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How Do Employees Report HSA Contributions and Distributions on Their Federal Tax Returns?



QUESTION: Our company offers a high-deductible health plan (HDHP) and makes contributions to the HSAs of employees who have elected the HDHP coverage and established an HSA. Several employees have asked how they should report their HSAs on their federal tax returns. What do they have to do?

ANSWER: Employees with HSAs must file a Form 8889 (Health Savings Accounts (HSAs)) as an attachment to Form 1040 for any year in which they make or receive HSA contributions (including employer contributions), or for any year in which they take an HSA distribution. (Form 8889 is also used with Forms 1040-SR and 1040-NR.) Spouses who have reportable activity in their own HSAs must file separate Form 8889s, even if they file jointly.

When completing Form 8889, individuals will be required to provide information about their HDHP coverage, their HSA contribution limit, the amount of HSA contributions (and any Archer MSA contributions) that were made by them or on their behalf, and the amount of any taxable or nontaxable distributions taken from their HSAs. As an employer, you are responsible for reporting the HSA contributions that you make to employees’ HSAs in Box 12 of Form W-2 (using Code W). In addition to the Form W-2, your employees with HSAs should have received a Form 5498-SA from their HSA trustee or custodian that reports the total contributions made to their HSAs during the year and the fair market value of their HSAs at year-end. If they have taken any distributions, they should also have received a Form 1099-SA on which their HSA trustee or custodian has reported the total amount of distributions made during the year.

You may wish to consider telling your employees about these reporting requirements. You can refer them to IRS Forms 1040 and 8889, and the instructions published by the IRS for each of those forms. However, cautious employers will provide only general information, not tax advice. Employees should be told to consult with their tax advisors if they have additional questions about their reporting obligations.

For more information about HSA reporting requirements, see EBIA’s Consumer-Driven Health Care manual at Section XVII (“HSAs: Reporting Requirements”). You may also be interested in our recorded webinar “Workplace Health Savings Accounts (HSAs)” (recorded on 4/25/2019).

Contributing Editors: EBIA Staff.

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