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IRS Releases 2020 Form 8889 and Instructions for HSA Reporting, Updates Publication 969

EBIA  

EBIA  

IRS Form 8889 (Health Savings Accounts (HSAs)) and Instructions (2020); Publication 969 (Health Savings Accounts and Other Tax-Favored Health Plans (for use in preparing 2020 returns))

Form 8889

Instructions

Publication 969

The IRS has released the 2020 version of Form 8889 (Health Savings Accounts (HSAs)) and its instructions, and has updated Publication 969 (Health Savings Accounts and Other Tax-Favored Health Plans) for 2020 tax returns. HSA holders (and beneficiaries of deceased HSA holders) must attach Form 8889 to their Forms 1040, 1040-SR, or 1040-NR to report tax-related events affecting their HSAs, including contributions and distributions. Form 8889 is also used to calculate HSA deductions and any reportable income and additional tax triggered by failing to remain HSA-eligible throughout the applicable testing period for qualified HSA funding distributions or the full-contribution rule (referred to as the “last-month rule” in the form and instructions). Publication 969 provides basic information about HSAs, HRAs, health FSAs, Archer MSAs, and Medicare Advantage MSAs, including brief descriptions of benefits, eligibility requirements, contribution limits, and distribution issues.

The 2020 versions of Form 8889 and its instructions are substantially similar to their 2019 counterparts. They have been updated to reflect the 2020 HSA and HDHP limits and thresholds (see our Checkpoint article) and the April 15, 2021 deadline for making HSA contributions for 2020. The instructions note that HSAs can reimburse amounts paid after 2019 for over-the-counter medicines that are not prescribed and menstrual care products, and that for plan years beginning before 2022, HSA-eligible individuals may have separate coverage for telehealth and other remote care (in addition to an HDHP), and an HDHP may have no deductible (or a deductible below the minimum annual deductible) for telehealth and other remote care services (see our Checkpoint article). They also note that an HDHP may cover COVID-19 testing and treatment before satisfying the applicable minimum deductible (see our Checkpoint article).

Updated Publication 969 includes the changes noted above regarding over-the-counter medicines that are not prescribed, menstrual care products, telehealth, and other remote care coverage. Other changes reflect the 2020 HSA and HDHP limits and thresholds, and the limit on health FSA salary reduction contributions for plan years beginning in 2020. The 2021 limits and thresholds for HSAs and HDHPs are also provided (see our Checkpoint article). In addition, the publication summarizes the temporary COVID-19-related relief for health FSAs available under 2020 legislation and agency guidance.

EBIA Comment: While Form 8889 is filed by HSA holders, employers and advisors working with HSAs should have a basic understanding of its scope. Publication 969 provides a convenient overview of the basic features of various consumer-driven health care vehicles, but it is not intended to address the many design and administrative details that employers and their advisors need to know and should not be relied upon without reference to other sources. For more information about HSAs and HRAs, see EBIA’s Consumer-Driven Health Care manual at Sections XI.G (“Other Coverage That May or Will Prevent HSA Eligibility”), XII (“HSAs: Contributions”), XV (“HSAs: Distributions and Rollovers”), XVII.B (“HSA Holder Reporting Obligations”), and XXI (“Health Reimbursement Arrangements (HRAs): Introduction and Design Choices”). For more information about health FSAs, see EBIA’s Cafeteria Plans manual at Section XIX (“Overview of Legal Requirements for Health FSAs”).

Contributing Editors: EBIA Staff.

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