Category Archives: Form 8889

Who Needs to File Form 8889?

In order to take advantage of the many tax benefits of Health Savings Accounts, there is a tax reporting requirement that occurs each year. When you file your taxes via TurboTax, H&R Block, etc., you are required to report HSA information on Form 8889, the IRS tax form for HSA’s. It is a slightly annoying, overly-engineered two page tax form that is required for those with transactions in their HSA during the year. As you will see, there are multiple scenarios that can cause confusion on who needs to file this form. Hopefully we address them all and provide clarity on your situation.

HSA Transactions require Form 8889

You need to file Form 8889 for the year if transactions occurred in the HSA. What are transactions? These include:

If any of those apply to your HSA this year, you need to file Form 8889 with your taxes. On the other hand, if your HSA sat idle during the year, you do not need to file Form 8889. A common example of this is you 1) no longer have HSA eligible insurance, so are not contributing to the HSA and 2) you did not make any distributions from the HSA this year. If you make distributions (or contributions) in the future, you would file the form with that tax year.

Preparing Form 8889 for family coverage

To summarize who needs to file Form 8889:

File Form 8889 for each person with a Health Savings Account that had transactions during the year.

Notice the “each person with a Health Savings Account” part. This means each person with a Health Savings Account; you know, like a bank account that exists at a financial institution. If both you and your spouse have a Health Savings Account, and you made contributions or distributions to either during the year, you each need to file separate Form 8889’s.

This is important because Form 8889 reflects the tax benefits (and penalties!) associated with the HSA itself. For a family with 2 HSA’s, the two Form 8889’s will total your combined activity for the year. For example, a $6,900 contribution limit resulted in $3,000 contributed to HSA 1 and $3,900 was contributed to HSA 2, etc. Both of these need to be reported.

Why do you need to file 2 Form 8889’s in that scenario? It is because of the magic “Line 6” split for married couples with separate HSA’s.

Spouses who have separate HSA’s and family coverage “split” the contribution limit.

This means that with family coverage and 2 HSA’s, each HSA is receiving an allocation of the HSA contribution limit. While you are allowed to make this allocation however you want (save for the 55+ catch up contribution), each HSA receives an allocation. The result is you cannot file one Form 8889 and capture the tax implications, as even “$0” needs to be reported.

Form-8889-Line-6-family-hsa-contribution-split


[Note: the Line 6 split is especially complicated. If you don’t want to read the 1+ pages of IRS instructions, have EasyForm8889.com take care of it for you.]

Below is a review of common scenarios and how Form 8889 must be filed.

1) What if my spouse and I have family coverage?

If you were on family coverage during the year, you need to file Form 8889 for each HSA that existed and had transactions. If only you have an HSA, and the full contribution limit went into it, you only need to file one Form 8889 reporting those transactions. On the other hand, if both you and your spouse have an HSA, and you split the contribution limit per Line 6, you both need to file a Form 8889.

2) What if my spouse has their own HSA?

If your spouse has their own HSA, you will need to file a Form 8889 for it. Again, this assumes transactions occurred in the HSA during the year. Alternatively, if the HSA just kind of sat there, and no contributions nor distributions occurred, you do not need to file Form 8889 for it.

3) What if my adult child has their own HSA?

A nice loophole of HSA’s is that adult children on family coverage can open their own HSA. This allows them (or you, or others) to fund a substantial amount each year. The minor downside here is they will need to file a Form 8889 for each year transactions occur. So this is an additional form to file, potentially a 3rd (or 4th!) if both spouses have an HSA.

4) What if my spouse is 55 or older?

One specific rule about the 55+ catch up contribution of $1,000 is that it must follow the person who is over 55. This means that if you are over 55, and you want to take advantage of the 55+ contribution, the $1,000 needs to go into your HSA. You cannot place your $1,000 into your partner’s HSA.

For example: say the husband is 56 years old on family coverage but the insurance and HSA are in the wife’s name. His $1,000 cannot go into her HSA. Instead, the husband needs to open his own HSA and contribute the $1,000 (and any Line 6 “split” of the family contribution limit) there.

5) What if my spouse and I are both 55 or older?

As you might guess from the previous scenario, each spouse who is over 55 needs their own HSA if they are going to take advantage of the 55+ contribution. For couples on family coverage who are both over 55, this means you need 2 HSA’s to fully maximize your contribution. This maximum would equal the family contribution limit plus $1k for spouse and $1k for other spouse. Opening the HSA should not cost you anything. It is a little annoying to file the additional Form 8889, but this is the only way to maximize your 55+ contribution for the year.

Note: If you want help preparing any of your HSA tax forms this year, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.


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2017 Form 8889 – Instructions and Examples

If you made contributions to or distributions from your HSA in 2017, you will need to file the federal tax form 8889. This form is specific to HSA’s and records all activity with your HSA for the year. It flows to Form 1040 to adjust your income: your contributions reduce your taxable income, whereas any penalties adds back to income, increasing tax.

Form 8889 is not as straightforward as it could be, so I created a service called EasyForm8889.com that completes your form for you. I have also created the following video to walk through how to file Form 8889. Little has changed since the 2016 form used in this video. Check it out, otherwise, the transcription of the information is below.

Watch on Youtube: How to File HSA Tax Form 8889

In the following article we will cover:

Changes to 2017 Form 8889 tax form

The 2017 HSA tax form presents little difference to prior year tax forms. Throughout the form you will see the tax year incremented to 2017, so make sure you are working on the correct version. This can be confirmed in the upper right of the form. Contribution limits have increased in 2017, so these amounts are reflected throughout the form (specifically Line 3).

There were also some changes to HDHP definitions in 2017 so read on if those apply to you.

Changes to 2017 Form 8889 instructions

The 2017 Form 8889 instructions have been released by the IRS and can be found here. They are substantially the same as prior years save for year and contribution limit updates.

2017 HSA Contribution Limits

For self-only coverage, the maximum contribution limit increased by $50 to $3,400 in 2017. There were no changes to the family coverage amount which is $6,750, as well as the 55+ catch up contribution amount of $1,000. The IRS defines the maximum amounts that may be contributed to a Health Savings Account each year. Per IRS Publication 969:

The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you became an eligible individual, and the date you cease to be an eligible individual…for 2017, if you have self-only HDHP coverage, you can contribute up to $3,400. If you have family HDHP coverage you can contribute up to $6,750.

Here are HSA contribution limits for prior years:

2014 2015 2016 2017
Self-Only HSA Contribution Limit $3,300 $3,350 $3,350 $3,400
Family HSA Contribution Limit $6,550 $6,650 $6,750 $6,750
55+ Additional Contribution Limit +$1,000 +$1,000 +$1,000 +$1,000

The maximum contribution amount for your HSA in 2017 is $3,400 for self-only coverage and $6,750 for family. Note that this does not include the additional 55+ catch up contribution of $1,000 allowed to properly aged HSA holders. Thus, if you are over 55 on or before the end of 2017, you can contribute $4,400 for self-only coverage or $7,750 for family coverage.

2017 HDHP Definitions

To qualify as an HDHP, your health plan cannot exceed an out-of-pocket maximum limit established by the IRS. There were no changes to these amounts from 2016 to 2017. For self-only plans, the minimum deductible remains $1,300 and the out of pocket maximum is $6,550. For Family plans, the minimum deductible is $2,600 while the out of pocket maximum is $13,100. Plans with a deductible below that specified are not HSA eligible, nor are plans with an out-of-pocket max greater than those listed. The HDHP definitions for recent years are summarized below:

2014 2015 2016 2017
Self-Only Min Deductible $1,250 $1,300 $1,300 $1,300
Self-Only OOP Max $6,350 $6,450 $6,550 $6,550
Family Min Deductible $2,500 $2,600 $2,600 $2,600
Family OOP max $12,700 $12,900 $13,100 $13,100


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2017 HSA Form 8889 example

Let’s walk through an example of the 2017 Form 8889 to show how it works.

Let’s assume I am a married 40 year old who had family HSA eligible coverage from January – June of 2017 (6 months). On July 1st, I changed to a non-HSA eligible plan. My spouse does not have their own Health Savings Account. I contributed $1,800 to my HSA and my employer contributed $800. I distributed $800 from the HSA during the year, all of which I spent on qualified medical expenses.

Part I – Contributions and Deduction

Form 8889 starts off pretty simply on Line 1 by asking the type of insurance you had (mostly) during the year. For this example, it is family. Line 2 then goes on to ask how much you contributed to your HSA during the year. In our case this was $1,800, which does not include employer contributions. Line 3 can be quite complicated, but in essence you need to list your contribution limit for the year. If you had self-only or family coverage all year, the amounts are provided for you. Otherwise, you need to prorate your coverage by month. In this case, we had family coverage for 6 months, so our contribution limit is $3,375 for 2017. Line 4 asks about Archer MSA’s (does not apply here) and Line 5 is a simple subtraction.

[Note: all 2017 tax forms were generated in minutes using EasyForm8889.com]

2017 HSA Form 8889 part 1 example

We continue with Line 6, which for self-only filers equals Line 5. For family coverage where both spouses have their own Health Savings Account, each of you needs to file your own Form 8889. Then on Line 6, you allocate the share of the contribution limit that belongs to that HSA. In this case, only the insured has an HSA, so this line equals Line 5. For some situations, Line 7 adds the $1,000 catch up contribution, but our example assumes the HSA holder is 40 years old so this does not apply. Line 8 is simple subtraction, and the $800 employer contribution comes into play on Line 9. If you contributed to your HSA from an IRA you would indicate that on Line 10, and Line 11 is simple addition. Line 12 is subtraction, and Line 13 does a comparison to calculate what your 2017 HSA deduction is, which makes its way to Form 1040. In our case, it is the $1,800 we contributed to the HSA.

Part II – Distributions

The second part of the 2017 Form 8889 deals with distributions, or amounts that came out of your HSA. We assume that we distributed $800 from the HSA, so that amount is shown on Line 14a. Line 14b lists rollover amounts and excess contributions that were removed, and Line 14c subtracts them out. The filer tracked his qualified medical expenses and receipts using TrackHSA.com this year, so he can easily prove all $800 in distributions were used for medical expenses. He places that amount in Line 15. A subtraction occurs on Line 16 to determine any amounts not spent on qualified medical expenses; luckily that is $0 for us. If you had an amount on Line 16, Line 17a gives you the chance to exclude this from taxation based on a few exceptions. Otherwise, that Line 16 amount is taxed 20% on Line 17b, which gets recorded on Form 1040.

2017 HSA Form 8889 Part 2 example

Part III – Penalties and Taxes

For most people, Part III will look a lot below: all zeroes. This is good, but it is possible that you have accrued some taxes and penalties. If in the prior tax year, you 1) used the Last Month Rule and proceeded to 2) fail its Testing Period, a difficult calculation awaits you on Line 18. You are going to have to go back, figure out how much you contributed in the prior year, redetermine what you could have contributed without the Last Month Rule, and place the difference here. On a similar note, if you made a qualified funding distribution from your IRA but failed its Testing Period in 2017, you will have to enter the amount that failed in Line 19. Once that is done, Line 20 adds Line 18 and Line 19 and adds it back to income (where it is taxed) on Form 1040. Finally, for good measure, Line 21 assesses a 10% penalty against the amount on Line 20, which also makes its way to Form 1040.
2017 HSA Form 8889 part 3 example

Note: if you need help with your 2017 Form 8889, or just want it done right now, please consider using my service EasyForm8889.com. It asks simple questions in a straightforward way and will generate your completed HSA tax forms in 10 minutes. It is fast and painless, no matter how complicated your HSA situation.


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Do I Have Self-Only or Family Coverage for my HSA?

Overview

The contribution limit for your Health Savings Account is based on the type of insurance you have, in addition to your age and the tax year. For most people, determining if their insurance coverage is “self-only” or “family” is pretty straightforward: if their insurance plan only covers them, they have “self-only” coverage. On the other hand, if their insurance covers both them and a spouse, child, or dependent, they have “family” coverage. This determination is important for determining both your contribution limit and filling out line 1 on Form 8889.

Form-8889-Line-1-coverage-type

Line 1 of 2017’s Form 8889 marked as “Self-only” provided by EasyForm8889.com.

However, there are some situations where this coverage determination is not so simple. For example:

  1. Both my spouse and I have individual insurance plans
  2. I had both self-only and family HSA coverage at the same time
  3. I had self-only and family coverage at different times during the year
  4. I had self only coverage for 6 months and family coverage for 6 months

In this article we will review the methodology for determining if your HSA insurance is self-only or family and address each of the scenarios listed above.

Rules to determine your HSA coverage

There are a few rules to follow to determine your HSA coverage type for the year. Form 969 provides blanket guidance with this paragraph:

HSA-self-only-or-family-coverage-rules

Note that going forward, coverage type means the “general” coverage you had for the year. This determination is important as it drives the answer to Line 1 on Form 8889 and not necessarily determining your contribution limit (more later). The following rules are listed in order of precedence, with the most important ones first:

  1. If you had family coverage on December 1st, check the “family” box on Form 8889. This is because, regardless of the number of months covered, you will be eligible for the Last Month Rule at the higher family contribution limit.
  2. If you had both self-only and family coverage during the year, choose the one that was in effect longest.
  3. In a given month, if you had both self-only and family HSA coverage, that month counts as “family” coverage. This makes sense because the family coverage has a higher contribution limit. This may apply to you if you are calculating your coverage by month.

Special cases for determining HDHP coverage

We can apply the above rules to the coverage questions posed earlier to help you determine what type of coverage you should mark on Line 1:

1) Both my spouse and I have individual insurance plans

Even if both you and your spouse have separate self-only plans, you cannot “combine” them to be qualified for family coverage. Instead, you both need to open your own HSA and contribute the self-only amount to that respective HSA. You will need to file a separate Form 8889 for each HSA.

2) I had both self-only and family HSA coverage at the same time

Per the Form 8889 instructions, if you are covered by two HSA plans at once, and one of them is family coverage, you are considered family coverage. This may happen if you are transitioning from one plan to another.

3) I had self-only and family coverage at different times during the year

If you had different coverage during the year, your Form 8889 line 1 will be whichever was in effect the longest. So if you had family coverage from January – April, then self-only coverage from May – November, you would be considered “self-only” for the year. Although notice in this scenario that your contribution limit will actually be higher than the self-only contribution limit, on account of your 4 months at the higher family coverage rate.

4) I had self-only coverage for 6 months and family coverage for 6 months

This is really a toss up, but I would mark “Family” since that has the higher contribution limit. Won’t affect your contribution limit calculation but to me it looks cleaner to have “Family” on Line 1 followed by a higher-than-self-only contribution limit further down the page.

5) I have self-only coverage and my son/daughter has separate self-only coverage

This occurs when a parent has HSA coverage (say, through work) but their child (or other dependent) is on another self-only HSA eligible plan. In this case, the parent can only claim self-only coverage since their insurance only has 1 person on it – themselves. They would have to add the child to their insurance to claim Family. However, the child can also claim self-only coverage (and contribute to their own HSA) if they are not a dependent. See the article Your Adult Children Can Open an HSA for more information.

Note: if you need help with Line 1 or any Line in Form 8889, please consider using my service EasyForm8889.com to complete Form 8889. It asks simple questions in a straightforward way and will generate your HSA tax forms in 10 minutes. It is fast and painless, no matter how complicated your HSA situation.


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