2014 Form 8889 Checklist: Health Savings Accounts
Form 8889 reports HSA contributions, calculates deductions, documents distributions, and reconciles qualified medical expenses for individuals with HDHP coverage during 2014. This form determines your allowable HSA deduction and calculates any additional taxes on non-qualified distributions or testing period failures.
Who Must File Form 8889
You must file Form 8889 if you or someone on your behalf made HSA contributions for 2014, received HSA distributions in 2014, or acquired HSA interest due to the account beneficiary’s death. You must include amounts in your income for failing the testing period. If you or your spouse received HSA distributions in 2014, you must file Form 8889 with Form 1040 even without other filing requirements.
HSA Eligibility Requirements
To be eligible for HSA contributions, you must have been covered under a high deductible health plan with a minimum annual deductible of $1,250 for self-only coverage or $2,500 for family coverage. Maximum out-of-pocket expenses cannot exceed $6,350 for self-only or $12,700 for family coverage. You cannot be enrolled in Medicare, have other disqualifying health coverage, or be claimed as a dependent on another person’s return.
2014 HSA Contribution Limits
The annual contribution limits for 2014 are $3,300 for self-only coverage and $6,550 for family coverage. Individuals age 55 or older as of December 31, 2014, may contribute an additional $1,000 catch-up contribution, bringing their total limits to $4,300 for self-only coverage or $7,550 for family coverage. These limits include all contributions from yourself, your employer, and others on your behalf.
Step-by-Step Filing Instructions
Step 1: Determine Your HDHP Coverage Type
On Part I, line 1, select either “self-only” or “family coverage.” If you had both coverage types during different periods, select the box corresponding to the kind in effect for the longer period. If you had family coverage on December 1, 2014, check the family coverage box regardless of coverage earlier in the year.
Step 2: Report Your Personal Contributions
On line 2, enter all contributions you or others made to your HSA during 2014, plus contributions made between January 1 and April 15, 2015, designated for 2014. Exclude employer contributions, cafeteria plan deferrals, and rollover amounts. Cafeteria plan contributions are treated as employer contributions and should be reported on line 9, not line 2.
Step 3: Calculate Your Maximum Contribution Limit
On line 3, determine your maximum allowable contribution based on coverage type and eligibility duration. If you were eligible for all 12 months with unchanged coverage, enter $3,300 for self-only or $6,550 for family coverage. If you are age 55 or older, unmarried, or married with self-only coverage for the entire year, add the $1,000 catch-up contribution to these base amounts. If your eligibility or coverage changed during the year, use the Line 3 Limitation Chart and Worksheet to calculate the prorated monthly amount.
Step 4: Reduce for Archer MSA Contributions and Coordinate Spousal Limits
On line 4, enter Archer MSA contributions from Form 8853. Complete lines 5 and 6 according to your marital status. If married with family coverage at any time during 2014, you and your spouse must divide the contribution limit by agreement or split it equally. Each spouse completes a separate Form 8889. For married individuals age 55 or older with family coverage, calculate the catch-up contribution on line 7 using the Additional Contribution Amount Worksheet.
Step 5: Subtract Employer and IRA Transfer Contributions
On line 9, enter employer HSA contributions shown in box 12 of Form W-2 with code W, adjusting for any timing differences between tax years. On line 10, enter any qualified HSA funding distribution, which is a one-time direct trustee-to-trustee transfer from your IRA to your HSA. Complete lines 11 and 12 to calculate your net allowable contribution.
Step 6: Determine Your HSA Deduction
On line 13, enter the smaller amount between line 2 and line 12. This is your HSA deduction, which is reported on Form 1040, line 25. If line 2 exceeds line 13, you have excess contributions that may be subject to a 6% excise tax reported on Form 5329. You can withdraw excess contributions by the due date of your return, including extensions, to avoid the penalty.
Step 7: Report Total HSA Distributions
On Part II, line 14a, enter total distributions from all HSAs during 2014, as shown in box 1 of Form 1099-SA. Include debit card payments and withdrawals by authorized individuals. On line 14b, enter rollover contributions to another HSA and excess contributions with earnings withdrawn by the return due date. Subtract line 14b from line 14a to determine net distributions on line 14c.
Step 8: Enter Qualified Medical Expenses
On line 15, enter only distributions used to pay qualified medical expenses incurred after the HSA was established. Qualified expenses are unreimbursed medical costs that could be deducted on Schedule A for yourself, your spouse, or your dependents. Exclude reimbursed expenses, and do not claim these amounts on Schedule A. Insurance premiums generally do not qualify except for long-term care insurance, COBRA continuation coverage, health coverage while receiving unemployment compensation, or Medicare premiums if you are age 65 or older.
Step 9: Calculate Taxable Distributions and Additional Tax
Subtract line 15 from line 14c and enter the result on line 16. Include this taxable amount on Form 1040, line 21, as other income with the “HSA” notation. On line 17a, check the box if any distribution qualifies for an exception because the account beneficiary died, became disabled, or reached age 65. On line 17b, multiply the non-excepted taxable amount by 20% to calculate the additional tax. Include the line 17b amount on Form 1040, line 6.2, as other taxes with the “HSA” notation.
Step 10: Complete Part III for Testing Period Failures
Use Part III only if you fail to remain an eligible individual during the testing period after using the last-month rule or making a qualified HSA funding distribution. Under the last-month rule, if you were eligible on December 1, 2014, you are considered eligible for the entire year for contribution purposes. However, you must remain eligible from December 1, 2014, through December 31, 2015. Calculate the inclusion of income on line 18 for last-month rule failures or line 19 for qualified HSA funding distribution failures. Enter the total on line 20 and include it on Form 1040, line 21, as other income with “HSA” notation. Multiply line 20 by 10% on line 21 for the additional tax and include it on Form 1040, line 62, as other taxes with the “HDHP” notation.
Special Situations and Key Reminders
Married Couples with Separate HSAs
If both spouses have HSAs and either has family coverage at any time during the year, both are treated as having family coverage for that period. The contribution limit must be allocated between spouses by agreement or divided equally. Each spouse must file a separate Form 8889, but combine the line 13 deductions from both forms on Form 1040, line 25.
Last-Month Rule Benefits and Risks
The last-month rule allows you to contribute the full annual amount even if you only had HDHP coverage on the last day of the previous month. This significantly increases your contribution limit if you become eligible late in the year. However, you must maintain HDHP eligibility for the entire 13-month testing period, which ends on December 31, 2015. Failure to do so, except due to death or disability, requires you to include the additional contributions in income and pay a 10% additional tax.
Medicare Enrollment Restrictions
You can't contribute to an HSA while on Medicare, even with HDHP coverage. Medicare enrollment permanently ends your HSA eligibility. Plan your Medicare enrollment carefully if you are approaching age 65 and want to maximize HSA contributions. If you delay Social Security benefits past age 65, you can delay Medicare enrollment and continue HSA contributions.
Qualified HSA Funding Distribution Limitations
A qualified HSA funding distribution is a one-time transfer from your IRA directly to your HSA without tax consequences. The maximum transfer equals your annual contribution limit based on your HDHP coverage type at the time of distribution. If you have self-only coverage when you make the transfer, you can create another qualified HSA funding distribution in the same year if you later switch to family coverage. The transferred amount reduces your available contribution space for other sources. A 13-month testing period applies, requiring you to maintain HDHP eligibility or include the distribution in income, subject to a 10% additional tax.
Rollover versus Transfer Distinctions
A rollover involves receiving a distribution from one HSA and contributing it to another HSA within 60 days. You can make only one HSA rollover per 12-month period. Report rollovers on lines 14a and 14b. A direct trustee-to-trustee transfer moves funds between your HSAs without you receiving the money. Transfers have no frequency limit and are not reported on Form 8889. Use transfers instead of rollovers whenever possible to avoid the one-per-year restriction.
Documentation Requirements
Maintain receipts and records for all qualified medical expenses paid with HSA distributions. The IRS does not require receipt submission with your return, but you must provide documentation upon audit. Keep Forms 1099-SA, W-2 statements showing employer contributions, contribution confirmation statements, and HDHP coverage documentation. Retain these records for at least three years after filing your return, or longer if you have ongoing HSA balances.
Dependent Medical Expense Coverage
HSA distributions can pay qualified medical expenses for your spouse and dependents claimed on your tax return. You can also pay medical costs for any person you could have claimed as a dependent except that they filed a joint return, had gross income of $3,950 or more, or you could be claimed as a dependent on someone else’s return. For divorced or separated parents, a child is treated as a dependent of both parents regardless of who claims the exemption.
Excess Contribution Correction
If you contribute more than your allowable limit, you can avoid the 6% excise tax by withdrawing the excess contributions plus earnings by the due date of your return, including extensions. Include the withdrawn earnings as income on your return for the year you withdraw them. If you timely filed without withdrawing the excess, you can still make the withdrawal within six months after the due date, file an amended return noting “Filed pursuant to section 301.9100-2,” and include necessary corrections. Excess contributions not withdrawn remain subject to the 6% excise tax each year; they remain in your HSA.
Form Completion and Submission
Attach the completed Form 8889 to Form 1040 or Form 1040NR. If you are married filing jointly and both spouses have HSAs, please attach both Forms 8889 to your return. Sign your return under penalties of perjury. Keep copies of all forms and supporting documentation for your records. Ensure all social security numbers are correct and all required lines are completed before filing.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
