What Form 8889 (2017) Is For
IRS Form 8889 (2017) is used to report all activity related to a health savings account, including HSA contributions, HSA distributions, and any excess contributions. The Internal Revenue Service requires this form to calculate the taxpayer’s HSA deduction and determine whether withdrawals were used for qualified medical expenses. Because health savings accounts are tax-favored health plans, the form helps confirm eligibility for tax benefits such as tax-free withdrawals and reductions in taxable income. Form 8889 must be attached to the federal income tax return whenever an HSA account is active during the tax year.
The form applies to individuals with a high deductible health plan and those who contribute to an HSA on a pre-tax basis. It also covers employer contributions reported on a wage and tax statement, as well as activity from Archer Medical Savings Accounts that have been rolled into an HSA. By documenting how HSA funds were used to pay medical expenses, the taxpayer ensures the correct tax treatment for medical and dental expenses, certain medical expenses, and preventive care benefits. Filing Form 8889 provides a comprehensive view of how the savings account affects federal taxes and gross income.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions, see our comprehensive guide for Form 8889: Health Savings Accounts (HSAs) – 2017 Tax Year.
When You’d Use Form 8889
A taxpayer uses Form 8889 to report HSA activity for the 2017 tax year. The form is required even when only employer contributions were made or when no distributions occurred. When filing late, the taxpayer attaches Form 8889 to the past-due tax return. If a previously filed tax return contained errors—for example, incorrect reporting of employer contributions, HSA distributions, or taxable income—an amended federal tax return must be filed with Form 1040-X and a corrected Form 8889.
An amended filing may be necessary when:
- The taxpayer identifies that an excess contribution was made and needs to be corrected.
- A distribution is later found to have been used for non-qualified medical expenses and must be reported appropriately.
- Details about the deductible health plan HDHP were misreported and require an update.
- A change in health coverage altered HSA eligibility rules and now needs to be reflected on the return.
- Certain medical expenses were originally classified incorrectly and must be adjusted to meet IRS guidelines.
Amended returns follow standard IRS deadlines, and interest or additional taxes may apply if the correction increases the tax due.
Key Rules or Details for 2017
For the 2017 tax year, annual contribution limits depended on whether the taxpayer had self-only coverage or family coverage under a high-deductible health plan. The maximum annual contribution limit was $3,400 for self-only coverage and $6,750 for family coverage, with an additional $1,000 allowed for taxpayers age 55 or older. Contributions from the taxpayer and the employer's contributions both count toward these limits; excess contributions may trigger additional taxes until they are removed. These limits apply to all HSA contributions, including those made on a pre-tax basis or transferred from a traditional or Roth IRA.
Eligibility for a health savings account HSA requires enrollment in a deductible health plan HDHP that meets the minimum annual deductible and out-of-pocket expenses established by the IRS. A taxpayer cannot be covered by other health plans or a health reimbursement arrangement unless it is structured to cover only qualified medical expenses after the deductible is met. HSA distributions remain tax-free when used for eligible medical expenses such as dental expenses, insurance premiums in limited cases, and costs incurred while receiving unemployment compensation. Proper reporting ensures accurate income tax reporting, protects tax advantages, and allows taxpayers to save money on long-term healthcare costs.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for Individual Tax Forms.
Step-by-Step (High-Level)
Part I: HSA Contributions and the HSA Deduction
This part determines the taxpayer’s HSA contributions and tax deduction for the tax return.
A taxpayer must:
- Identify the coverage type for the year.
- Report HSA contributions made on a pre-tax basis.
- Include employer contributions when calculating remaining contribution room.
- Determine the annual HSA contribution allowed based on the number of eligible months.
- Calculate the HSA deduction for the federal tax return.
The taxpayer’s HSA trustee reports contributions on Form 5498-SA, and the wage and tax statement may show employer contributions under a cafeteria plan.
Part II: HSA Distributions
This section reports HSA distributions and their utilization.
A taxpayer must:
- Report all HSA distributions from Form 1099-SA.
- Identify how much was used to pay medical expenses that qualify for tax-free treatment.
- Determine whether any portion must be included in taxable income.
- Calculate any additional taxes for non-qualified distributions.
Taxpayers sometimes need to correct prior filings when distribution amounts were used for non-qualified purposes.
Part III: Additional Taxes
This part applies when a taxpayer made an excess contribution, failed the last-month rule testing period, or must pay tax on improperly contributed amounts.
A taxpayer must:
- Report excess contributions.
- Calculate excise taxes.
- Determine taxable amounts resulting from eligibility changes.
Common Mistakes and How to Avoid Them
- Not reporting HSA activity: Taxpayers can avoid losing deductions or having distributions reclassified as taxable income by filing Form 8889 whenever they contribute to or withdraw from an HSA.
- Contributing more than allowed: Taxpayers can prevent excess contributions by tracking employer deposits, job changes, and monthly eligibility when calculating the annual limit.
- Using HSA funds for non-qualified purposes: Taxpayers can avoid unexpected taxable income and additional taxes by confirming that each expense meets IRS rules for qualified medical costs.
- Incorrect coverage reporting: Taxpayers can prevent inaccurate contribution limits by verifying whether they had self-only or family HDHP coverage for each month of the tax year.
- Not tracking eligibility under the last-month rule: Taxpayers can avoid having part of their contribution become taxable by ensuring they remain HSA-eligible throughout the testing period.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After filing Form 8889, the Internal Revenue Service compares the information with documents submitted by the HSA trustee. If contribution or distribution amounts do not match, the IRS may send a notice requesting clarification. The taxpayer should keep receipts for eligible medical expenses, health plan records, and all HSA statements.
If the IRS determines that additional taxes apply for excess contributions or misreported distributions, the agency will mail a notice explaining how to correct the issue. A tax advisor can assist with responding to IRS letters or preparing amended filings.
FAQs
Do employer contributions count toward the annual limit?
Yes, employer contributions count toward the taxpayer’s maximum annual contribution limit for the tax year.
Are HSA withdrawals always tax-free?
Withdrawals are tax-free only when used for qualified medical expenses as defined by the IRS.
What happens if a taxpayer makes an excess contribution?
The excess contribution must be removed to avoid excise taxes and prevent additional taxes from accumulating each year.
Can an HSA account be invested?
Many HSA trustees allow investment in mutual funds or similar investment options once account balance requirements are met.
Can traditional or Roth IRA funds be used for HSA contributions?
Traditional or Roth IRA funds may be used once through a qualified HSA funding distribution, subject to eligibility rules.
