Instructions for Form 8889 Checklist – 2017 Tax Year
Form 8889 reports health savings account contributions, distributions, and account balances for
the 2017 tax year. The Internal Revenue Service requires taxpayers to file this form when they or their employers make HSA contributions, receive HSA distributions, or must report testing period failures.
The 2017 instructions clarify how retroactive Medicare coverage affects HSA eligibility and provide updated guidance on qualified medical expenses under current tax rules. These requirements apply to all individuals who maintain health savings account arrangements during the calendar year.
Establishing Eligibility and Preparing Documentation
You must confirm your HSA was established and maintained under Internal Revenue Code
Section 223 rules for 2017. Verify you held a high-deductible health plan throughout the months you contributed to your account, and obtain year-end statements showing the contributions, distributions, and account balances.
Reporting Annual HSA Contributions on Line 1
Enter total employee and employer contributions made to your health savings account for calendar year 2017 on line 1. Include only contributions deposited before the 2017 tax filing deadline of April 17, 2018, which applies because April 15, 2018, falls on a Sunday and April 16,
2018, is Emancipation Day, a legal holiday in the District of Columbia.
Do not include catch-up contributions on this line, as you must report those separately on line 2.
Verify contribution amounts match the Form 5498-SA received from your HSA trustee or custodian to ensure accuracy.
Claiming Catch-Up Contributions for Eligible Account
Holders
If you are age 55 or older at the end of your tax year on December 31, 2017, you qualify for catch-up contributions in 2017. The catch-up contribution limit for 2017 is $1,000, and you must confirm your HSA plan document allows this additional amount.
Reconciling Contributions Against High-Deductible
Health Plan Coverage
You must verify your high-deductible health plan coverage months for 2017 match the contribution periods you reported on Form 8889. The contribution limit depends on whether you maintained family HDHP coverage or self-only HDHP coverage during each month, and mid-year enrollment requires prorated calculations to avoid excess contributions subject to penalty.
Reporting Total Distributions on Line 4
Enter total HSA distributions you received during 2017 from Form 1099-SA, box 1, or HSA custodian records on line 4. Include all direct payments to you or payments made on your behalf for any reason during the calendar year.
Do not subtract qualified medical expenses here, as you must report the gross distribution amount. List each distribution source separately if you maintained multiple health savings accounts during 2017 to ensure complete reporting.
Identifying Qualified Medical Expenses for Tax-Free
Treatment
Qualified medical expenses include amounts you paid for deductibles, coinsurance, copayments, prescription drugs, and approved medical equipment for you, your spouse, and dependents. These expenses must meet the requirements under Internal Revenue Code
Section 223 and 2017 IRS guidance.
Do not include health insurance premiums except for specific types such as long-term care insurance, COBRA continuation coverage, health care coverage while receiving unemployment compensation, or Medicare premiums if you were 65 or older. In 2017, over-the-counter medications other than insulin are not qualified medical expenses unless you have a prescription for them.
Calculating the Qualified Distribution Amount on Line 5
Enter the portion of 2017 distributions spent on qualified medical expenses, as defined by the
2017 instructions, on line 5. If your distributions exceed those expenses, the excess becomes subject to ordinary income tax and a 20% additional tax unless an exception applies due to death, disability, or reaching age 65.
Addressing Excess Contributions and Excise Tax
Determine whether your total 2017 contributions from lines 1 and 2 combined exceed the annual contribution limit for your family coverage or self-only coverage tier. The 2017 contribution limit is $3,400 for self-only HDHP coverage and $6,750 for family HDHP coverage before catch-up contributions.
Report excess contribution amounts on line 13 of Form 8889. The Internal Revenue Service imposes a 6% excise tax on excess contributions, and you must remove these amounts by the filing deadline to avoid continuing penalties in subsequent tax years.
Recording Year-End Account Balances
Enter your health savings account balance as of December 31, 2017, on line 14 using the year-end fair market value from your custodian statement. This figure serves as the basis for calculating 2018 opening balances and for tracking future distributions throughout the life of your account.
Understanding Medicare Enrollment and Retroactive
Coverage Rules
The 2017 instructions clarify that individuals who enroll in Medicare at any point during the calendar year cannot claim HSA contributions for months after Medicare enrollment becomes effective. This rule applies even if you did not actively claim Medicare benefits during those months.
If you delayed applying for Medicare and your enrollment is later backdated, any contributions made during the period of retroactive coverage become excess contributions. You must include these amounts in income and may owe additional tax penalties unless you remove them promptly.
Key Changes in Over-the-Counter Medication Treatment
The 2017 instructions maintain that non-prescription medicines other than insulin are not qualified medical expenses for health savings account purposes. A medicine or drug qualifies only if it requires a prescription, is available over-the-counter with a prescription, or is insulin purchased without a prescription, which affects everyday pharmacy items purchased without a doctor's authorization.
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