Form 8889: Health Savings Accounts (HSAs) — 2020 Guide
Understanding your Health Savings Account tax forms doesn't have to be complicated. This guide breaks down Form 8889 for the 2020 tax year, helping you navigate HSA contributions, deductions, and distributions using information straight from the IRS.
What Form 8889 Is For
Form 8889 is your annual reporting document for Health Savings Accounts. Think of it as the bridge between your HSA activity and your tax return. You'll use this form to report every dollar that went into your HSA during 2020—whether you contributed it yourself, your employer kicked in money, or someone else contributed on your behalf. The form also calculates your tax deduction (the amount you can subtract from your taxable income), reports any money you withdrew from the account, and figures out whether you owe additional taxes if you didn't follow HSA eligibility rules throughout the year.
An HSA is a special tax-advantaged savings account designed exclusively for medical expenses. To qualify, you must be covered by a high-deductible health plan (HDHP) meeting specific requirements: in 2020, that meant a minimum deductible of $1,400 for self-only coverage or $2,800 for family coverage, with maximum out-of-pocket expenses capped at $6,900 (self-only) or $13,800 (family). You also can't be enrolled in Medicare or claimed as someone else's dependent IRS Form 8889 Instructions 2020.
When You’d Use Form 8889
You must file Form 8889 with your 2020 Form 1040, 1040-SR, or 1040-NR if any of these situations apply to you: someone contributed to your HSA in 2020 (this includes your employer), you withdrew money from your HSA during the year, you need to report income because you failed testing-period requirements under special HSA rules, or you inherited an HSA after the original account holder died.
Timing matters with HSA contributions. You actually have until April 15, 2021, to make contributions that count for your 2020 tax year. If you filed your return early and later realized you contributed more than allowed, you have options. You can withdraw the excess contributions (plus any earnings on them) by your filing deadline, including extensions, and avoid the 6% excise tax penalty. If you filed on time without fixing the excess, you still have up to six months after the deadline to withdraw them—but you'll need to file an amended return (Form 1040-X) with "Filed pursuant to section 301.9100-2" written at the top IRS Publication 969 (2020).
Key Rules and Details for 2020
The contribution limits for 2020 were straightforward but depended on your coverage type. If you had self-only HDHP coverage, the maximum contribution was $3,550. Family coverage raised that limit to $7,100. If you were age 55 or older by December 31, 2020, you could tack on an extra $1,000 "catch-up" contribution—bringing your maximum to $4,550 (self-only) or $8,100 (family).
These limits applied to total contributions from all sources: your own contributions, employer contributions, contributions from family members, and even special one-time IRA-to-HSA transfers called "qualified HSA funding distributions." The 2020 CARES Act expanded what qualified as reimbursable medical expenses, adding over-the-counter medications (without requiring a prescription) and menstrual care products like tampons, pads, and cups to the list.
A crucial rule called the "last-month rule" can work in your favor. If you were eligible on December 1, 2020 (the first day of the last month of the tax year), you could contribute as if you'd been eligible all year long. But there's a catch: you must remain eligible through December 31, 2021 (the testing period). If you lose eligibility—say, you dropped your HDHP or enrolled in Medicare—you'll owe taxes plus a 10% penalty on contributions you wouldn't have been allowed to make without the last-month rule IRS Form 8889 Instructions 2020.
Step-by-Step (High Level)
Form 8889 has three main sections, and you'll work through them sequentially.
Part I: HSA Contributions and Deductions
Part I: HSA Contributions and Deductions is where you calculate your deduction. Start by checking the box indicating your HDHP coverage type (self-only or family). Line 2 asks for your actual contributions—what you personally put in during 2020, including contributions made through April 15, 2021, that you designated for 2020. Line 3 calculates your limit based on coverage type, eligibility duration, and age. If you were eligible all year with consistent coverage, you'll simply enter $3,550 or $7,100; if your situation changed mid-year, you'll use the limitation chart to prorate by month. Lines 9 and 10 capture employer contributions and any IRA-to-HSA transfers. Line 13 shows your final deduction—which you'll transfer to Schedule 1 of your Form 1040.
Part II: HSA Distributions
Part II: HSA Distributions tracks money coming out of your HSA. Line 14a reports total distributions (your HSA trustee reports this on Form 1099-SA). Line 15 is critical: here you enter distributions used for qualified medical expenses—doctor visits, prescriptions, dental work, vision care, and more. The difference between lines 14a and 15 becomes taxable income on line 16. Any non-qualified distributions also trigger an additional 20% penalty tax unless you're over 65, disabled, or deceased.
Part III: Income and Additional Tax
Part III: Income and Additional Tax for Failure to Maintain HDHP Coverage only applies if you used the last-month rule or made an IRA-to-HSA transfer but then lost eligibility during the testing period. This section calculates the income inclusion and 10% penalty tax IRS Form 8889 Instructions 2020.
Common Mistakes and How to Avoid Them
The most frequent error is over-contributing. Many people forget that employer contributions count toward the annual limit. Check Box 12 (Code W) on your W-2 to see what your employer contributed, then subtract that from the maximum before calculating what you can contribute. If you switched from self-only to family coverage mid-year (or vice versa), don't just use the year-end limit—use the month-by-month limitation chart in the instructions.
Another pitfall is claiming deductions for expenses incurred before you established your HSA. Even if you were eligible on December 1 and used the last-month rule to contribute the full annual amount, you can only withdraw tax-free for expenses incurred after your HSA was actually opened.
The testing period trips up many taxpayers. If you used the last-month rule to maximize your 2020 contribution, mark your calendar for December 31, 2021. You must maintain HDHP coverage and HSA eligibility through that entire period. Enrolling in Medicare, getting non-HDHP coverage, or being claimed as a dependent will break the testing period and trigger taxes and penalties.
Finally, don't confuse rollovers with transfers. You can roll over HSA funds to another HSA only once per 12-month period, and you must complete it within 60 days. But if you instruct your HSA trustee to transfer funds directly to another HSA trustee, that's a transfer—unlimited and not reportable as a distribution or contribution IRS Publication 969 (2020).
What Happens After You File
Once you file Form 8889 with your tax return, the deduction on line 13 reduces your adjusted gross income, lowering your overall tax bill. If you had employer contributions, those were already excluded from your W-2 wages, giving you a tax break you don't even see on the form.
If you contributed too much, the IRS will assess a 6% excise tax on the excess, reported on Form 5329. That penalty applies every year the excess remains in the account, so fix it promptly. If you took non-qualified distributions, you'll pay both income tax and the 20% additional tax (unless you qualified for an exception).
The IRS may request documentation during an audit. Keep receipts for all medical expenses you reimbursed from your HSA. The IRS doesn't require you to submit these with your return, but you must maintain them in case of examination. Most experts recommend keeping HSA-related receipts for at least seven years.
Your HSA custodian will send you Form 1099-SA by January 31, 2021 (for 2020 distributions) and Form 5498-SA by May 31, 2021 (showing 2020 contributions, including those made through April 15, 2021). These forms help the IRS verify the amounts you reported IRS Form 8889 Instructions 2020.
FAQs
Can I contribute to an HSA if I have other health insurance?
You can have supplemental coverage for specific things—accidents, disability, dental, vision, long-term care—without losing eligibility. You can also have coverage for a fixed daily hospital benefit or specific-disease insurance. However, general health coverage that pays expenses before your HDHP deductible is met will disqualify you.
What if my spouse has non-HDHP coverage?
As long as your spouse's plan doesn't cover you, you remain eligible. Each spouse with an HSA must have a separate account—you cannot have a joint HSA.
My employer contributed to my HSA—can I also contribute?
Absolutely, but the total from all sources cannot exceed the annual limit ($3,550/$7,100 plus catch-up contributions if applicable). Employer contributions reduce the amount you can contribute.
I turned 65 and enrolled in Medicare mid-year—what happens to my HSA?
You can no longer contribute once Medicare coverage begins, even if enrollment is retroactive. Prorate your contribution limit based on the months before enrollment. However, you can still use accumulated HSA funds tax-free for qualified medical expenses at any age.
Can I use HSA funds for my spouse or children's medical expenses?
Yes. Qualified medical expenses include expenses for your spouse and tax dependents. Interestingly, you can even reimburse expenses for adult children who would be your dependents except for their income level or because they filed a joint return.
What happens if I forget to file Form 8889?
If you had HSA activity in 2020, Form 8889 is required. File an amended return (Form 1040-X) as soon as you discover the omission. The IRS may send a notice if they receive Forms 1099-SA or W-2 (Code W) showing HSA activity but don't see Form 8889 attached.
Are there any COVID-19-related changes for 2020?
Yes. The CARES Act allowed HDHPs to cover telehealth services with no deductible or a lower deductible without disqualifying you from HSA eligibility. High-deductible plans could also cover COVID-19 testing and treatment before you met your deductible, with plan years beginning before 2022 receiving this special treatment IRS Publication 969 (2020).
