Tag Archives: Form 8889

2016 HSA Form 8889 – Instructions and Example

As tax season for 2016 falls upon us, the IRS has released the 2016 version of Form 8889, the official form for HSA tax reporting. Notably, as of January 15th, the 2016 HSA Form 8889 instructions have not been released. However, you should be able to get by with the 2015 instructions – just keeping in mind that a few contribution maximums have changed.

I have created the following video to walk through changes and an example for 2016’s Form 8889. Check it out, otherwise, the transcription of the information is below.

Watch on Youtube: HSA Last Month Rule and Testing Period

In the following article we will cover:

Changes to 2016 Form 8889 tax form

For those of you who have filed HSA taxes before, you won’t notice much change in the 2016 version of Form 8889. Obviously the tax year of the form has incremented, so just verify you have the correct form which says “2016” in the upper right hand corner. The main difference reflects the maximum contribution limit increase for family coverage, from $6,650 to $6,750. This is indicated on Line 3 which is used to determine your contribution limit. It is assumed that when the IRS updates the 2016 instructions, they will include this update in the calculations for more complicated (e.g. partial year coverage) situations, which are explained there.

2016 Form 8889 Family Contribution Amount

Pretty minor, but you will also notice year updates throughout the form. For example, you see this in “Part II – HSA Distributions” section, where in Line 14a they state that we are concerned about distributions occurring in tax year 2016:

2016 Form 8889 distribution section year change

There were also some changes to HDHP definitions in 2016 so read on if those apply to you.

Changes to 2016 Form 8889 instructions

At this point the 2016 Form 8889 instructions have not been released, but we will check for changes in methodology once they are available.

2016 HSA Contribution Limits

For family coverage, the maximum contribution limit increased by $100 to $6,750 in 2016. The IRS defines the maximum amounts that may be contributed to a Health Savings Account each year. Per IRS Publication 969, the 2016 HSA contribution limits are:

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 2016, if you have self-only HDHP coverage, you can contribute up to $3,350. If you have family HDHP coverage you can contribute up to $6,750.

Here are HSA contribution limits for years 2014, 2015, 2016, and now 2017 since it has been released:

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

So the cap or maximum contribution amount to your HSA is $3,350 for self-only coverage and $6,750 for family coverage in 2016. 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 2016, you can contribute $4,350 for self-only coverage or $7,750 for family coverage.

2016 HDHP Definitions

To qualify as an HDHP, your health plan cannot exceed an out-of-pocket maximum limit established by the IRS. For 2016, the out-of-pocket max was increased for both self-only and family coverage. Self-only increased $100 to $6,550 while family increased $200 to $13,100. Plans with an out-of-pocket max that exceeds these amounts are not HSA eligible. The IRS defines what constitutes an HDHP (High Deductible Health Plan), which is a prerequisite for contributing to an HSA. Again, you can see the HDHP definitions in IRS Publication 969 for 2016. The HDHP definitions for 2014, 2015, 2016, and 2017 (because they are now available) 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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2016 HSA Form 8889 example

Let’s walk through an example of the 2016 Form 8889 to show how it works.


Let’s assume I am a 30 year old who had self-only, HSA eligible coverage from January – June of 2016 (6 months). On July 1st, I changed to a non-HSA eligible plan. I contributed $1000 to my HSA and my employer contributed $250. I distributed $500 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 self-only. Line 2 then goes on to ask how much you contributed to your HSA during the year. In our case this was $1000, 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 self-only coverage for 6 months, so our contribution limit is $1,675 for 2016. Line 4 asks about Archer MSA’s (does not apply here) and Line 5 is a simple subtraction.

[Note: all 2016 tax forms were generated in minutes using EasyForm8889.com]

2016_Form_8889_part_1_contributions

We continue with Line 6, which for self-only filers is just Line 5, but family filers where both spouses have HSA’s have the option to distribute part of their contribution limit to each account. For some situations, Line 7 adds the $1,000 catch up contribution, but our example assumes the HSA holder is 30 years old so this does not apply. Line 8 is simple subtraction, and the $250 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 2016 HSA deduction is, which makes its way to Form 1040. In our case, it is the $1,000 we contributed to the HSA.

Part II – Distributions

The second part of the 2016 Form 8889 deals with distributions, or amounts that came out of your HSA. We assume that we distributed $500 from the HSA, so that amount is shown on Line 14a. Line 14b lists rollover amounts and excess contributions 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 $500 were legit and puts that value 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. Otherwise, that Line 16 amount is taxed 20% on Line 17b, which gets recorded on Form 1040.

2016_Form_8889_part_2_distributions

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, and place the difference here. On a similar note, if you made a qualified funding distribution from your IRA but failed its Testing Period, 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.
2016_Form_8889_part_3_penalties

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TrackHSA logo

How to Rollover HSA Funds

At some point you may find yourself with multiple Health Savings Accounts that you wish to combine or transfer money between. While the actual transaction is easy to accomplish, there are potential tax implications per the IRS, as this transaction ends up on Form 8889, so it is best to play by the rules and do it correctly. This article will outline those rules to rollover your HSA.

HSA Rollover Definition

The IRS defines an HSA rollover as:

A rollover is a tax free distribution (withdrawal) of assets from one HSA or Archer MSA that is reinvested in another HSA of the same account beneficiary.

Note they define a rollover as a distribution that occurs in an effort to move money between Health Savings Accounts that belong to the same owner. However, the key word is distribution which we will get to shortly. They go on to say:

Generally, you must complete the rollover within 60 days after you received the distribution.

This language confirms that you are actually receiving the money, probably in the form of a check, from the originating HSA trustee. You then have 60 days per the IRS to deposit that money in a corresponding HSA to avoid penalty. One last rule from the tax man:

An HSA can only receive one rollover contribution during a 1 year period.

The IRS puts a limit on the number of HSA rollovers that can occur during a year, which is not necessarily a calendar year. But they note that this restriction is on the receiving HSA account, not the originating account.

Direct Transfer from HSA to HSA

It is important to note that rollovers that occur directly between HSA trustees are not considered rollovers. For example, if you instruct HSA Account 1 to transfer $500 to HSA Account 2, and they transfer directly without you ever seeing it, this is not a rollover. Instead, the IRS deems this a transfer:

If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer is not considered a rollover. There is no limit on the number of these transfers. Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889.

Thus, the same rules do not apply to transfers and HSA rollovers. Transfers are much more flexible and frequent. Likely, the IRS imposes tight rules on Rollovers since they “lose sight” of the money for a while, which opens the door for non qualified HSA spending. The key test is in the distribution, determined by whether you physically receive the HSA funds (check) to redeposit in another HSA.

HSA Rollover vs Transfer Comparison

This table clarifies the difference between HSA rollovers and transfers:

Rollover Transfer
Funds transferred to you, then to receiving HSA directly to receiving HSA
Time to complete 60 days None (instant)
Form 8889 impact Include in 14a and 14b Not included
Frequency Limits Once every 12 months No limit
Affects HSA Contribution Limit No No
Included in income No No
Deductible No No
Difficulty medium easy

HSA rollover rules

To summarize the rules for rolling over your HSA:

  1. Initiate the distribution from your originating HSA trustee, and they will send you a check
  2. Upon receiving the HSA funds, redeposit them with the receiving HSA trustee within 60 days
  3. You may only make one rollover during each 1 year period, beginning on the date you make the deposit.
  4. Record this as an HSA rollover on Form 8889, lines 14a and 14b.

Should I transfer or rollover my HSA?

In general, I would opt for a direct transfer of your HSA. This is done by instructing your HSA trustee to move money to another HSA trustee. The reason is it is much simpler for you to execute and takes less time. You don’t have to wait for the check, spend time depositing it in your other HSA, and then remember and figure out how to report it at tax time on HSA Form 8889. Plus, you can do as many of these transactions as you wish during the year.

How to report HSA rollover to the IRS

One disadvantage of a true HSA rollover is that you will need to report it on IRS tax Form 8889. When properly accounted, a rollover will not adversely affect you in terms of taxes, penalty, or contribution limit; it is a totally legitimate transaction. Instead, it is more of a nuisance as you have to remember to report it to satisfy the IRS and correctly file Form 8889.

On Form 8889, you will need to include the amount of your HSA rollver distribution on both:

  • Line 14a – Total distributions you received from all HSA’s
  • Line 14b – Distribution included on line 14a that you rolled over to another HSA.

Here is an example of what Form 8889 looks like for 2015 with only a $1000 HSA Rollover:

form8889_hsa_rollover_line_14

The above was prepared by EasyForm8889.com, which asks simple questions like this to complete HSA Form 8889:

EasyForm8889.com HSA Rollover questions

Transfer your HSA to a New Employer

Depending on how your employer’s HSA is setup, there may not be any work to transfer your HSA to a new employer. In one situation, you go to a new employer who offers HSA eligible insurance, but does not contribute or offer cafeteria plan (removed from your paycheck) contributions. In that case, you manage the HSA yourself, and can maintain the account at whatever financial institution you wish.

However, if your employer is making contributions or your contributions will be made through a cafeteria plan, you may need to transfer funds to your new HSA. You have the option of receiving and redepositing (Rollover) the HSA funds, or just initiating a trustee to trustee transfer for the HSA funds. Either one will work, but note the advantages above of the simpler transfer method. Generally, this will be a good idea to minimize your account fees and manage your HSA in one spot.

HSA rollover IRA to HSA

If you wish to rollover IRA (or even 401(k)) funds to your HSA, this is not considered a rollover, but instead a Qualified HSA Funding Distribution. Please see the aforementioned article for more information, as there are more restrictions and rules regarding this type of transfer.

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How Do Employer Contributions Affect My HSA Limit?

A common question readers have is how employer contributions to a Health Savings Account work and how they affect their HSA contribution limit for a year. HSA’s are very flexible in that basically anyone can contribute to your HSA (see: Who Can Contribute to a Health Savings Account), including yourself, your family, others on your behalf, and your employer. However, some differences exists for those contributions made by your employer in terms of taxation, reporting, and contribution limit.

Do employer contributions to HSA count towards maximum?

The short answer is yes, employer contributions count towards your HSA maximum contribution limit for the year. Looking at HSA tax Form 8889 shows you how this occurs:

form_8889_line_9_employer_contributions


The above Form 8889 was prepared quickly using EasyForm8889.com.

HSA Employer Contributions are entered on Line 9 of IRS Form 8889, so whatever your employer contributes to your HSA goes there. Line 12 is where the employer contribution actually affects your HSA contribution limit, since it subtracts the employer contribution from Line 8 which is a “running total” of your contribution limit up until that point. The result is compared to Line 2, your actual HSA contribution, and the smaller is reported on Line 13 which carries over as your deduction to Form 1040. So the net effect of this comparison is that employer contributions reduce your contribution limit from Line 3.

Are employer HSA contributions taxable?

For the account holder, if made directly to your HSA, Employer Contributions are not taxable to you. As you can see above, the amount flows into Form 8889 on Line 9 and then onto Form 1040 Line 25, which is in fact a deduction. So the employer contributions are reducing the possible tax deduction, but of course, this is free money. You can’t receive an employer contribution and then take a deduction for it. How the employer contributes matters, though. If your employer were to simply write a check and say “here is your HSA contribution”, this would be treated as a “bonus” or regular income and taxed. It would be wise to coordinate with the employer as it would be to both of your benefits.

For employers managing a corporation, HSA contributions are a deductible expense so are treated preferentially and reduce your tax liability. For S-Corps and Partnerships, the contribution is treated as a distribution which is claimed by the recipient, but not the business.


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HSA Employer contributions found on W2

HSA contributions from your employer are shown on Box 12 of your W2 with code “W”. They will take one of the available Box 12 spaces, mark a “W” to indicate HSA, and enter the amount in the box to the right. If only your employer contributed to your HSA, this is easy and you are done.

w2_hsa_employer_contributions_box_12

However, one confusing aspect of this is that your personal contributions made to your HSA may show here if they were withheld from your paycheck. These are called “cafeteria plan” contributions and should in fact be put on Form 8889 on Line 9, not Line 2. This is a common mistake, but looking at Form 8889 Line 2 you can see that these cafeteria plan contributions are excluded and instead go on Line 9 (employer contributions):

form_8889_line_2_cafeteria_plan_contributions


The above Form 8889 was prepared quickly using EasyForm8889.com.

HSA contributions: employee vs. employer

The main difference between employee and employer contributions is who is paying for them. Of course, free money is free money, so if you can get employer contributions, do it! Another difference is how they get into your Health Savings Account: employer contributions should be directly deposited, whereas you will contribute your HSA contributions manually. Note the exception here is if you make cafeteria plan contributions, which are withheld from your paycheck (see above). Additionally, employer contributions go on Line 9 of IRS tax form 8889, whereas personal contributions go on Line 2.

On the other hand, there are many similarities between employee and employer contributions. Both types of contribution count toward your HSA maximum contribution limit. This occurs in different sections of Form 8889, but eventually they make there way to Line 13 which is your HSA deduction that flows to Form 1040. Both types of contribution go into your Health Savings Account and are yours forever, and you may spend them on whatever qualified medical expense you want. Your employer will never see how they were spent and cannot claw back those contributions.

HSA employer contribution limits for 2016

The maximum amount your employer can contribute to your HSA is calculated in the same manner as your personal contribution limit. For 2016, the HSA maximum contribution limit is $3,350 / $6,750 for single / family coverage. In addition there is a $1,000 catch up limit applied to those over 55 years old. So between your personal and employer contributions, you cannot exceed this limit. If you are on single coverage and your employer contributes $3,350 to your HSA, you can make $0 in personal contributions for the year without over contributing. However, if you are 56 years old with single coverage and your employer contributes $3,350, you could make a personal $1,000 contribution for a total of $4,350 as part of the 55+ additional catch up contribution.