2015 Form 8889 Checklist: Health Savings Accounts
Form 8889 is used to compute HSA contributions eligible for above-the-line deductions and report taxable distributions for the tax year 2015. The form enforces the statutory contribution limits of $3,350 for self-only coverage and $6,650 for family coverage as set by IRC Section 223 for calendar-year filers under age 55 throughout 2015. Contributions made between January 1 and April 18, 2016, that are designated for 2015 may be included. Part III imposes a 20% additional tax on individuals' distributions if they fail to maintain qualifying HDHP coverage during the required testing period.
Eligibility Requirements
To qualify as an eligible individual for HSA contributions in 2015, you must meet specific requirements throughout the year. First, you must be enrolled in a High Deductible Health Plan on the first day of every month during 2015. For 2015, an HDHP must have a minimum annual deductible of $1,300 for self-only coverage or $2,600 for family coverage, with maximum out-of-pocket expenses of $6,450 for self-only or $12,900 for family coverage.
You cannot have any disqualifying health coverage, which includes Medicare, Medicaid, TRICARE, VA benefits, health flexible spending arrangements, or health reimbursement arrangements. However, you may have additional insurance that covers specific conditions, accidents, disability, dental care, vision care, or long-term care without losing HSA eligibility.
You cannot be claimed as a dependent on another person’s tax return. If you meet these requirements for the entire year, you may use the last-month rule, which allows you to be treated as an eligible individual for all twelve months if you were eligible on December 1, 2015.
Completion Steps
Step 1: Verify Your Eligible Individual Status
Confirm that you maintained HDHP enrollment on the first day of each month during 2015 with no disqualifying health coverage. Record whether you had self-only or family coverage on line 1 by checking the appropriate box. If your coverage type changed during the year, check the box for the plan that was in effect for the longer period.
Step 2: Calculate and Enter Personal Contributions
Enter on line 2 all personal contributions you or others made on your behalf to any HSA during 2015. Include contributions made between January 1 and April 18, 2016, that were designated for tax year 2015. Do not include employer contributions deposited directly, payroll cafeteria plan contributions, or HSA-to-HSA rollovers on this line.
Step 3: Determine Your Maximum Annual Contribution
On line 3, enter your maximum annual contribution allowable based on your coverage type and eligibility status. If you were under age 55 on December 31, 2015, and maintained continuous, eligible individual status for all twelve months without changing your coverage type, enter $3,350 for self-only HDHP or $6,650 for family HDHP. If your coverage changed during the year or you were not eligible for all twelve months, use the Line 3 Limitation Chart and Worksheet provided in the Form 8889 instructions to calculate the pro-rated amount based on the number of months you were eligible.
Step 4: Account for Archer MSA Contributions
Complete line 4 by obtaining from Form 8853 the total Archer MSA contributions made for you and your spouse combined during 2015. This amount reduces your available HSA contribution room on a dollar-for-dollar basis. If you did not make any Archer MSA contributions, enter zero.
Step 5: Calculate Available HSA Contribution Room
Subtract line 4 from line 3 and enter the result on line 5. This represents your remaining contribution capacity before accounting for employer contributions and qualified HSA funding distributions. If the result is negative, enter zero instead.
Step 6: Apply Special Allocation Rules for Married Couples
Enter the amount from line 5 on line 6. If you and your spouse each maintain separate HSAs and had family HDHP coverage at any point during 2015, you must divide the family contribution limit between both spouses’ accounts. You may split this amount equally or agree on a different allocation, such as allocating nothing to one spouse. Each spouse must complete a separate Form 8889 and enter their allocated amount on line 6.
Step 7: Add Catch-Up Contributions for Age 55 and Older
If you were age 55 or older on December 31, 2015, you may make an additional catch-up contribution of $1,000 regardless of whether you have self-only or family HDHP coverage. If you were eligible for all twelve months of 2015, enter $1,000 on line 7. To find the prorated catch-up amount, multiply $1,000 by the number of eligible months and divide by twelve. If you are married and both spouses are age 55 or older with separate HSAs, each spouse can make the $1,000 catch-up contribution to their account.
Step 8: Calculate Maximum Deductible Contribution
Add lines 6 and 7 and enter the total on line 8. This represents your maximum deductible contribution ceiling before accounting for employer contributions and qualified HSA funding distributions.
Step 9: Enter Employer Contributions
Enter on line 9 all employer contributions deposited to your HSA during 2015. Box 12 of your Form W-2 should display these amounts with code W. If employer contributions for 2014 were included in your 2015 Form W-2, or if employer contributions for 2015 were made in 2016, use the Employer Contribution Worksheet in the Form 8889 instructions to determine the correct amount. Contributions made through a cafeteria plan are treated as employer contributions and should be included on line 9, not line 2.
Step 10: Report Qualified HSA Funding Distributions
Enter on line 10 the amount of any qualified HSA funding distribution completed in 2015. This is a one-time, direct trustee-to-trustee transfer from your traditional IRA or Roth IRA to your HSA. The maximum amount is limited to your annual HSA contribution limit based on your HDHP coverage type.
This distribution is not included in your income and is not subject to income tax if properly executed, but it reduces your remaining deductible contribution room. You can make only one qualified HSA funding distribution during your lifetime. However, if you distribute during a month when you have self-only coverage, you may make another distribution in a later month of the same tax year if you change to family coverage.
Step 11: Subtract Employer and Funding Contributions
Add lines 9 and 10 to determine your total employer and funding distributions, then enter this amount on line 11. Subtract line 11 from line 8 and enter the result on line 12. This sum is your maximum deductible personal contribution amount. If the difference is zero or negative, enter zero on line 12.
Step 12: Determine Your HSA Deduction Amount
Compare your actual personal contributions from line 2 with your maximum deductible amount from line 12. Enter the lesser of these two amounts on line 13. This amount is your HSA deduction, which you will carry to Form 1040, line 25, as an above-the-line deduction. If line 2 exceeds line 13, you have made excess contributions that may be subject to a 6% excise tax for each year; the excess remains in your account.
Step 13: Report Total HSA Distributions
Enter, on line 14a, the total dollar amount of all distributions you withdrew from any HSA during 2015. These amounts should be shown in box 1 of Form 1099-SA, which you receive from your HSA custodian or trustee. Include both qualified medical expense distributions and non-qualified withdrawals. Total distributions also include amounts paid with an HSA debit card and amounts withdrawn by other individuals you have designated to access your account.
Step 14: Identify Excludable Distributions
On line 14b, enter any amounts that should be excluded from line 14a. This includes distributions that were rolled over to another HSA within 60 days, excess contributions along with their earnings that were withdrawn by your tax return due date (including extensions), and trustee-to-trustee transfers between your HSAs. Subtract line 14b from line 14a and enter the result on line 15.
Step 15: Calculate Taxable Distributions and Additional Tax
On line 15, enter only the distributions from your HSA that were used to pay qualified medical expenses. Qualified medical expenses are unreimbursed medical expenses that could otherwise be deducted on Schedule A, incurred after the HSA was established, for yourself, your spouse, or your dependents. Do not include distributions of excess contributions taken out after the return due date, even if used for qualified medical expenses.
Subtract line 15 from line 14c to determine the taxable amount, which you enter on line 16. If line 16 is greater than zero, multiply this amount by 20% and enter the result on line 17b unless an exception applies. Exceptions to the 20% additional tax include distributions made after you die, become disabled, or turn age 65.
Understanding HSA Contribution Limits
The contribution limit for 2015 depends on your HDHP coverage type and the number of months you were an eligible individual during that year. For individuals who maintained self-only HDHP coverage for the entire year and were under age 55 on December 31, 2015, the maximum contribution is $3,350. For family HDHP coverage under the same conditions, the maximum is $6,650.
If you qualify for the catch-up contribution by being age 55 or older, you can contribute an additional $1,000, bringing the total to $4,350 for self-only coverage or $7,650 for family coverage. These limits represent the combined total of all contributions from all sources, including your personal contributions, employer contributions, and qualified HSA funding distributions.
If you were not eligible for the entire year due to coverage gaps, Medicare enrollment, or mid-year coverage changes, you must prorate your contribution limit based on the number of months you were eligible. Use the month-by-month calculation worksheet in the Form 8889 instructions to determine the correct amount.
Special Rules for Married Couples
When both spouses have HSAs, and either partner has family HDHP coverage at any time during the year, both spouses are considered to have family coverage for determining the contribution limit. The family coverage limit of $6,650 must be divided between the two spouses’ separate HSAs. You may divide this amount equally or agree on any other allocation.
If both spouses are age 55 or older, each spouse must have a separate HSA to take advantage of both catch-up contributions. The catch-up contribution cannot be made to the other spouse’s HSA and cannot be split between accounts. Each spouse must contribute the $1,000 catch-up to their own HSA to receive the full benefit.
When completing Form 8889 as a married couple, each spouse must complete a separate form showing their individual contributions, distributions, and deduction amounts. Combine the line 13 amounts from both Forms 8889 and enter the total on Form 1040, line 25. Attach both completed Forms 8889 to your tax return.
Qualified Medical Expenses
HSA distributions used to pay qualified medical expenses are tax-free and penalty-free. Qualified medical expenses generally include unreimbursed medical expenses that could be deducted on Schedule A, such as doctor visits, hospital care, prescription medications, dental care, vision care, and certain medical equipment.
To qualify, the medical expenses must be incurred after the HSA is established. You cannot use HSA funds tax-free for medical expenses incurred before you opened the account. Additionally, these costs must not be reimbursed by insurance or any other source of funding.
You can use HSA funds to pay for qualified medical expenses for yourself, your spouse, or your dependents, even if your HDHP does not cover these expenses. For divorced parents, a child is treated as a dependent of both parents for HSA purposes, regardless of which parent claims the dependency exemption.
Insurance premiums generally do not qualify as medical expenses, with four exceptions: long-term care insurance premiums, health care continuation coverage (such as COBRA), health care coverage while receiving unemployment compensation, and Medicare premiums if you are 65 or older. Medicare supplement policies, such as Medigap, are not qualified expenses.
Excess Contributions and Correction Methods
If you exceed the HSA contribution limit, you may incur a 6% excise tax on the excess amount each year. You can avoid this penalty by withdrawing the excess contributions and any earnings on those contributions before your tax return due date, including extensions.
To withdraw excess contributions, contact your HSA custodian or trustee and request a return of excess contributions. The custodian will calculate any earnings attributable to the excess and return both amounts to you. You must include the earnings in your income for the year you withdraw them, but the withdrawn excess contributions themselves are not taxed if removed timely.
If you miss the deadline to withdraw excess contributions, you can apply them to a future year when you have unused contribution room. The excess contribution you can deduct in a later year is limited to the lesser of your maximum contribution limit for that year minus actual contributions made that year, or the total excess contributions remaining in your account at the beginning of that year.
Testing Period Requirements
If you use the last-month rule to contribute based on your December 1 coverage status, you must remain an eligible individual during the testing period. The testing period begins on December 1, 2015, and ends on December 31, 2016. If you fail to remain an eligible individual during this period for any reason apart from death or disability, you must include in income the contributions that would not have been allowed without the last-month rule. This amount is also subject to a 10% additional tax.
Similarly, if you make a qualified HSA funding distribution from an IRA, you must remain an eligible individual during a testing period. This testing period begins with the month in which the distribution is contributed to the HSA and ends on the last day of the twelfth month following that month. Failure to maintain eligibility, except due to death or disability, requires you to include the distribution amount in income and pay a 10% additional tax.
Important Tax Forms and Documentation
You will receive Form 1099-SA from your HSA custodian if you took any distributions during 2015. This form shows the total distributions in box 1. You will also receive Form 5498-SA, which shows all contributions made to your HSA during 2015, including those made in early 2016 for the 2015 tax year. Review both forms carefully and contact your custodian immediately if you find any errors.
Keep detailed records of all medical expenses you paid with HSA funds, including receipts, explanation of benefits statements, and invoices. While you do not need to submit these records with your tax return, you must retain them in case of an IRS audit. The IRS can request documentation to verify that your HSA distributions were used for qualified medical expenses.
Your Form W-2 will show employer contributions to your HSA in box 12 with code W. Verify that this amount matches your records and your employer’s statements. If you made contributions through a cafeteria plan with payroll deductions, those amounts will also appear in box 12 with code W, as they are treated as employer contributions for tax purposes.
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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.
