Form 8889 (2018) Comprehensive Checklist
Purpose
Form 8889 enables eligible individuals to claim above-the-line HSA deductions and report HSA distributions. For 2018, the maximum contribution limit is $3,450 for self-only coverage and $6,900 for family coverage. Individuals age 55 or older can contribute an additional $1,000 catch-up contribution. This form must be attached to Form 1040 or Form 1040NR and reports directly to Schedule 1 and Schedule 4.
Steps to Complete Form 8889 for 2018
Step 1: Determine Your HDHP Coverage Type
Review your high-deductible health plan coverage on the first day of each month during 2018. Check the appropriate box on line 1 of Part I, indicating either 'self-only' or 'family coverage'.
If you had both types at different times, select the box for the coverage type that was in effect for a longer period. If you had family coverage on December 1, 2018, select the family box, regardless of any earlier coverage types.
Step 2: Report Your Personal HSA Contributions
Enter all HSA contributions you personally made for 2018 on line 2, including those made between January 1, 2019, and April 15, 2019 that were designated for the tax year 2018.
Do not include employer contributions, contributions made through a cafeteria plan, qualified HSA funding distributions, or rollovers. These employer-related contributions will be reported separately on line 9.
Step 3: Calculate Your Base Contribution Limit
Enter the applicable 2018 contribution limit on line 3. If you maintained eligible HDHP coverage for all 12 months and were under age 55 on December 31, 2018, enter $3,450 for self-only coverage or $6,900 for family coverage.
If you changed coverage mid-year or were not an eligible individual for the entire year, use the Line 3 Limitation Chart and Worksheet in the official IRS instructions to calculate your prorated limit.
If you had family coverage on December 1, 2018, the last-month rule allows you to contribute the full $6,900, even if you changed coverage during the year. Still, you must remain eligible through December 31, 2019.
Step 4: Reduce Archer MSA Contributions
If you or your employer made contributions to an Archer MSA in 2018, report these amounts on line 4 using information from Form 8853, lines 1 and 2.
If you had family HDHP coverage at any time during 2018, include your spouse’s Archer MSA contributions as well. Subtract line 4 from line 3 to determine your remaining HSA contribution room, which appears on line 5.
Step 5: Allocate Family Coverage Limits Between Spouses
If you are married, filing jointly, and both spouses have separate HSAs, with at least one spouse having family HDHP coverage during 2018, special allocation rules apply.
Complete a separate Form 8889 for each spouse. On line 6, allocate the family coverage limit between spouses. You can divide it equally or agree on a different allocation. Each spouse enters their allocated share on their respective Form 8889, line 6.
Step 6: Add Catch-Up Contributions for Married Filers Age 55 and Older
Line 7 applies only if you meet all these conditions: you were married and age 55 or older on December 31, 2018; either you or your spouse had family HDHP coverage at some point during 2018; you were an eligible individual on the first day of the applicable months; and you were not enrolled in Medicare.
Use the Additional Contribution Amount Worksheet in the IRS instructions to calculate your additional contribution. The maximum additional contribution is $1,000, but it must be prorated if you were not eligible for all 12 months of coverage.
If you are unmarried or had only self-only coverage while age 55 or older, your $1,000 catch-up contribution is already included in line 3 calculations, not on line 7.
Step 7: Calculate Your Maximum Deductible HSA Contribution
Add lines 6 and 7 to arrive at line 8, which represents your total allowable HSA contribution before considering employer contributions.
Next, enter any employer contributions on line 9, including contributions made through a cafeteria plan. These amounts should appear in box 12 of your Form W-2 with code W. Use the Employer Contribution Worksheet in the instructions if your employer made contributions in different tax years.
Also, enter any qualified HSA funding distributions from your IRA to your HSA on line 10. Subtract the sum of lines 9 and 10 from line 8 to get line 12.
Step 8: Determine Your HSA Deduction
Enter the lesser of line 2 (your actual contributions) or line 12 (your allowable amount) on line 13. This is your HSA deduction.
Transfer this amount to Schedule 1 (Form 1040), line 25, or Form 1040NR, line 25. If both spouses have HSAs, combine the line 13 amounts from both Forms 8889 before entering on Schedule 1. Be sure to attach both completed Forms 8889 to your tax return.
Step 9: Report Total HSA Distributions Received
Enter the total distributions you received from all HSA accounts during 2018 on line 14a. This includes amounts you received directly, payments made with HSA debit cards, and amounts withdrawn by other authorized individuals. Your HSA trustee reports this on Form 1099-SA in box 1.
On line 14b, subtract any rollovers to another HSA and any excess contribution withdrawals made by your return due date, including extensions. Calculate net distributions on line 14c by subtracting line 14b from line 14a.
Step 10: Document Qualified Medical Expenses
Report qualified medical expenses paid using HSA distributions in 2018 on line 15. Only include expenses that meet the definition under IRC Section 223(d)(2), were incurred after your HSA was established, and were not reimbursed by insurance or claimed as itemized deductions elsewhere.
Qualified medical expenses include those for yourself, your spouse, and your dependents. Prescription medicines and insulin qualify, but over-the-counter medicines without a prescription do not qualify unless they are insulin.
Keep detailed records and receipts for all qualified medical expenses, as the IRS may request documentation to support these claims.
Step 11: Calculate Taxable Distributions and Additional Tax
Subtract line 15 from line 14c to determine your taxable HSA distributions on line 16. If this amount is positive, these are non-qualified distributions that must be included in your income.
Report this amount on Schedule 1 (Form 1040), line 21, or Form 1040NR, line 21, and write “HSA” with the amount on the dotted line beside the entry.
For line 17a, check the box if any distributions qualify for exceptions to the additional tax. The statutory exceptions apply to distributions made after you die, become disabled, or turn age 65.
If line 16 shows taxable distributions and no exceptions apply, calculate the 20% additional tax on line 17b by multiplying line 16 by 0.20. Report this additional tax on Schedule 4 (Form 1040), line 62, or Form 1040NR, line 59.
Step 12: Complete Part III if Testing Period Rules Apply
If you used the last-month rule to make contributions based on being an eligible individual on December 1, 2018, or if you made a qualified HSA funding distribution from your IRA, you must complete Part III of Form 8889.
The testing period for the last-month rule runs from December 1, 2018, through December 31, 2019. If you fail to remain an eligible individual during this testing period for reasons other than death or disability, you must include in your 2019 income the contributions that would not have been made without the last-month rule.
This amount is also subject to a 10% additional tax. Calculate these amounts on lines 18 through 21 and report on Schedule 1 and Schedule 4 of your 2019 tax return.
Understanding Key HSA Concepts for 2018
Eligible Individual Requirements
To qualify as an eligible individual for HSA contributions in any month, you must be covered under a high-deductible health plan on the first day of that month, have no other health coverage except permitted insurance, not be enrolled in Medicare, and not be claimed as a dependent on someone else’s tax return.
For 2018, an HDHP must have a minimum annual deductible of $1,350 for self-only coverage or $2,700 for family coverage, with maximum out-of-pocket expenses of $6,650 for self-only or $13,300 for family coverage.
The Last-Month Rule
If you are an eligible individual on December 1, 2018, the last-month rule allows you to be treated as an eligible individual for the entire year and contribute the full annual amount.
However, you must then remain an eligible individual throughout the testing period, which ends on December 31, 2019. Failure to stay eligible results in income inclusion and an additional 10% tax on the contributions that would not have been made without the rule.
Qualified Medical Expenses
Qualified medical expenses are those that generally qualify for the medical and dental expenses deduction under IRC Section 213(d). For HSA purposes, expenses incurred before you established your HSA do not qualify, even if they would otherwise be deductible medical expenses.
Only prescribed medicines or insulin qualify; over-the-counter medicines require a prescription to be qualified expenses. Insurance premiums generally do not qualify except for long-term care insurance, COBRA continuation coverage, health coverage while receiving unemployment compensation, and Medicare premiums if you are age 65 or older.
Excess Contributions
Excess contributions occur when total contributions to your HSA exceed your contribution limit. These excess amounts are not deductible and are subject to a 6% excise tax for each year they remain in your account.
You can avoid the excise tax by withdrawing the excess contributions and any earnings from them by the due date of your tax return, including extensions. If you withdraw excess contributions after the due date, you may be able to deduct them in a later year if your contributions for that year are less than your limit.
Record-Keeping Requirements
Maintain comprehensive records of all HSA contributions and distributions. Keep receipts and documentation for all medical expenses paid from your HSA, including the date of service, provider name, description of the cost, and amount paid.
Retain these records indefinitely, as there is no statute of limitations on when the IRS may question whether a distribution was used for qualified medical expenses. Also, keep copies of Form 5498-SA showing annual contributions, Form 1099-SA showing distributions, and all Forms 8889 filed with your tax returns.
Common Mistakes to Avoid
Contribution Reporting Errors
Do not report employer contributions or cafeteria plan contributions on line 2; these should be noted on line 9. Do not include the catch-up contribution on line 7 if you are unmarried or have self-only coverage; it should be reflected in your line 3 calculation instead.
Spousal Allocation Issues
If both spouses have HSAs with family coverage, do not forget to allocate the contribution limit between spouses on line 6 using separate forms.
Testing Period Compliance
When claiming the full annual contribution under the last-month rule, remember you must remain eligible through the end of the following year.
Qualified Expense Timing
Do not claim distributions for medical expenses incurred before your HSA was established, even if those expenses occurred in the same year.
Early Distribution Penalties
Never use HSA distributions for non-qualified expenses before age 65 unless necessary, as they trigger both ordinary income tax and the 20% additional penalty.
Final Compliance Reminder
By following this checklist carefully and referring to the official 2018 IRS instructions for Form 8889 and Publication 969, you can accurately complete your HSA tax reporting, maximize the tax benefits of your health savings account, and ensure full compliance with IRS requirements.
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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.
