Form 8889: Health Savings Accounts (HSAs) – 2014 Tax Year Guide
What the Form Is For
Form 8889 is the IRS form you use to report everything related to your Health Savings Account (HSA) when filing your 2014 taxes. Think of an HSA as a special tax-advantaged savings account designed exclusively to help you pay for medical expenses. The form serves three main purposes: it lets you report contributions made to your HSA during the year (whether you made them, your employer made them, or someone else contributed on your behalf), it calculates your tax deduction for those contributions, and it tracks any money you withdrew from the account. You must attach Form 8889 to your Form 1040 or 1040NR if you or your employer contributed to an HSA in 2014, if you received any distributions from your HSA during the year, or if you're required to report certain income because you failed to maintain qualifying health coverage during a testing period. IRS Form 8889 Instructions
To qualify for an HSA, you must be covered by a High Deductible Health Plan (HDHP), have no other disqualifying health coverage, not be enrolled in Medicare, and cannot be claimed as a dependent on someone else's tax return. An HDHP for 2014 had to meet specific requirements: for self-only coverage, a minimum annual deductible of $1,250 with maximum out-of-pocket expenses of $6,350; for family coverage, a minimum annual deductible of $2,500 with maximum out-of-pocket expenses of $12,700. IRS Publication 969 - 2014
When You’d Use It (Including Late or Amended Returns)
You file Form 8889 with your regular 2014 tax return, which was originally due April 15, 2015. Even if you didn't have enough income to normally require filing a tax return, you still must file if you or your spouse received HSA distributions in 2014. The interesting aspect of HSA contributions is their flexible timing: you can make contributions for the 2014 tax year all the way until April 15, 2015, and still count them toward your 2014 limit. This means you have extra time after the year ends to maximize your tax benefits.
If you need to file an amended return because you discovered errors related to your HSA—perhaps you forgot to report contributions, miscalculated your deduction, or failed to report distributions properly—you'd complete a corrected Form 8889 and attach it to Form 1040X (Amended U.S. Individual Income Tax Return). Common reasons for amending include discovering that your employer reported contributions you didn't initially include, realizing you withdrew excess contributions that should have been reported differently, or correcting mistakes in calculating your contribution limit based on your HDHP coverage type.
Late filing can still occur if you requested filing extensions. If you timely filed your return but later discover you need to withdraw excess contributions, you have up to six months after the original due date (excluding extensions) to make that withdrawal and file an amended return. When doing so, write "Filed pursuant to section 301.9100-2" at the top of the amended return.
Key Rules for 2014
The 2014 contribution limits were straightforward but important: if you had self-only HDHP coverage, you could contribute up to $3,300 to your HSA; if you had family HDHP coverage, the limit was $6,550. If you were age 55 or older by the end of 2014 and not enrolled in Medicare, you could contribute an additional $1,000 as a "catch-up" contribution. These limits applied to the total of all contributions—yours, your employer's, and anyone else's on your behalf.
One of the most valuable provisions is the "last-month rule." If you became eligible for an HSA late in the year but had qualifying HDHP coverage on December 1, 2014, you could be treated as eligible for the entire year and contribute the full annual amount. However, this came with strings attached: you had to remain an eligible individual through a "testing period" that ran from December 1, 2014, through December 31, 2015. If you failed to maintain eligibility during this testing period (unless due to death or disability), you'd have to include the extra contributions in your income and pay a 10% penalty tax.
Contributions had to be made in cash—no stock or property contributions allowed. Money from your HSA could only be used tax-free for "qualified medical expenses," which generally meant unreimbursed medical costs that would otherwise be deductible on Schedule A. Importantly, expenses incurred before you established your HSA didn't count as qualified expenses. Over-the-counter medications only qualified if you had a prescription (except insulin, which always qualified). Insurance premiums generally didn't count as qualified expenses unless they were for long-term care, COBRA continuation coverage, health coverage while receiving unemployment benefits, or Medicare premiums if you were 65 or older.
Step-by-Step (High Level)
Part I — Contributions and Your Deduction
Form 8889 has three main parts. Part I focuses on contributions and your deduction. You start by indicating what type of HDHP coverage you had—self-only or family. Then you report your personal contributions (line 2), figure your maximum allowable contribution based on your coverage and eligibility (line 3), subtract any contributions to Archer MSAs, and account for employer contributions (line 9). If you're married and both spouses had family coverage, you may need to allocate the family contribution limit between you and your spouse. If you were 55 or older, you calculate your additional contribution on line 7. After working through these calculations, line 13 shows your actual HSA deduction that transfers to your Form 1040.
Part II — Distributions
Part II deals with distributions—money you took out of your HSA. You report total distributions received (line 14a), subtract any amounts rolled over to another HSA, and then report how much you used for qualified medical expenses (line 15). The form calculates whether any distributions are taxable (line 16). If you took money out for non-qualified expenses, that amount becomes taxable income and may also trigger a 20% additional penalty tax unless you met one of the exceptions (you died, became disabled, or turned 65).
Part III — Testing Period and Income Inclusion
Part III is used only if you're required to include amounts in income because you failed to maintain HDHP coverage during the testing period after using the last-month rule or making a qualified HSA funding distribution. This section calculates the income inclusion and any additional 10% tax you owe.
Monthly Eligibility Tracking
The key is carefully tracking your coverage throughout the year and accurately calculating your monthly eligibility if your coverage type changed. The IRS instructions include a helpful "Line 3 Limitation Chart and Worksheet" where you go through each month of 2014, determine if you were eligible that month and what type of coverage you had, then average the monthly amounts to get your contribution limit.
Common Mistakes and How to Avoid Them
Contributing Too Much
Contributing too much is the most frequent error. Many people don't realize that employer contributions count toward their limit, or they forget to adjust for Archer MSA contributions or qualified HSA funding distributions. To avoid this, carefully add up all sources of contributions before making your own deposits. If you do over-contribute, you can withdraw the excess (plus any earnings on it) by your tax return deadline (including extensions) without penalty. If you miss that deadline, you'll pay a 6% excise tax on the excess amount every year it remains in the account.
Misunderstanding the Last-Month Rule
Misunderstanding the last-month rule trips up many taxpayers. People become eligible in December, contribute the full year's limit, but then don't maintain qualifying coverage through the entire following year. Remember: if you use the last-month rule to contribute more than you'd otherwise be eligible for, you must stay eligible through December 31 of the next year.
Using HSA Funds for Non-Qualified Expenses
Using HSA funds for non-qualified expenses is another common pitfall. Some people assume all health-related expenses qualify, but items like gym memberships, vitamins (unless prescribed), and over-the-counter medications without prescriptions don't count. Keep detailed records of what expenses you paid with HSA funds and save receipts. If you use HSA money for non-qualified expenses before age 65, you'll pay income tax plus a 20% penalty.
Forgetting to Report Distributions
Forgetting to report distributions happens when people use HSA debit cards throughout the year and don't realize these count as distributions that must be reported on Form 8889, even if used for qualified expenses. Your HSA trustee will send you Form 1099-SA showing total distributions, and the IRS gets a copy too, so make sure you report this on Form 8889.
Married Couples With Separate HSAs
Married couples with separate HSAs often make allocation errors. If both spouses have family coverage, they must split the family contribution limit ($6,550) between them unless they agree on a different division. Each spouse files their own Form 8889, but the combined contributions cannot exceed the limit.
What Happens After You File
Once you file Form 8889 with your tax return, your HSA deduction reduces your adjusted gross income, lowering your tax bill. The IRS processes your return and matches the information you reported against what your HSA trustee reported on Forms 5498-SA (contributions) and 1099-SA (distributions). If everything matches and your calculations are correct, you won't hear anything further about your HSA.
Your HSA remains yours indefinitely—there's no "use it or lose it" rule like with flexible spending accounts. The money stays in your account year after year, earning interest or investment returns tax-free. You can continue using it for qualified medical expenses even after you stop contributing or change insurance plans. Once you turn 65, the rules become more favorable: you can withdraw money for any purpose without the 20% penalty (though you'll still pay regular income tax on non-medical withdrawals).
If the IRS finds discrepancies or errors on your Form 8889, you'll receive a notice explaining the issue. Common IRS actions include adjusting your deduction if you claimed more than allowed, assessing additional tax if you failed to report taxable distributions, or charging the 6% excise tax on excess contributions. You'll have the opportunity to respond, provide documentation, or correct the errors. If you disagree with the IRS determination, you can follow the appeals process outlined in any notice you receive.
FAQs
Can I contribute to an HSA if I'm covered by my spouse's health insurance?
You can contribute only if your spouse's insurance is a qualifying HDHP and you meet all other eligibility requirements, including not having any disqualifying coverage that protects you.
What if I changed jobs mid-year and switched from self-only to family coverage?
Your contribution limit is calculated based on your coverage each month, or you can use the last-month rule if you had family coverage on December 1, allowing you to contribute the full family limit if you maintain eligibility through the testing period.
Do I need to save receipts for HSA expenses?
While you don't submit receipts with your tax return, the IRS recommends keeping detailed records of all qualified medical expenses paid with HSA funds in case of an audit, including receipts, explanation of benefits statements, and documentation of prescriptions.
Can I reimburse myself years later for old medical expenses?
Yes, as long as the expenses were incurred after your HSA was established and were qualified medical expenses at that time, there's no time limit for reimbursing yourself—you could save receipts and withdraw money years later if desired.
What happens to my HSA if I die?
If your spouse is the designated beneficiary, the HSA becomes their HSA and continues tax-free; if anyone else inherits it, the account stops being an HSA and the fair market value becomes taxable income to the beneficiary.
Can I use my HSA to pay Medicare premiums?
Once you're 65 or older and enrolled in Medicare, you can use HSA funds tax-free to pay Medicare Part A, Part B, Part D, and Medicare Advantage premiums, but not Medigap (Medicare Supplement) premiums.
What if my employer contributed more than my contribution limit?
Excess employer contributions are taxable income to you and should be reported as "Other income" on your tax return; you may be able to withdraw the excess before your filing deadline to avoid the 6% excise tax going forward.
