Form 8889 (2016)—Health Savings Accounts
Year-Specific Checklist
Form 8889 for 2016 reports HSA contributions, distributions, and qualified medical expenses while verifying high-deductible health plan eligibility. The 2016 tax year applies a self-only HSA contribution limit of $3,350 and a family coverage limit of $6,750, with catch-up contributions of $1,000 permitted for individuals age 55 or older. Failure to maintain HDHP coverage under the last-month rule triggers income inclusion and a 10% additional tax.
Step-by-Step Completion Guide
Step 1: Confirm HDHP Coverage Type
Check “Self-only” or “Family” coverage on line 1 based on the type of HDHP you held during 2016. If you had both types at different times, select the box for the coverage in effect for the longer period. If you had family coverage on December 1, 2016, check “Family.” Verify that your plan met 2016 HDHP requirements: minimum annual deductible of $1,300 (self-only) or $2,600 (family), and maximum out-of-pocket expenses of $6,550 (self-only) or $13,100 (family).
Step 2: Report Personal HSA Contributions
Enter on line 2 only those contributions you or others made on your behalf to your HSA from January 1, 2016, through December 31, 2016. Also include contributions made from January 1, 2017, through April 18, 2017, that were designated for the 2016 tax year. Do not include employer contributions, cafeteria plan contributions, or amounts rolled over from another HSA or Archer MSA on this line.
Step 3: Enter the Applicable Contribution Limit
Enter the appropriate 2016 contribution limit on line 3 based on your coverage. If you maintained eligible self-only coverage for the entire year, enter $3,350. If you had family coverage for the whole of the year, enter $6,750. If your coverage changed during the year or you were not eligible for all twelve months, use the Line 3 Limitation Chart and Worksheet in the instructions to calculate your prorated limit. Do not include the age 55+ catch-up contribution amount on line 3.
Step 4: Report Archer MSA Contributions
Complete Form 8853 first if you or your employer made Archer MSA contributions during 2016. Transfer the total of both your and your employer’s 2016 Archer MSA contributions from Form 8853, lines 1 and 2, to Form 8889, line 4. If you had family HDHP coverage and your spouse also had an Archer MSA, include your spouse’s contributions as well.
Step 5: Calculate Your HSA Deduction Limit
Subtract line 4 from line 3 and enter the result on line 5. This number represents your maximum HSA deduction before considering employer contributions and catch-up amounts. If you and your spouse both have separate HSAs and had family HDHP coverage at any time during 2016, you must allocate the family contribution limit between yourselves by agreement or split it equally if no contract exists.
Step 6: Add Catch-Up Contributions
If you were age 55 or older on December 31, 2016, you may contribute an additional $1,000 catch-up contribution. Enter the catch-up amount on line 7. If you were eligible for the entire year, enter $1,000. If you were eligible for only part of the year, use the Additional Contribution Amount Worksheet to calculate the prorated amount. If you and your spouse are 55 or older, you must each make catch-up contributions to your HSA.
Step 7: Account for Employer Contributions
Enter on line 9 the total employer contributions made to your HSA for 2016, including those made through a cafeteria plan. Display these amounts in box 12 of your Form W-2, using the code W. If employer contributions for 2015 were made in 2016 or contributions for 2016 were made in 2017, use the Employer Contribution Worksheet in the instructions to calculate the correct amount for line 9.
Step 8: Report Qualified HSA Funding Distributions
Enter on line 10 any qualified HSA funding distribution you made during 2016. This transaction is a one-time direct trustee-to-trustee transfer from your traditional IRA or Roth IRA to your HSA. This amount is tax-free, non-deductible, and reduces your contribution limit. You must remain an eligible individual during the testing period (the month of contribution through the end of the following year), or the distribution becomes taxable with a 10% additional tax.
Step 9: Calculate Your Deductible Contribution
Add lines 9 and 10, enter the total on line 11, then subtract line 11 from line 8 to determine your deductible HSA contribution on line 12. Enter line 12 on Form 1040, line 25. If you contributed more than your limit, you may have excess contributions subject to a 6% excise tax. Complete lines 13 through 16 to determine if you have excess contributions requiring Form 5329.
Step 10: Report Total HSA Distributions
Enter on line 14a the total distributions you received from all HSAs during 2016, as shown in box 1 of Form 1099-SA. Include all amounts withdrawn, regardless of purpose. On line 14b, separately report any amounts that were rollovers to another HSA or excess contributions (and their earnings) that you withdrew by the tax filing deadline. Subtract line 14b from line 14a and then enter the result on line 14c.
Step 11: Document Qualified Medical Expenses
Enter on line 15 only those distributions from line 14c that you used to pay qualified medical expenses. Qualified expenses include unreimbursed costs for medical care as defined in IRC Section 213, such as doctor visits, hospital care, prescription drugs, dental and vision care, and prescribed over-the-counter medications. Insulin qualifies even without a prescription. Do not include expenses reimbursed by insurance, costs paid before your HSA was established, or insurance premiums except for long-term care insurance, COBRA continuation coverage, health care coverage while receiving unemployment compensation, or Medicare premiums if you were age 65 or older.
Step 12: Calculate Taxable Distributions
Subtract line 15 from line 14c and enter the result on line 16. This is your taxable HSA distribution. Include this amount in your gross income on Form 1040. If line 16 is greater than zero, you may owe an additional 20% tax unless you qualify for an exception. Maintain receipts and documentation for all qualified medical expenses, as you will need to provide them if audited.
Step 13: Determine Additional Tax Liability
If you have a taxable distribution on line 16, determine whether you qualify for an exception to the 20% additional tax. Exceptions apply if the distributions were made after you died, became disabled, or reached age 65. If no exception applies, calculate the additional tax by multiplying line 16 by 0.20 and enter the result on line 17b. Indicate in the box on line 17a if any exception applies. Report the additional tax on Form 1040, line 62, box c, and enter “HSA” as the code.
Step 14: Report Last-Month Rule Violations
Complete Part III of Form 8889 if you failed to maintain HDHP coverage during the testing period after using the last-month rule. The last-month rule allows you to contribute the full annual amount if you were an eligible individual on December 1, 2016, treating you as eligible for the entire year. However, you must remain eligible through December 31, 2017 (the testing period). If you failed to maintain eligibility during this period (except due to death or disability), calculate the income inclusion on line 18 and the 10% additional tax on line 19.
Step 15: File Required Forms and Maintain Records
Attach Form 8889 to your Form 1040 or Form 1040NR. If you received HSA distributions during 2016, you must file Form 8889 even if you have no other filing requirement. If you and your spouse both have HSAs, you must complete a separate Form 8889 for each of you. Keep all Forms 1099-SA, 5498-SA, and receipts for qualified medical expenses for a minimum of three years. Remember that HSA funds carry over year to year and remain available for future qualified medical expenses, even after you are no longer eligible to contribute.
Key Reminders for 2016 Filing
The deadline for making HSA contributions for tax year 2016 is April 18, 2017 (extended from the usual April 15 due to Emancipation Day). Contributions made by this date can be designated for 2016 or 2017. You cannot create or deduct HSA contributions for any month you were enrolled in Medicare or could be claimed as a dependent on another person’s tax return. Over-the-counter medications were required to have a prescription in 2016 to qualify as medical expenses, except for insulin. Maintain detailed records of all transactions, as the burden of proof for qualified medical expenses rests with you as the account holder.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
