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Filing Taxes with a Health Savings Account (HSA): Part Three

In part one of this series about filing taxes with a Health Savings Account (HSA) we went over all the documents you need and part two covered how to correctly identify your contributions.

We all know it can be confusing to fill out any tax form. Often the language doesn’t seem clear and unique circumstances are rarely addressed in the instructions. This post answers three common questions from Part One of the IRS Form 8889, which is used to determine your HSA contribution limit and whether your contributions were pre-tax or post-tax.

My insurance type is not named “Self-only” or “Family”.  What option do I choose?

The IRS uses your insurance type to determine this.  All insurance plans that cover more than one person are considered “Family” by the IRS. Your insurance does not need to be called “Family” in order to be considered “Family” insurance in regards to your HSA.  This means, if your insurance covers you and your spouse, or you and your children, or you and your domestic partner, your insurance is considered “Family.”  Alternatively, if your insurance plan only covers you, it is considered "Self-Only." See further instructions here if you had a qualified change during the year.

I made payroll deductions to my HSA.  Do I enter those on line 2 or line 9?

Line 2 of the 8889 is specifically asking for post-tax contributions that are not rollovers.  You might enter an amount here if you sent a check from your own checking account into your Health Savings Account (HSA), or if your employer makes payroll deductions post-tax (unusual), or if you are a 2% or more shareholder of an S-Corp or LLC. Pre-tax payroll deductions should appear in box 12, code W on your W-2.  This means the amount was not taxed and was not considered part of your taxable income.

If this is the case, you should not enter the pre-tax payroll deductions on line 2.  Instead, you should enter the pre-tax payroll deductions on line 9. This is because the IRS considers payroll deductions the same as employer contributions. If your employer also contributed to your account pre-tax their amounts would be listed in box 12, code W on your W-2.

How do I determine my contribution limit to enter on line 3?

If you did not have the same coverage on the first day of all twelve months you will need to use this worksheet to figure out the number to enter here.

For example, if you were on a High Deductible Health Plan (HDHP) on December 1st, the worksheet will show that you get the full contribution limit for that tax year. You will have to remain on an HDHP for the rest of the next year or else you have to calculate a pro-rated limit using the worksheet again (as instructed on line 19).

Note: If the number on line 13 of your form 8889 does not look correct you should double check what you entered.  Some common questions to consider include:

  1. Does the number entered on line 25 of your 1040 include pre-tax contributions?  If the answer is yes, double check your work on Part 1 of form 8889.  You should not be subtracting untaxed payroll deductions or employer contributions from your Adjusted Gross Income (AGI) since you already received the tax deduction.
  2. Does the number you entered on line 25 of your 1040 include all the contributions that were taxed during the year?  If the answer is no, double check your 1040.  You want to subtract taxed amounts from your AGI.

Next, check out part four of this series that will help answer common questions about Part Two of the IRS Form 8889.

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