HSAs and 2019 Tax Returns - What Do You Need to Know?

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The IRS has published revised versions of various forms and instructions used by taxpayers to assist them in preparing their 2019 income tax returns.

For participants in the Health Savings Account (HSA), you can find instructions for IRS Form 8889 used to report contributions and distributions to the HSA on personal tax returns.

Individuals should review these forms and instructions and work with their tax preparer to further understand how this information may impact their income tax filing. 

Reminder! When filing IRS Form 1040, you may also need to complete Schedule 1 “Additional Income and Adjustments to Income” and Schedule 2 “Additional Taxes”.  Please see the full instructions for the 2019 IRS Form 1040 for more details.

Schedule 1 is used in conjunction with Form 8889 to deduct any HSA contributions made after tax through payroll or directly to the HSA custodian outside of payroll (line 12). This does not include any contributions made through a cafeteria plan as those tax deductions are already realized through the employer and are simply reported on Form 8889. In addition, you will report any taxable HSA distributions or income due to failure to retain coverage during the testing period for the full contribution rule on Schedule 1 (line 8).

Schedule 2 is used in addition to Form 8889 to report any penalties owed on HSA distributions that were not for medical care (20%) or any tax for failure to maintain high deductible health plan (HDHP) coverage (10%) during the testing period following the use of full contribution rule from the prior year. Both of these taxes and the reason will be entered on line 8 per the instructions and details provided on Form 8889.

The IRS has published the IRS Publication 969 which provides general information to taxpayers who participate in flexible spending accounts FSA), medical savings accounts (MSA), health reimbursement arrangements (HRA), and/or Health Savings Accounts (HSA). Participants also need to rely on any plan documents and summary plan description (SPD) provided by their employer that will explain the specifics of their plan(s).  This publication essentially remains the same and has been updated for the annual indexes for inflation impacting the 2019 tax year.

Please consult your tax advisor for questions about your specific tax filing situation.

Categories: Benefits in General, Health Care Reform, Compliance, Health Care in General | Tags: HSA , Health Savings Account , Form 8889 , Schedule 1 , Schedule 2 , Form 1040 , IRS , 2019 tax filing , penalty | Return