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Make Sure Your HSA is Ready for Tax Day

Mar 4, 2020 8:00:00 AM

This blog was edited to reflect changes to the tax filing deadline due to the COVID-19 pandemic. 

July 15, 2020. It’s the tax filing deadline for 2019 taxes. And it’s also the deadline to make contributions to your HSA.

Tax day will be here sooner than you think, so make sure you’re prepared. Because when it comes to your HSA and taxes, there are some things you need to know regarding how an HSA impacts your tax filing.

Know Your HSA Deadlines

As just mentioned, July 15, 2020 is not only the tax filing deadline for your 2019 taxes, but also the deadline to make any final contributions to your health savings account for the 2019 tax year.

This HSA contribution deadline is critical. Even if you file a tax extension with the IRS, you still need to abide by the HSA contribution deadline for the tax year. So, make sure July 15, 2020 is marked on your calendar.

Know Your Responsibilities as an HSA Owner

As an HSA accountholder, you’re likely already in the know when it comes to the triple tax benefits you receive by utilizing your health savings account. Your 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 from your HSA for qualified medical expenses are tax-free. And any interest you earn on your HSA grows income tax free.

But as an HSA owner, in order to maximize the efficiency and effectiveness of your HSA, as well as avoid any negative tax implications, you also need to know the basics of what you’re responsible for, during tax time and throughout each year. Here’s a quick list of those responsibilities:

  • Keep current on your coverage– You need to maintain your HSA-eligible high-deductible health plan (HDHP) coverage and ensure you’re not covered by any other plans that would conflict with having an HSA, including a standard flexible spending account (FSA)
  • Know your dependent status– You need to know that you’re not being claimed as a dependent on anyone else’s taxes
  • Plan your HSA contributions– You need to plan your HSA contributions accordingly to make sure you don’t exceed the annual HSA maximum contribution limit specific to your situation, as well as that you make all your contributions by the July 15, 2020 deadline
  • Track your HSA expenses– You need to keep track of your eligible HSA expenses and use HSA funds for only HSA qualified medical expenses (unless you’re 65 or older)—if any funds are used for a non-qualified expense, you need to correct the error and add the non-eligible expenses back to your gross income to avoid IRS penalties
  • Complete the correct HSA tax form at tax time– You need to be sure that you complete IRS Form 8889 and submit it with the rest of your tax filing materials by the tax submission deadline—keep reading for more details on this HSA tax form

Know Your HSA Tax Forms

Now that we’ve covered the HSA contribution deadline and basic HSA responsibilities you need to know, let’s move on to the specific HSA tax forms you need to understand. In a minute of reading, you’ll be confident answering the question, “what HSA tax forms do I need?”

There are three tax forms associated with health savings accounts, but only one you need to file with your taxes:

  1. IRS Form 1099-SA– This HSA tax form shows the total amount of HSA distributions (money you spent from your 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 your reference only and doesn’t need to be filed
  2. IRS Form 5498-SA– This HSA tax form shows the total contributions to you HSA throughout the tax year—same as IRS Form 1099-SA, this form is for your reference only and doesn’t need to be filed
  3. IRS Form 8889– This HSA tax form is the only form you need to fill out and submit with your tax return—you’ll use the information found on the other two forms to complete IRS Form 8889

Additional Reminders on Your HSA Contributions

As we covered above, you need to plan your HSA contributions accordingly to make sure they’re submitted prior to the July 15, 2020 contribution deadline and don’t exceed the annual maximum contribution limit of your specific coverage, as well as not miss out on any eligible HSA catch-up contributions if you’re 55 or older. But there are some additional reminders you need to be aware of when it comes to how HSA contributions can impact your tax filing.

While your 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.

If you have your HSA through an employer-sponsored HSA program, you also need to know where to find your employer’s contribution information. Employer HSA contributions are reported on your IRS Form W-2 and are also included on IRS Form 5498-SA (as part of the total account contribution amount).

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

A Note if You’re Enrolling in Medicare

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

Bend HSA – Making Tax Time Simple for You

The triple tax advantage you receive from your HSA is a great thing, and your responsibilities from a tax filing perspective require minimal added effort—especially when you use Bend HSA, which does the heavy lifting for you, tracking and managing your 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 currently working with us, we hope you consider a partnership with Bend. Open your Bend HSA today—it’ll only take a few minutes of your time, and is your first step to making the most of your health savings account.

And please remember, all 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.

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