contribution limits rule Amount determined separately for each month (1/12 of annual limits) based on eligibility and HDHP coverage on the first day of each month plus catch-up contributions. In TWO, use the Line 3 Limitation Worksheet on Form 8889 to determine the allowed contribution, $ 4,300 $ 4,300 $ 4,300 e.g. if single taxpayer is over 55 and was eligible only for Jan-March 2014. $12.900 $ 1,075 Webster, NY TaxHelper -7-
Health Savings Accounts Distributions Form 8889 Part II Form 1099-SA reports HSA distributions Distributions reported on Form 8889, line 14a Unreimbursed qualified medical expenses reported on Form 8889, line 15 Qualified medical expenses are expenses that generally would qualify for the medical and dental expenses deduction A medicine or drug is qualified only if obtained by prescription or is insulin Qualified expenses include those paid for taxpayer, spouse and dependents Webster, NY TaxHelper -8-
Health Savings Accounts Insurance premiums are not qualified for HSA purposes except for: Long-term care insurance based on premium limits Health care continuation coverage, such as COBRA Health care coverage while receiving unemployment compensation Medicare and other health care coverage if taxpayer was 65 or older, but not Medicare supplemental policies, such as Medigap. Long Term Care Insurance Federal Premium Limits Taxpayer's Age At End of Tax Year Premium Limit 40 or under $ 380 41-50 $ 710 51-60 $1,430 61-70 $3,800 71 and over $4,750 Webster, NY TaxHelper -9-
Health Savings Accounts HSA distributions included in income are subject to an additional 20% tax unless the account beneficiary: Becomes disabled (see Form 8889 Instructions) Turns age 65 Dies Additional tax is computed on Form 8889, line 17b. However, if an exception to the 20% tax applies, then check the box on line 17a Aspects of HSA s that are Out-of-Scope Excess contributions to an HSA that are not withdrawn in a timely fashion Qualified HSA funding distributions from an IRA Qualified HSA distributions from a health Flexible Spending Arrangement (FSA) or a Health Reimbursement Arrangement (HRA) Death of an HSA holder Form 8889, Part III, Income and Additional Tax for Failure to Maintain HDHP Coverage Deemed distributions from an HSA due to prohibited transactions, such as using an HSA as a security for a loan Webster, NY TaxHelper -10-