Tag Archives: Taxes

HSA Contributions from Others on Form 8889

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

I read your article on “Contributing to HSA’s with a Cafeteria Plan” and have a question. I am a federal employee with the Aetna High Deductible Health Plan. The government automatically deducts my premiums from each paycheck pretax through premium conversion. Aetna contributes $1,500 to my HSA each year. Where do I report Aetna’s $1,500 contribution on Form 8889?

One of the benefits of Health Savings Accounts is that literally anyone willing can make a contribution to your HSA on your behalf. This means that if you have a parent, grandparent, rich uncle, friendly employer, or random organization that wants to give you money for your medical care, you can accept it in your HSA.

HSA Contributions from Others are Tax Deductible

As if receiving free money wasn’t enough, the IRS gives you another special bonus for HSA contributions from others on your behalf. Incredibly, these contributions from others are deductible on your return. Yes, you read that right: if you receive HSA contributions from another person, you receive a tax deduction for this money. Per Form 969:

HSA-contributions-from-others-on-your-behalf-tax-free

In the above, “eligible individual” is the term for the HSA account holder. The result of this amazing tax treatment is that it trues up these other funds going into your HSA, and in effect gives them the same tax preferred status as your regular HSA contributions. In other words, if you receive a an HSA contribution from another on your behalf, you get the contribution as well as the deduction equal to the contribution amount times your marginal tax rate. Score!

Reporting Other HSA Contributions on Form 8889

Come tax time, reporting these contributions on Form 8889 can be a complication. Two lines on that form are used to report regular contributions to the HSA. Line 2 is used to report pre-tax contributions that you made during the year. Amounts on this line will reduce your taxable income. Line 9, on the other hand, is called Employer Contributions and amounts here do not reduce your taxable income. The “contributions from others” do not fall neatly into these categories, and are sort of in an “in between” zone.

Luckily, the Form 8889 instructions provide guidance on this situation. Comparing the two tax form lines, you can see that this situation is explicitly handled:

HSA-Form-8889-Line-2-tax-deductible-contributions
HSA-Form-8889-Line-9-employer-contribution-info

Per your question, it is not entirely clear if Aetna is contributing as your employer or as another entity. Since they are an insurance company, my guess is as another entity i.e. as another on your behalf. In this case, it is the best possible scenario, as you get the free money and get to deduct the contribution.

Note: if you need help recording your contribution on your HSA taxes this year, please consider using my service EasyForm8889.com to complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.

HSA Employer Contributions on W2 Box 12 “W”

Come tax time when you need to file Form 8889, you may be wondering how to find your contributions to your HSA. We know that you should be receiving Form 5498-SA from your HSA custodian that outlines the total contributions that went into your HSA during the year. However, this form is a lump sum total: it does not break out employer (no tax impact) vs. employee (tax deductible contributions); it just shows how much went into the account that year. Also remember that form 5498-SA may be missing prior year contributions made in the current year.

So how can you figure out your employer contributions that were made? How can you use this information to complete Line 3 and Line 9 of Form 8889?

A word about Cafeteria Plans

For one, let’s clarify that cafeteria plan contributions are counted as employer contributions. Cafeteria plans are when your employer withholds your contributions which they send to the HSA custodian for you. So these are employee contributions but your employer is doing the work for you. The benefit of cafeteria plans is that they are already pre-tax; not just income tax, but medicare / social security / other tax. So you save the taxes up front and get them deposited automatically into

You will see that for both the W2 and Form 8889, cafeteria plan contributions function just like employer contributions, not employee contributions.

Employer vs. Employee Contributions on W2

When you receive your W2 at year end, you will have a Box 12 marked with “W” and your employer contributions for the year. As mentioned, this amount will contain:

Amounts your employer contributed to your HSA
Amounts you contributed to your HSA through your employer via a cafeteria plan

Here is what Form W2 looks like for 2018 with HSA contriibutions:

HSA-employer-contributions-W2-example

So this box indicates any employer contributions for the fiscal year. Note that this box will not contain any prior year contributions – these will need to be added to the amount. If your employer pays a bonus or end of year contribution into your HSA that occurs in the following year, be sure to add that in.

Around the same time you will receive Form 5498-SA from your custodian. It will detail the total contributions made to your HSA. Again, be sure to add any prior year contributions before filing Form 8889. Using this and your W2, you can calculate the employee contributions to your HSA.

Employee Contributions equal contributions on Form 5498-SA minus those on your W2 Box 12 “W”

What this is saying is, “Total HSA contributions – Employer Contributions = Employee Contributions.” Using these two documents, you can back out and determine your contribution amount.

Alternatively, you may be able to access your HSA custodian’s website to see a breakdown of employee vs employer contributions. But it is always best to confirm with the official documentation in case you need to correct anything.

Impact on Form 8889

Now that we know the difference between employee and employer contributions, you need to handle them correctly on IRS tax form 8889 for Health Savings Accounts. You will report your (post-tax) employee contributions on Line 2, and employer (including cafeteria plan) contributions on Line 9.

Note: if you need help accounting for your HSA contributions, please consider my service EasyForm8889.com to complete Form 8889. It asks simple questions in a straightforward way and will generate your HSA tax form in 10 minutes. It is fast and painless, no matter how complicated your HSA situation.

IRS Lowers 2018 Family Contribution to $6,850 Mid Year

[Update May 2018: note that as of April 26th, 2018, the IRS has reversed course and reset the 2018 Family HSA limit to $6,900. This was the original amount that was decreased to $6,850 in March. See below for information on the decrease, and read on to hear the fury and toil it caused.]

2018-HSA-family-coverage-contribution-limit-change-IRS-mistake-apology

Not in our wildest dreams did we consider this possible: the IRS has lowered the 2018 HSA Family Contribution Limit two and a half months into the tax year. Yes, you read that correctly. Previously, the 2018 Family Contribution limit for Health Savings Accounts was $6,900, and due to an inflation calculation change, this has been reduced by $50 to $6,850 as of March 5th, 2018. Fortunately, self-only and catch up contribution rates were unchanged.

This has come about as of IRS bulletin 2018-10:

HSA-2018-Family-Contribution-Change-$50

Impact of the IRS HSA contribution change

Only the 2018 Family contribution limit has been affected, and while the inflation calculation may alter the course of future contribution limit increases, only 2018 is in play as we are mid year. It is not immediately clear what the total impact is for this change in contribution limit mid year. Obviously, HSA eligible individuals on family coverage will not be able to contribute as much this year. Here are the likely impacted parties:

Family coverage that already contributed max – there are some “all star” HSA users that are fortunate enough to make full year HSA contributions at the beginning of the year. They often do this to get their money invested in the market to receive a return on their funds for the year. Those people (retroactively) have an excess contribution of $50 that they need to remove. It would be easiest to do this ASAP to avoid interest / gains on that money needding to be calculated and removed. Easy, no penalty process but an annoyance for $50 when you did everything right.
Family coverage planning on contributing the max – if you set your 2018 contribution to $6,900 but haven’t fully contributed that amount yet, you are likely in good shape. Most HSA custodians will prevent you from making an excess contribution against the plan limits. When they update their plan limits, this equation will kick in, and likely prevent a problem once you get to $6,850 in contributed funds sometime this year (depending on your monthly contribution amount).
IRS – the IRS will need to update all of their data regarding this maximum deductible amount for 2018. Obviously, they didn’t see this as a big issue as they proceeded with the change mid year.
HSA Plan Custodians and Insurance companies – there is much work to be done by HSA custodians and insurance companies. Every single custodian and plan that administers HSA’s is now out of whack, thanks to a minor $50 change. All of their programs, banking software, websites, and literature needs to be updated. This will need to be corrected, and the sum effort (and cost) for all of these entities is massive.
HSA websites – same goes for everyone sharing and publishing information about HSA’s. All of the previously published information is out of date and needs to be updated.

I will leave it to our fine readers to decide for themselves whether this mid year change for $50 was value added, intelligent, or warranted.

Why the IRS reduced the 2018 HSA Family limit

As part of the Trump tax cuts, legislation was passed that changes how inflation increases are calculated. In essence this is a net negative as the traditional CPI has been replaced with the “chained” CPI, which is different as it allows substitutions of products in the CPI basket of goods. This “substitution” effect is a classic economist assumption that means that if beef prices are rising, consumers avoid it and buy chicken instead. Beef is thus less represented in the index, meaning that total inflation is shown as lower than using the regular CPI. This will result in lower cost of living increases across the board going forward. While this is a negative, the real mistake was implementing it for 2018, and not waiting for a fresh tax year.

For those following along at home, here is the text on the section changing the CPI calculation:

.03 Section 11002 of the Act amends § 1f(3) to provide a permanent cost-of living adjustment based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Any existing items that are not reset for 2018 will be adjusted for inflation after 2017 based on the C-CPI-U. Items that are reset for 2018 will be adjusted for inflation after 2018 based on the C-CPI-U

All in all, a moderate sized change that creates a lot more work for many.