Form 8889 Instructions for Reporting HSA Activity in 2021

the 2021 tax year. You must file this form if you made contributions to your HSA during 2021, received distributions from your account, or must report income due to failure to maintain required coverage. The Internal Revenue Service requires this form as an attachment to Form

1040, Form 1040-SR, or Form 1040-NR to calculate your HSA deduction and determine any taxable distributions or additional penalties.

Verifying HSA Eligibility and High-Deductible Health Plan

Coverage

You must confirm coverage under a high-deductible health plan for each month you contributed to an HSA during 2021. HDHP coverage requires a minimum annual deductible of $1,400 for self-only coverage or $2,800 for family coverage.

The maximum out-of-pocket limit for 2021 is $7,000 for self-only coverage and $14,000 for family coverage. These limits do not apply to out-of-network services if your plan uses a provider network.

Only deductibles and out-of-pocket expenses for services within the network count toward the annual maximum. If your coverage changed during 2021, you may need to prorate your contribution limit based on the months you maintained eligible coverage.

Reporting Individual Contributions and Understanding

Contribution Limits

Line 2 of Form 8889 requires you to report total contributions you made directly to your HSA during 2021. Include contributions made from January 1, 2022, through April 15, 2022, that were designated for the 2021 tax year.

The tax filing deadline determines when contributions count for a specific year, regardless of whether you claim a filing extension. Do not include employer contributions, amounts contributed through a cafeteria plan, or rollovers from another HSA or Archer MSA on this line.

The contribution limit for 2021 depends on your HDHP coverage type and the number of months you maintained eligible coverage. If you had self-only coverage for all twelve months of 2021, your contribution limit is $3,600.

Family coverage for the entire year allows contributions up to $7,200. Individuals who were age

55 or older at the end of 2021 and not enrolled in Medicare can make an additional catch-up contribution of $1,000.

Calculating Prorated Limits and Reporting Employer

Contributions

If your HDHP coverage changed during 2021, you must use the line 3 limitation chart and worksheet in the instructions to calculate your prorated contribution limit. The worksheet requires you to determine your eligible coverage type for each month of the year.

Employer contributions appear in box 12 of your Form W-2 with code W. Report the total on line

9 of Form 8889. These amounts include direct employer deposits to your HSA and contributions made through a cafeteria plan.

If your 2021 Form W-2 includes employer contributions made for 2020, or if contributions for

2021 were made in 2022, you must use the Employer Contribution Worksheet in the instructions to determine the correct amount to report for 2021.

Reporting HSA Distributions and Qualified Medical

Expenses

Part II of Form 8889 requires you to report all distributions from your HSA during 2021. Your

HSA trustee will provide Form 1099-SA showing the total amount distributed from your account.

Report this amount on line 14a. Line 14b reports any rollovers to another HSA that were completed within 60 days of receiving the distribution.

Line 15 requires you to report qualified medical expenses paid using HSA distributions. These expenses include unreimbursed costs that could otherwise be deducted on Schedule A (Form

1040) for yourself, your spouse, or your dependents.

Over-the-counter medicines and menstrual care products qualify as medical expenses for amounts paid after 2019, regardless of whether a prescription was obtained. Personal protective

equipment, such as masks and hand sanitizer, purchased to prevent the spread of COVID-19 also qualifies as a medical expense.

Home COVID-19 tests are eligible expenses that may be paid or reimbursed from an HSA. You must incur these expenses after establishing your HSA to claim them as qualified distributions.

Calculating Taxable Distributions and Additional

Penalties

Line 16 calculates taxable HSA distributions by subtracting qualified medical expenses from your net distributions. Any positive amount on line 16 represents distributions used for non-qualified expenses. You must include this amount in income on Schedule 1 (Form 1040).

Non-qualified distributions are also subject to a 20% additional tax unless you qualify for an exception.

The additional tax applies to individuals under age 65 who use HSA funds for non-qualified medical expenses. Three exceptions eliminate the 20% additional tax on non-qualified distributions: distributions made after you reach age 65, distributions made after you become disabled, and distributions made to your beneficiary after your death.

If any distributions included on line 16 meet one of these exceptions, check the box on line 17a.

Calculate the 20% additional tax on line 17b by multiplying the non-exempted amount from line

16 by 0.20.

Understanding Year-End Reporting and Required

Documentation

Your HSA trustee will provide Form 5498-SA showing your account balance as of December 31,

2021, and total contributions made during the year. You do not enter the year-end balance on

Form 8889. The trustee reports contributions as a single aggregated amount in box 2 and is not required to identify catch-up contributions separately. Keep Form 5498-SA with your tax records, but do not attach it to your return.

Retain receipts for all qualified medical expenses you claimed on line 15 in case the Internal

Revenue Service requests documentation during an examination. Complete Form 8889 and attach it to your 2021 tax return by the filing deadline.

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