Instructions for Form 8889 Checklist: 2010 Tax Year
Form 8889 for the 2010 tax year reports health savings account contributions, distributions, and
year-end balances to the Internal Revenue Service. You must file this form if you made HSA contributions during 2010, received distributions from your account, or acquired an interest in an
HSA due to the account beneficiary's death.
Establishing HSA Eligibility and Coverage Type
You qualify as an eligible individual if you maintain coverage under a high-deductible health plan on the first day of each month during 2010. Your HDHP must meet the Internal Revenue Code's minimum deductible and maximum out-of-pocket requirements for that calendar year.
You cannot qualify if you have other disqualifying health coverage, enroll in Medicare, or can be claimed as a dependent on another person's tax return. Self-employed filers must verify net self-employment income to calculate allowable contribution limits under Section 125 cafeteria plan rules.
Document the specific months when you maintained HDHP coverage without disqualifying insurance arrangements such as general-purpose flexible spending account benefits or health reimbursement arrangement coverage. Family coverage under an HDHP applies when the plan covers you and at least one other individual, regardless of whether that person qualifies as an eligible individual.
Calculating 2010 HSA Contribution Limits
The maximum annual contribution for self-only coverage in 2010 is $3,050, while the maximum yearly contribution for family HDHP coverage is $6,150. If you are age 55 or older at the end of
2010, you can make an additional catch-up contribution of $1,000 beyond the standard annual contribution limit for your coverage type.
Married couples with separate HSAs must divide the family coverage limit between both accounts unless they agree on a different allocation method. You must reduce your contribution limit by any amounts contributed to Archer MSAs or received as qualified HSA funding distributions from a traditional IRA or Roth IRA.
Prorate your contribution limit if you did not maintain eligible individual status for all twelve months of 2010. Use the Line 3 Limitation Chart and Worksheet in the Form 8889 instructions to calculate monthly limitations based on coverage type and eligibility status for each month.
Reporting Employer and Individual Contributions
Employer contributions to your HSA appear in box 12 of Form W-2 with code W and must be reported on Form 8889 even though these amounts are excluded from your taxable income.
Enter total employer contributions on the designated line, including amounts made through payroll deduction under an employer-sponsored cafeteria plan.
Report all personal contributions you made to your HSA during 2010, including those made between January 1, 2011, and April 18, 2011, that you designate for the 2010 tax year.
Self-employed individuals must apply the self-employment income limitation calculated on
Schedule C to determine deductible contributions for 2010.
Your HSA trustee will issue Form 5498-SA showing total contributions made to your account during the year, which you should use to verify amounts reported on Form 8889. You must distinguish between regular annual contributions and catch-up contributions if you qualified for the age 55 catch-up provision in 2010.
Understanding Rollover Contributions and Transfers
You can roll over amounts from another HSA or Archer MSA into your current HSA, but you must complete the rollover within 60 days after receiving the distribution. The Internal Revenue
Service limits you to one rollover contribution per 12-month period, and a second rollover within that period can trigger income inclusion and an additional tax.
Direct trustee-to-trustee transfers are not considered rollovers and have no limit on the number of transfers you can complete during 2010. Obtain written confirmation from both the distributing and receiving trustees when completing rollovers or transfers.
Do not report trustee-to-trustee transfers as contributions or distributions on Form 8889, but you must report 60-day rollovers on the appropriate lines to document compliance with timing requirements. Qualified HSA funding distributions from an individual retirement account must meet specific testing period requirements to avoid income inclusion and penalties.
Reporting Distributions and Qualified Medical Expenses
List all distributions withdrawn from your HSA during 2010 on line 14a of Form 8889, including amounts paid with debit card transactions and withdrawals made by designated individuals.
Your HSA trustee will report these distributions on Form 1099-SA, which you must use to complete your tax return accurately.
You can use HSA funds tax-free to pay qualified medical expenses as defined under IRC
Section 223, including costs for medical care, dental services, vision care, and over-the-counter medications purchased during 2010. Non-qualified distributions are subject to ordinary federal income tax plus a 10% additional tax for 2010 unless an exception applies for death, disability, or reaching age 65.
For distributions made after December 31, 2010, the additional tax increases to 20% under the
Patient Protection and Affordable Care Act. Compile receipts, invoices, and explanation of benefits statements to document that distributions paid for qualified expenses incurred after you established your HSA.
Addressing Coverage Loss and Excess Contributions
A 10% additional tax for failure to maintain HDHP coverage during the testing period is reported on Form 8889, Part III, if you lose eligible individual status after using the last-month rule or receiving a qualified HSA funding distribution. A 6% excise tax on excess contributions that remain in your HSA is reported separately on Form 5329. It applies each year until you withdraw the excess amounts or apply them to a subsequent year's contribution limit.
Completing Year-End Reconciliation and Form 1040
Integration
Enter your HSA balance as of December 31, 2010, on the designated line, ensuring this figure matches your trustee's year-end statement. The reported balance must equal beginning balance plus contributions plus earnings minus distributions for the year. Attach Form 8889 to your 2010
Form 1040 along with copies of trustee statements showing contributions, distributions, and year-end balances. Your HSA deduction appears on Form 1040, line 25, and reduces your adjusted gross income regardless of whether you itemize deductions on Schedule A.
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