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What Do I Need to Know About Tax Time with an HSA?

Not many people look forward to tax time, but with a health savings account (HSA), it’s actually not that bad! Here’s what you need to know.
by Ryan Mace June 25, 2020

Ah, tax time. It’s perhaps one of America’s least favorite pastimes, and for good reason. Getting battered with almost any numerical and alphabetical combination you can think of is enough to stress anyone out! It’s no wonder a lot of us (myself included) put this duty off for as long as possible.

When preparing to file your taxes, there are a lot of things to consider… like reporting income, tax credits, deductions, and of course looking out for the release of various tax forms, just to name a few. While you’re preparing to file your taxes, don’t forget about your health savings account (HSA). If you’re anything like me, phrases like “tax-free,” “pre-tax,” and “tax-advantaged” were key in getting me to sign up in the first place. I mean, who doesn’t like paying less in taxes, right? 

Well, guess what? Tax season is your HSA’s time to shine!

The triple-tax advantage

If you have an HSA, you may already know its great tax benefits, but let’s quickly recap the three different ways you save. 

  1. Any contribution you make to your HSA goes in tax-free.
  2. Money you use from the HSA to pay for qualified medical expenses comes out tax-free.
  3. Whatever you save or invest grows within your account… tax-free. It’s like a triple scoop of savings all wrapped into one account.

When all is said and done, your HSA lets you keep more of your money, and leaves less for Uncle Sam. So it probably goes without saying, but it’s very important to make sure you have everything you need regarding your HSA before filing your taxes.

Which forms do I need?

You’ll basically need to know about two IRS forms linked to your HSA (we wrote another piece on this earlier in the year, too, so if you want some further reading… click here). Don’t worry, it isn’t rocket science. It’s actually pretty easy!

Form 1099-SA tells you the total distributions or payments that were made from your HSA. You will receive this form from your HSA provider postmarked no later than January 31 of the year after the tax year for which you are filing (for example, Jan. 31, 2021 for 2020 tax year).

Remember when you were sick back in October and used your HSA to pay for the doctor’s visit and antibiotics to get better? Or when you thought it was a good idea to help with dinner and ended up bare-handing the hot cast iron skillet and used your Starship card for the burn treatment? This brings back all of those not-so-great physical memories, but awesome financial ones.

Form 5498-SA summarizes the contributions or deposits you made to your HSA throughout the tax year. It’s basically a recap of all of the financially responsible decisions you made last year. It feels good to see your hard work and sacrifice come to fruition, doesn’t it? Keep in mind, you can probably find your contribution information on your December HSA statement as well.

It’s also important to know that everyone who has an HSA will receive Form 5498-SA, but you’ll only receive Form 1099-SA if you used your HSA to pay for expenses throughout the year.

What if I used my HSA for non-qualified expenses?

Don’t worry, you won’t get busted for tax fraud or anything like that. Technically, the contributions in your HSA are still your money, but if you ran into a tough situation and needed to use the funds for something other than qualified medical expenses, you will lose the tax advantage 🙁

In this case, you owe the IRS money and will need to complete Form 8889. If you have “distributions” (i.e. you spent money from your HSA) for a tax year, you are required to submit Form 8889 with your federal income tax return. You can use the information from your 1099-SA and 5498-SA to complete this form. 

The good news is that most tax-filing services automatically fill out this form for you based on the information in your 1099-SA, but it’s still a good idea to keep your receipts to any HSA expenses to prove that they are qualified.

Anything else I should know about taxes and my HSA?

Glad you asked! If you didn’t reach your HSA contribution limit for the previous year, but still want to take advantage of the tax savings, it’s your lucky day. You have until the tax deadline to make a contribution to your HSA for the previous tax year. It’s like going back in time to give yourself one more glorious tax break!

Another good idea is to make sure you understand all of the rules surrounding your HSA where you live. Some states have special rules regarding HSAs, so it might not be a bad idea to touch base with a tax advisor and ensure you are filing your taxes correctly. Plus, you can always find additional helpful resources online at IRS.gov or starshiphsa.com.

Taxes can be confusing, but when you’re prepped with all of the forms you need, you can ensure you’re capitalizing on every tax break available. After all, that’s part of why we love these HSA thingies, right? Happy filing! 

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