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HSA Tax Information for Your Employees

Joe Ingrando
Feb 5, 2020 9:00:00 AM

Tax time is right around the corner.

If you offer your employees a health savings account program, that means there are some things you—and your employees—need to know when it comes to how an HSA impacts their tax filing. Luckily, if you’ve partnered with Bend, we provide the necessary HSA tax forms and HSA tax filing instructions directly to your employees.

But that doesn’t mean you shouldn’t still proactively communicate to your employees who participate in your HSA program to make sure they’re aware of and understand what they need to do from an HSA tax filing perspective.

And even if you haven’t partnered with us, you’ve still come to the right place to learn about the critical HSA tax information your employees need to know. Because informed employees are happier employees. Less stressed employees. More productive employees. And who wouldn’t want that?

Ensure Your Employees Know Their Responsibilities as HSA Owners

Your employees receive a number of tax benefits when they utilize a health savings account. Their HSA contributions are tax-deductible up to the annual contribution limit (for 2019, $3,500 for individuals and $7,000 for families; for 2020, $3,550 for individuals and $7,100 for families—with a catch-up contribution limit of $1,000 for those over age 55 for either year). Payments made out of their HSAs for qualified medical expenses are tax-free. And any interest they earn on their HSAs grows income tax free.

But as HSA owners, in order to maximize the efficiency and effectiveness of their HSAs, as well as avoid any negative tax implications, your employees need to know the basics of what they’re responsible for. Here’s a quick list of those responsibilities:

  •    Keep current on coverage – Your employees need to maintain their HSA-eligible high-deductible
    health plan (HDHP) coverage and ensure that they’re not covered by any other plans that would conflict with having an HSA, including a standard flexible spending account (FSA)
  •     Know their dependent status – Your employees need to know that they’re not being claimed as a dependent on anyone else’s taxes
  •    Plan HSA contributions –Your employees need to plan their HSA contributions accordingly to make sure they don’t exceed the annual HSA maximum contributions limit specific to their situation
  •    Track HSA expenses –Your employees need to keep track of their eligible HSA expenses and use HSA funds for only HSA qualified medical expenses (unless they’re 65 or older)—if any funds are used for a non-qualified expense, they need to correct the error and add the non-eligible expenses back to their gross income
  •    Complete the correct HSA tax form at tax time – Your employees need to be sure that they complete IRS Form 8889 and submit it with the rest of their tax filing materials by the tax submission deadline

HSA Tax Forms – What Your Employees Need to Know

Now that we’ve covered the basic HSA responsibilities your employees need to know, let’s move on to the specific HSA tax forms they need to understand. In a minute of reading, you’ll be confident responding to any employee who asks, “what HSA tax forms do I need?”

There are three tax forms associated with health savings accounts:

  • IRS Form 1099-SA – This HSA tax form shows the total amount of HSA distributions (money your employee spent from their HSA) throughout the tax year, with a separate form provided for each of the five types of distribution (normal, excess contribution removal, death, disability, prohibited transaction)—this form is for employee reference only and doesn’t need to be filed.
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  • IRS Form 5498-SA – This HSA tax form shows the total contributions to your employee’s HSA throughout the tax year—same as IRS Form 1099-SA, this form is for employee reference only and doesn’t need to be filed.
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  • IRS Form 8889 – This HSA tax form is the only form your employee needs to fill out and submit with their tax return—they use the information found on the other forms to complete IRS Form 8889.
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Additional Reminders on HSA Contributions

As we covered above, your employees need to plan their HSA contributions accordingly to make sure they don’t exceed the annual maximum contribution limit of their specific coverage, as well as not miss out on any eligible HSA catch-up contributions if they’re 55 or older. There are some additional reminders you and your employees need to be aware of when it comes to how HSA contributions can impact tax filing.

While employee and employer pretax HSA contributions up to the applicable limit aren’t taxable under federal tax guidelines, each state has the ability to establish their own tax treatment guidelines for health savings accounts. Currently, the only states that tax eligible HSA contributions are California and New Jersey.

Employees also need to be aware of the yearly contribution deadline for their health savings accounts. Annual HSA contributions need to be made by their tax filing deadline. For the 2019 tax year, the HSA contribution deadline is April 15, 2020. Even if an employee files a tax extension with the IRS, they still need to abide by the HSA contribution deadline for the tax year.

Along with the HSA contribution deadline, employees need to know where to find their employer’s contribution information. Employer HSA contributions are reported on IRS Form W-2 and also included on IRS Form 5498-SA (as part of the total account contribution amount).

The final HSA contribution reminder for tax time pertains to excess contributions. If your employees plan correctly, excess contributions shouldn’t be an issue. But if by chance they contribute more than what’s allowed, they need to work with their HSA provider to make sure they remove the excess contributions to avoid tax penalties and IRS fees.

A Note for Employees Enrolling in Medicare

If you have any employees participating in your HSA program who will be enrolling in Medicare, make sure they’re aware that their eligibility to participate in a health savings account ends upon their enrollment in Medicare. They can still make prorated contributions up to the maximum contribution limit based on how long they were eligible to participate in the HSA up until the IRS contribution deadline. And while their participation ends once they’re enrolled in Medicare, they can continue to keep their account open and use the HSA funds they’ve accumulated in the account as needed without penalty.

Bend HSA – Making Tax Time Simple for You and Your Employees

The triple tax advantage your employees receive from their HSA is a great thing, and their responsibilities from a tax filing perspective require minimal added effort—especially when they use Bend HSA, which does the heavy lifting for you and your employees, tracking and managing their accounts using industry-leading technologies like AI and machine learning.

Tax time or anytime, if you need our help, we’re here for you. And if you’re not current working with us, we hope you consider a partnership with Bend. Contact us today to request a demo and to learn more about all our top-ranked Bend HSA platform has to offer. Or complete the Employer Online Setup form to begin working with Bend—it’ll only take a minute of your time, and is your first step to taking advantage of industry-leading HSA implementation, enrollment and administration for you and your employees.

And please remember, all of the HSA tax information provided within this post is for your reference only—Bend does not provide official tax or legal advice. Always consult with your qualified tax or legal adviser if you need additional help regarding your specific tax situation, and be sure your employees do the same.

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