Your HSA contributions are tax-deductible. All interest earned is tax-deferred, and withdrawals for eligible medical expenses are tax-free. To receive this tax-advantage we provide you with the necessary tax documents. To make it easier come tax-time, familiarize yourself with your HSA Central account and the tax documents you’ll eventually need.
Important Tax Documents
In preparation for tax season, it’s vital to collect your tax forms related to your HSA.
One benefit that HSA Central provides to you is the auto-generation of these important tax documents. To view your HSA-related tax documents, log in to your HSA, hover over the Accounts tab, and then select Statements. You can also locate your tax documents by clicking the Tools & Support tab, and then selecting the HSA tax documents link under the Documents & Forms section. Finally, if you have the HSA Central App, you can find your documents by visiting the Profile tab, selecting the Documents button, and then choosing the HSA Tax Statements option.
In the HSA Tax Documents section, you will find account summaries and tax statements. Up to two tax statements will display- your yearly IRS Form 1099-SA and IRS from 5498-SA. You can print or download both of these documents. The IRS Form 1099-SA is used for reporting HSA distributions; the IRS Form 5498-SA is used for reporting contributions. If you did not have contributions during the year, then you will not see the IRS Form 5498-SA. The 1099-SA HSA document will be used to report information to the IRS, while the 5498-SA is only for your own informational purposes.
Filing Your Taxes
Although HSAs have triple-tax advantages, you are required to report distributions to the IRS. While filing your taxes before Tax Day, regularly April 15th of the following year, you must complete an IRS Form 8889. Use your IRS Form 1099-SA to help you fill in information on the IRS from 8889.
As you complete your taxes, you can claim a tax deduction for applicable contributions using the IRS Form 5498-SA. Any contributions above the IRS set limit will be considered as taxable income. If you over contribute to your HSA and don’t correct it, you may be charged a 6% penalty rate each year on the excess that remains in your account.
Potential Tax Penalties
Although funds in your HSA are tax-free, tax penalties may arise. There are two primary causes for these tax penalties.
Each year, the IRS sets a limit on how much can be contributed to an HSA. If the contributions exceed this limit, then you may be penalized after filing your taxes. Each year, you can contribute up to the new limit until that year’s Tax Day. Funds above the contribution limit will be considered as taxable income, so keep in mind how much is going toward your HSA. If you contribute too much to your HSA, you may be subject to a 6% tax penalty until you no longer have an excess in your account.
When spending your HSA funds, it’s important to use the HSA for eligible medical expenses. If your funds are used for non-eligible expenditures, you may be subjected to income tax plus a 20% IRS penalty. However, that doesn’t mean you should neglect your HSA. After age 65, you are allowed to withdraw from your account penalty-free for non-eligible expenses, as long as you report it as income on your taxes. Keep your future in mind when saving and spending your HSA funds.
Please contact your professional tax advisor if you have questions about the triple-tax advantage, penalties, forms, or filing your taxes.