As an employee with a Health Savings Account (HSA), knowing what you need to report during tax season is important. Even though HSAs can be complex, tax reporting shouldn’t be a headache. In this guide, we’ll cover what you must report for your HSA and how to know what you need to report. With this information, you’ll be better equipped to tackle your HSA taxes.
What are you required to report for your HSA?
When it comes to HSA taxes, you’re required to report contributions, distributions, and rollovers. Contributions are the money you or your employer put into your HSA account. Distributions are the money you withdraw for qualified medical expenses. Rollovers are when you transfer funds from one HSA provider to another.
All HSA transactions are reported on Form 8889. This form serves as a summary of your HSA activity throughout the year. You’ll need to fill it out and attach it to your tax return when you file.
How do you know what you need to report?
Your HSA provider will send you a form 1099-SA that outlines your distributions for the tax year. You’ll use this form to report your HSA distributions on Form 8889.
Your HSA contributions will be listed on your W-2 form from your employer. However, if you or someone else made contributions outside of your employer, you’ll need to report those contributions on Form 8889.
If you rolled over funds from one HSA account to another, you’ll need to report the rollover amount on Form 8889. Be sure to keep track of this information throughout the year so you can accurately report it on your tax return.
What are the tax benefits of an HSA?
HSAs come with several tax benefits. First, contributions to your HSA are tax-deductible, which means they’re not subject to federal income tax. Plus, any interest or investment earnings on your HSA contributions are tax-free.
Second, distributions for qualified medical expenses are tax-free. You won’t have to pay federal income tax on the money you withdraw from your HSA for medical expenses.
Finally, if you use your HSA funds for non-medical expenses before age 65, you’ll owe income tax on the withdrawal plus a 20% penalty. But after age 65, you can withdraw funds for any reason without incurring a penalty.
Can You Make Changes to Your HSA Contributions?
One of the benefits of an HSA is that you can make changes to your contributions throughout the year. If you find that you’re not contributing as much as you’d like, you can increase your contributions at any time. On the other hand, if you find that you’re not using your HSA funds as quickly as you thought you would, you can decrease your contributions. Just keep in mind that you can only make changes to your contributions during the year, not after the year has ended.
What Happens if You Use Your HSA Funds for Non-Qualified Expenses?
If you withdraw funds from your HSA for non-qualified expenses, you’ll be subject to a penalty. The penalty is 20% of the amount withdrawn, and you’ll also need to pay income taxes on the withdrawal. It’s important only to use your HSA funds for qualified healthcare expenses, so make sure you keep good records and consult a tax professional if you’re unsure about what qualifies.
Bottom Line
HSA tax reporting doesn’t have to be overwhelming. By keeping good records throughout the year and understanding what you need to report, you can simplify the process and save money on taxes. Remember to keep track of your HSA contributions and withdrawals, including any receipts or documentation for healthcare expenses. And, make sure you only use your HSA funds for qualified healthcare expenses to avoid penalties. With these tips, you’ll be prepared to file your taxes with confidence and ease.
Do you have additional pre-tax accounts and have questions about their tax implications as well? Click Here
