How Employees Should Handle Health Savings Accounts on Their Tax Returns

Our company offers a high-deductible health plan (HDHP) and makes contributions to the Health Savings Accounts (HSAs) of employees who have elected the HDHP coverage and established an HSA. Several employees have asked how they should report their HSAs on their federal tax returns. Understanding these reporting requirements is an important part of effective tax accounting solutions Brookfield, and guidance from a professional business taxation service Brookfield can help ensure HSAs are reported correctly and in compliance with federal tax laws.

Answer: Employees with HSAs must file a Form 8889 (Health Savings Accounts (HSAs)) as an attachment to Form 1040 for any year in which they make or receive HSA contributions (including employer contributions) or for any year in which they take an HSA distribution. (Form 8889 is also used with Forms 1040-SR and 1040-NR.) Spouses who have reportable activity in their own HSAs must file separate Form 8889s, even if they file jointly.

When completing Form 8889, individuals will be required to provide information about their HDHP coverage, their HSA contribution limit, the amount of HSA contributions (and any Archer MSA contributions) that were made by them or on their behalf, and the amount of any taxable or nontaxable distributions taken from their HSAs. As an employer, you’re responsible for reporting the HSA contributions that you make to employees’ HSAs in Box 12 of Form W-2 (using Code W). 

More Paperwork

In addition to the Form W-2, your employees with HSAs should have received a Form 5498-SA from their HSA trustee or custodian, which reports the total contributions made to their HSAs during the year and the fair market value of their HSAs at year-end. If they’ve taken any distributions, they should also have received a Form 1099-SA on which their HSA trustee or custodian has reported the total amount of distributions made during the year.Consider telling your employees about these reporting requirements. You can refer them to IRS Forms 1040 and 8889 and the instructions published by the IRS for each of those forms. However, prudent employers will provide only general information, not tax advice. You should tell employees to consult with their tax advisors if they have additional questions about their reporting obligations.