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:

Contributions made to HSA
Distributions from HSA
Penalties for failing testing period
You acquired HSA due to death of beneficiary

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.

HSA Family Contribution Limit with Spouse on Medicare

This question was sent in by HSA Edge reader Tim. Feel free to email your question to evan@HSAedge.com

I have client whose wife is on Medicare. Client has parent child coverage in effect. Can client contribute full family amount of $7,000 plus $1,000 for being over 55?

Contribution Limit determined by HSA eligibility

It sounds like you are trying to determine the contribution limit for a family where the wife is not HSA eligible due to Medicare. The contribution limit depends on who is actually covered by the policy, and for what amount of time. Note that Medicare can retroactively affect your HSA coverage. Either way, the IRS test for contribution is called HSA eligibility. It contains 4 rules which are:

HSA-what-is-an-eligible-individual

If any of the above are violated, the individual is not HSA eligible and they cannot open or contribute to an HSA. It isn’t entirely clear from your email who is covered under the HSA eligible plan and who is not.

Family coverage includes the eligible individual and at least one other individual – whether they are an eligible individual or not.

Here are the valid scenarios I can think up:

1) Parent and child covered

If your client and the child are covered by the HSA insurance, you are correct in your assertion: family coverage of $7,000 + $1,000 catch up if client is 55+. This assumes the parent is HSA eligible. For example, the wife’s Medicare doesn’t cover the client, which would disqualify based on rule #1 above.

2) Parent, wife and child covered

Same as the above. This would mean your wife is covered by both Medicare and the HSA plan. She is not an eligible individual, and can’t have an HSA, but assuming the client is eligible, he plus the child count as two members which allows the family contribution limit (plus any 55+ catch up contribution).

3) Wife and child covered

If only the wife and child are covered by the HSA insurance, a strange situation develops since the wife is not HSA eligible. Based on the IRS rules in Form 969, at least one eligible individual is required to contribute to the HSA:

This is supported by Form 969, which defines self-only and family coverage. Note the specific language for family coverage and the “Other” individual who is covered:

HSA-self-only-or-family-coverage-definition

This leaves the determination based on the covered child, since the wife is not eligible due to Medicare:

If child is an eligible individual, family contribution applies (no 55+) but must go into eligible individual’s (child’s) HSA.
If child is not an eligible individual, no contribution limit seems to apply.

Likely, the above test of the child will boil down to point 4 in the eligible individual calculation: is the child is a dependent or not? Basically, “are they old enough to pay taxes?”. The result is odd, in that only the child could open the HSA and contribute the full family contribution limit (no 55+ likely applies). Of course, they would need those funds, or you would need to contribute it for them. Note that this is the scenario discussed in Your Adult Children can Fund their HSA. However, note that the parent’s could not fund the HSA in this scenario.

Covered by HSA, but no contribution limit

The above discussion displays the possible scenario where one’s family can be covered by an eligible HSA plan but they are not allowed a contribution limit. This is generally due to violating the eligible individual definition, but could take the following forms:

Husband, wife and child are covered. Wife on Medicare, and the Medicare applies to Husband. Child is a dependent.
Husband and wife have HSA eligible insurance. Wife has an FSA at work, which also covers the spouse, violating the “Other coverage” clause. (Note – in 2018 there was legislative discussion of changing this FSA rule.)
Family coverage begins on the 2nd of the month. Not eligible to contribute for that month, but can contribute going forward. Note that they have the option to make this up this missed month using the Last Month Rule.

In all of the above examples, HSA coverage exists but due to other factors, the individual has a $0 contribution limit and cannot contribute to the HSA at this time.

Note: If you want help calculating your HSA contribution and filing your taxes, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.

Paying for Unemployed Spouse’s Premium Using HSA

This question was submitted by HSA Edge reader Dave. Feel free to send in your question today to evan@hsaedge.com.

My spouse became unemployed and we want to use our HSA to pay our premium under IRS rules. However, we have a family plan with both of us on it. Can I use the funds to pay the entire premium or do I need to prorate it to her portion for payment tax free from the HSA?

Using HSA for Insurance Premiums

Sorry to hear that your spouse is in this situation. Using HSA funds to pay for insurance premiums is a great benefit of HSA’s and one way they provide an unemployment safety net.

First off, make sure that your spouse is receiving unemployment compensation from the state or federal government. This means signing up for unemployment benefits and being receiving actual money from a government entity. Do this as soon as possible. Why? Besides receiving funds that will help you during this time, this step is required to treat premiums as qualified medical expenses. Moreover, it is the sole justification in the event anyone at the IRS asks why your premiums were treated as such.

Your HSA can pay for health care coverage while receiving unemployment compensation under federal or state law.

You will need this evidence for each month you treat the premium as a qualified medical expense, and hence, pay for it with your HSA.

Considerations for Family Coverage

Now that you have met the prerequisites, you can pay for your health insurance using your HSA. This has two main benefits:

Cash flow – you use previously saved funds for current expenses
Tax deduction – you use tax free funds for the insurance premiums

As for the amount of the premium, can see the IRS guidance from Form 969 below. It is admittedly vague on this topic but I don’t see any reason you need to prorate the insurance premium only for your spouse.

HSA-unemployment-insurance-premiums-for-spouse

In fact, the spouse case is called out in the highlighted area. if the intent was to split the premium they would have said so explicitly there. Instead, there is no mention of prorating any premium amount, and instead the rules state that “if conditions are met, you may pay for the premium”. Without any mention of prorating, I don’t see it as required. Going a step further, requiring the premium be prorated would be messy and dilute the benefit significantly. For example, consider the case of family coverage with 2 dependents: would only 25% of the premium be HSA eligible?

Based on the above, my take is that if anyone on the family coverage is receiving unemployment benefits, the entire premium can be paid with the HSA.

Note: I created TrackHSA.com to track medical expenses you pay using Health Savings Account, even insurance premiums. It provides record keeping to store purchases, upload receipts, and record reimbursements securely online.