Form 8889: Health Savings Accounts (HSAs) – 2018 Tax Year Guide

What Form 8889 Is For

Form 8889 is the IRS form you need to file if you have a Health Savings Account (HSA). Think of it as your HSA's yearly report card that gets attached to your main tax return (Form 1040 or 1040NR). This form serves three main purposes: it reports all money that went into your HSA during 2018 (whether you contributed it, your employer did, or someone else made contributions on your behalf), it calculates how much of those contributions you can deduct from your taxes, and it tracks all the money you withdrew from your HSA to make sure you used it properly for medical expenses.

An HSA is a special savings account designed exclusively for medical expenses, but it only works if you have a high-deductible health plan (HDHP). The beauty of an HSA is its triple tax advantage: money goes in tax-free, grows tax-free, and comes out tax-free when used for qualified medical expenses. Form 8889 is how you prove to the IRS that you're playing by the rules and claim those valuable tax benefits.

When You’d Use Form 8889 (Including Late or Amended Filings)

You must file Form 8889 with your 2018 tax return if any of these situations apply to you:

• Someone (you, your employer, a family member, or anyone else) put money into your HSA during 2018, even contributions made as late as April 15, 2019, that were designated for the 2018 tax year
• You took any distributions (withdrawals) from your HSA in 2018, regardless of what you used the money for
• You became ineligible for HSA contributions during a ""testing period"" and owe taxes on previous contributions
• You inherited an HSA because the original account holder passed away

Late or Amended Filings: If you initially filed your 2018 taxes without Form 8889 but should have included it, you'll need to file an amended return using Form 1040-X. The most common reasons for amended filings include discovering you over-contributed to your HSA, failing to report distributions, or realizing you claimed ineligible medical expenses. You generally have three years from the original filing deadline to amend your return.

Interestingly, even if you took out more than you contributed or withdrew money for non-medical expenses, you still must file Form 8889—it's how the IRS calculates any taxes and penalties you might owe.

Key Rules or Details for 2018

Contribution Limits: For 2018, the maximum you could contribute to an HSA was $3,450 if you had self-only HDHP coverage or $6,900 if you had family HDHP coverage. If you were 55 or older by December 31, 2018, you could add an extra $1,000 ""catch-up"" contribution.

Special 2018 Note: There was confusion about the 2018 family contribution limit. The IRS initially lowered it to $6,850, then restored it to $6,900 in April 2018 (Revenue Procedure 2018-27). Taxpayers could use either figure, and those who withdrew excess contributions based on the lower limit could repay them without penalty by April 15, 2019.

Eligibility Requirements: To contribute to an HSA in 2018, you had to be covered by an HDHP with minimum deductibles of $1,350 (self-only) or $2,700 (family) and maximum out-of-pocket limits of $6,650 (self-only) or $13,300 (family). You couldn't be enrolled in Medicare, couldn't be claimed as someone else's dependent, and couldn't have other non-HDHP health coverage (with certain exceptions like dental, vision, and accident insurance).

The Last-Month Rule: If you were eligible on December 1, 2018, the IRS considered you eligible for the entire year, allowing you to contribute the full annual amount. However, you then had to remain eligible through December 31, 2019 (the ""testing period""), or you'd owe taxes plus a 10% penalty on contributions you wouldn't have been able to make otherwise.

Qualified Medical Expenses: Distributions were tax-free only for qualified medical expenses—essentially anything that would qualify for the medical expense deduction, including expenses for you, your spouse, and your dependents. Importantly, you could only withdraw money tax-free for medical expenses incurred after you established your HSA. For 2018, prescription medicines required a prescription (or be insulin), and over-the-counter medicines without prescriptions didn't qualify.

Step-by-Step (High Level)

Form 8889 has three main parts that guide you through your HSA activity:

Part I – HSA Contributions and Deductions

This section calculates your allowable deduction. First, you'll indicate your type of HDHP coverage (self-only or family) on Line 1. On Line 2, enter all contributions you made personally (including those made by anyone other than your employer) for 2018, even if made up until April 15, 2019. Line 3 calculates your contribution limit based on how many months you were eligible—if you weren't eligible all year, you'll use the Limitation Chart in the instructions to prorate your limit by month. Lines 4 through 8 make adjustments for catch-up contributions if you're over 55, factor in any employer contributions (shown in box 12 of your W-2 with code W), and account for special IRA-to-HSA transfers. Line 13 shows your final HSA deduction, which you'll transfer to Schedule 1 of your Form 1040.

Part II – HSA Distributions

This is where you account for money you took out. Line 14a shows your total distributions (from Form 1099-SA provided by your HSA trustee). Line 14b accounts for any rollovers or withdrawn excess contributions. Line 15 is crucial—here you enter the amount you spent on qualified medical expenses. The difference between what you withdrew and what you spent on qualified expenses becomes taxable income on Line 16. Lines 17a and 17b calculate a harsh 20% additional tax on distributions that don't qualify for an exception (like being over 65, disabled, or deceased).

Part III – Income and Additional Tax for Testing Period Failures

This section only applies if you contributed based on the last-month rule or made an IRA-to-HSA transfer, then became ineligible during the testing period. It calculates the income you must report and the 10% additional tax you owe.

Throughout the form, keep careful records. The IRS doesn't verify your qualified medical expenses when you file—they trust you're being honest—but they can audit you later, so maintain receipts and documentation for every withdrawal.

Common Mistakes and How to Avoid Them

Mistake #1: Over-contributing to your HSA

This happens when you contribute more than your annual limit, either because you weren't eligible all 12 months, switched coverage types mid-year, or didn't account for employer contributions. Excess contributions trigger a 6% excise tax every year they remain in your account. How to avoid it: Track your eligibility month by month and subtract employer contributions from your personal contribution target. If you over-contributed, withdraw the excess (plus any earnings on it) before your tax filing deadline to avoid the penalty.

Mistake #2: Using HSA money for non-qualified expenses without reporting it

Some people think the HSA administrator polices what they can spend on, but many HSAs (especially those with debit cards) don't restrict purchases. Spending on non-qualified expenses makes that distribution taxable income plus subjects you to the 20% penalty if you're under 65. How to avoid it: Only use HSA funds for expenses that clearly qualify (doctor visits, prescriptions, dental care, glasses, etc.). Keep receipts for everything. If you accidentally used your HSA for something non-qualified, include that amount in Line 16 and pay the taxes due.

Mistake #3: Forgetting about the testing period

Many people use the last-month rule to maximize their 2018 contribution but don't realize they're committing to staying HSA-eligible through the end of 2019. If you enrolled in Medicare, switched to a low-deductible plan, or lost HDHP coverage in 2019, you'd owe taxes on the extra contributions you made. How to avoid it: Only use the last-month rule if you're confident you'll maintain HSA eligibility for at least 13 more months. Otherwise, calculate your contribution limit month-by-month.

Mistake #4: Claiming medical expenses that weren't actually qualified

Over-the-counter medicines (without prescriptions), health club memberships, vitamins (unless prescribed), and insurance premiums (except for very specific types like COBRA) don't qualify. How to avoid it: When in doubt, consult IRS Publication 502 or check with your tax advisor before treating an expense as qualified. The IRS has detailed lists of what counts.

Mistake #5: Filing separate forms for married couples incorrectly

If both spouses have HSAs, each needs their own Form 8889, but the family contribution limit ($6,900) must be split between them—you can't each contribute $6,900. How to avoid it: Coordinate contributions with your spouse and clearly decide how to allocate the family limit. Document your agreed split in case of an audit.

Mistake #6: Not reporting rollover contributions

If you rolled money from another HSA or converted an Archer MSA to an HSA, you must report it on Form 8889 even though it's not taxable or deductible. Failure to report it can trigger IRS notices. How to avoid it: Line 10 specifically asks for these qualified HSA funding distributions—don't skip it if you made a rollover.

What Happens After You File

Once you submit your 2018 tax return with Form 8889 attached, the IRS processes the information and applies your HSA deduction to reduce your taxable income, potentially lowering your tax bill or increasing your refund. If you reported excess contributions or taxable distributions, those amounts get added to your taxable income, and any additional 20% or 10% penalties get added to your total tax due.

Your HSA trustee (usually a bank or financial institution) separately reports information to the IRS on Form 5498-SA (showing contributions) and Form 1099-SA (showing distributions). The IRS uses these forms to verify the amounts you reported on Form 8889. Typically, you'll receive your copies of these forms in January through May following the tax year.

If there are discrepancies between what you reported and what your trustee reported, the IRS may send you a notice (commonly a CP2000) months or even up to three years after filing. This isn't technically an audit but rather a proposed adjustment to your return. You'll have the opportunity to respond with documentation explaining the difference.

The 6% excise tax on excess contributions continues every year until you withdraw the excess or use up the excess amount against a future year's contribution limit. You report this excise tax annually on Form 5329 until resolved.

Good news: Most Form 8889 filings are straightforward and processed without issue. The IRS estimates it takes about 3 hours and 18 minutes to complete Form 8889, including record-keeping, learning about the form, and preparing it. If everything is accurate and consistent with your trustee's reporting, you'll likely never hear from the IRS about it.

FAQs

1. Can I deduct HSA contributions even if I don't itemize deductions?

2. What if I contributed to my HSA in January 2019 but want to count it toward 2018?

3. I had an HSA distribution in 2018 but paid for medical expenses from 2017—is that qualified?

4. What happens if I enrolled in Medicare mid-year in 2018?

5. Can I use my HSA to pay for my spouse's or children's medical expenses even if they're not on my HDHP?

6. Do I need to send receipts to the IRS with Form 8889?

7. What's the difference between Form 8889, Form 1099-SA, and Form 5498-SA?

For More Information:

• IRS Form 8889 and Instructions (2018)
• IRS Publication 969 (2018) - Health Savings Accounts
• IRS HSA Information Page

This guide provides general information about Form 8889 for the 2018 tax year based on IRS sources. It is not a substitute for professional tax advice. Consult a qualified tax professional for guidance specific to your situation.

‍