Instructions for Form 8889 Checklist – 2016 Tax Year
Form 8889 enables self-employed individuals to calculate and claim health savings account
contributions as a tax deduction on their 2016 federal tax returns. You must complete this form if you made HSA contributions during calendar year 2016 or received distributions from your health savings account.
Verify Your High-Deductible Health Plan Meets 2016
Standards
Your health insurance plan must qualify as an HSA-qualified high-deductible health plan under the 2016 standards established by the Internal Revenue Code. For self-only coverage, the minimum annual deductible must be $1,300 or more; for family coverage, it must be $2,600 or more.
The out-of-pocket expense limit for self-only coverage cannot exceed $6,550, and family HDHP coverage cannot exceed $13,100 in maximum out-of-pocket expenses for calendar year 2016.
These out-of-pocket maximums increased from the 2015 levels of $6,450 for self-only coverage and $12,900 for family coverage.
Gather Documentation From Your HSA Custodian
You need Form 5498-SA or an equivalent statement from your medical savings account custodian showing all contributions made during 2016. The custodian reports total HSA contributions in box 2 of Form 5498-SA, and you receive the form for informational purposes after the tax year ends.
Calculate Your 2016 HSA Contribution Limit
Your maximum annual contribution depends on your HDHP coverage type and your age on
December 31, 2016. The contribution limit for self-only HDHP coverage is $3,350, while the family HDHP coverage limit is $6,750 for calendar year 2016.
If you reached age 55 or older by Dec. 31, 2016, you qualify for a catch-up contribution limit of an additional $1,000 above the standard amounts. You must reduce your contribution limit by any employer-sponsored contributions made to your health savings account and any amounts contributed to an Archer MSA during 2016.
Address Excess Contributions From Prior Years
Excess contributions from prior years continue to incur a six percent excise tax each year until you withdraw them or deduct them in a subsequent tax year. If you did not maximize your 2016 contribution limit, you may deduct some or all of these previous excess contributions during calendar year 2016.
Complete Part I of Form 8889
Enter your total HSA contributions for 2016 on line 2 of Form 8889, including any contributions you made between January 1, 2017, and April 18, 2017, that you designated for the 2016 tax year. Do not include employer contributions, qualified HSA funding distributions, or rollover amounts on this line.
If your HDHP coverage changed during 2016 from self-only coverage to family coverage or vice versa, you must prorate your contribution limit using the monthly calculation worksheet provided in the 2016 instructions. The last-month rule allows you to contribute the full annual amount if you maintained qualifying HDHP coverage on December 1, 2016. Still, you must remain eligible through December 31, 2017, to avoid recapture penalties.
Determine Your Allowable Tax Deduction
Your allowable HSA deduction equals the smaller of two amounts: your actual contributions shown on line 2, or your contribution limitation calculated on line 12 based on coverage type, age, employer contributions, and months of eligibility. The contribution limits depend solely on your HDHP coverage characteristics and do not depend on your self-employment income level or net profit from Schedule C.
Track Coverage Changes Throughout the Year
Document each period of HDHP coverage if you changed health insurance plans during 2016.
The 2016 instructions require separate tracking when you switch between self-only coverage and family HDHP coverage or when coverage terminates mid-year.
Use the month-by-month proration worksheet to allocate your contribution limit properly across different coverage periods. Contributions must correspond to the specific high deductible health plan in effect when you made each deposit to your health savings account.
Transfer Your Deduction to Form 1040
Report your calculated HSA deduction from Form 8889, line 13, directly on Form 1040, line 25, or Form 1040NR, line 25, for the 2016 tax year. This tax deduction reduces your adjusted gross income as an above-the-line deduction, meaning you claim it regardless of whether you itemize deductions on Schedule A.
Key Updates for Calendar Year 2016
Revenue Procedure 2015-30 established the 2016 cost-of-living adjustments affecting health savings account limits and high-deductible health plan definitions. The minimum annual deductibles remained unchanged from 2015 at $1,300 for self-only coverage and $2,600 for family coverage.
Maximum out-of-pocket expenses increased to $6,550 for self-only HDHP coverage and
$13,100 for family HDHP coverage, up from $6,450 and $12,900, respectively, in 2015. The catch-up contribution limit for individuals age 55 or older remained at $1,000 for 2016.
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