Form 8889 (2020)—Health Savings Account Contributions and Distributions Checklist
Purpose
Form 8889 reports 2020 HSA contributions, distributions, and qualified medical expenses. It reconciles HDHP coverage status and computes the 20% additional tax on non-qualified distributions and the 10% additional tax on amounts included in income due to failure to maintain eligible status during testing periods.
Required Steps
Step 1: Verify HDHP Coverage Status
Determine your HDHP coverage type for 2020. Check the appropriate box on line 1 based on your coverage. If you had the same coverage (self-only or family) on the first day of every month in 2020, you can use the full-year contribution limits. If your coverage changed during the year, you must calculate prorated monthly limits using the worksheet in the 2020 instructions.
Step 2: Report Your Personal HSA Contributions
Enter on line 2 all HSA contributions that you or others on your behalf made for 2020, including contributions made between January 1, 2021, and April 15, 2021, that were designated for tax year 2020. Do not include employer contributions (including those made through a cafeteria plan), rollovers from another HSA or Archer MSA, or qualified HSA funding distributions on this line.
Step 3: Determine Your Contribution Limit
Enter your applicable maximum HSA contribution limit on line 3. For 2020, the limits are $3,550 for self-only coverage and $7,100 for family coverage. These base amounts apply to individuals under the age of 55 as of December 31, 2020. If you were not an eligible individual for all 12 months, or if your coverage type changed mid-year, use the Line 3 Limitation Chart and Worksheet in the instructions to calculate your prorated limit based on eligible months.
Step 4: Subtract Archer MSA Contributions
Report on line 4 any contributions made by you or your employer to an Archer MSA during 2020. If you or your spouse had family HDHP coverage at any time during 2020, include your spouse’s Archer MSA contributions as well. Subtract line 4 from line 3 and enter the result on line 5. If the result is negative, enter zero.
Step 5: Allocate Family Coverage Limits for Dual-HSA Households
If you and your spouse each have separate HSAs and either of you had family HDHP coverage at any time during 2020, you must allocate the family coverage limit between spouses. Use the allocation worksheet in the 2020 instructions and enter your allocated share on line 6. If you are single or have self-only coverage, enter the amount from line 5 on line 6.
Step 6: Add Catch-Up Contributions for Age 55 and Older
If you were age 55 or older on December 31, 2020, you may be eligible for an additional catch-up contribution. If you are married and either you or your spouse had family coverage at any time during 2020, use the Additional Contribution Amount Worksheet in the instructions to calculate your catch-up amount and enter it on line 7. The maximum catch-up contribution is $1,000 per eligible spouse age 55 or older. If you are unmarried with either self-only or family coverage, the catch-up amount was already included in your line 3 calculation.
Step 7: Calculate Your HSA Deduction
Add lines 6 and 7 to calculate your total contribution limit, as shown in line 8. On line 9, enter employer contributions to your HSA (reported in Box 12 of Form W-2 with code W), adjusted for any contributions made in the wrong year using the Employer Contribution Worksheet. On line 10, enter any qualified HSA funding distribution from an IRA. Add lines 9 and 10 to get line 11, then subtract line 11 from line 8 to arrive at line 12. Enter the smaller of line 2 or line 12 on line 13. The result is your HSA deduction, which you report on Schedule 1 (Form 1040), Part II, line 12.
Step 8: Report Total HSA Distributions
On line 14a, enter the total distributions you received in 2020 from all HSAs you owned during the year. This amount should match Box 1 of Form 1099-SA from your HSA trustee. On line 14b, enter any amounts that were rolled over to another HSA within 60 days and any excess contributions (plus earnings) that you withdrew by the return due date. Subtract line 14b from line 14a and then enter the result on line 14c.
Step 9: Calculate Qualified Medical Expenses
On line 15, enter only distributions from your 2020 HSA that you used to pay qualified medical expenses that were not reimbursed by insurance. Include costs for yourself, your spouse, and dependents. Only include expenses incurred after your HSA was established. Qualified medical expenses generally follow the definition in IRC Section 223(d)(2) and include unreimbursed medical care that would be deductible on Schedule A, plus certain over-the-counter medicines and menstrual care products.
Step 10: Determine Taxable Distributions and Additional Tax
Subtract line 15 from line 14c and enter the result on line 16. This amount must be included in your income. If you have a taxable amount on line 16, check whether any exceptions apply on line 17a (death, disability, or reaching age 65). Enter 20% of any amount on line 16 that does not qualify for an exception on line 17b. Report the line 16 amount on Schedule 1 (Form 1040), Part I, line 8, and the line 17b tax on Schedule 2 (Form 1040), Part II, line 17c.
Step 11: Complete Part III If Testing Period Requirements Failed
If you used the last-month rule to maximize contributions or made a qualified HSA funding distribution, you must remain an eligible individual during the testing period (generally 13 months). If you failed to remain eligible (other than due to death or disability), complete Part III of Form 8889. On line 18, enter contributions made using the last-month rule that exceeded what you could have contributed without it. On line 19, enter any qualified HSA funding distribution amounts. Add lines 18 and 19 to determine the amount you must include in income, which is also subject to a 10% additional tax.
Step 12: Report Testing Period Failures
Enter the total from line 20 (testing period income) on Schedule 1 (Form 1040), Part I, line 8. Calculate 10% of line 20 and enter it on line 21, then report this additional tax on Schedule 2 (Form 1040), Part II, line 17c. This penalty applies because you received a contribution benefit under special rules but failed to maintain eligibility as required.
Step 13: Handle Excess Contributions
If you contributed more than allowed (line 2 exceeds line 13), you have excess contributions subject to a 6% excise tax unless withdrawn. To avoid the tax, withdraw excess contributions and any earnings by the return due date (including extensions). Report withdrawn earnings as “Other income” on your return. If excess contributions remain in your HSA at year-end, complete Form 5329 to calculate and pay the 6% excise tax on the excess amount.
Step 14: Verify and Attach Required Forms
Ensure you have completed all applicable sections of Form 8889. If you and your spouse both have HSAs and file jointly, each spouse must complete a separate Form 8889. Combine both spouses’ line 13 amounts and enter the total on Schedule 1 (Form 1040), line 12. Attach both completed Forms 8889 to your tax return. File Form 8889 even if you have no taxable income and would not otherwise be required to file a return.
Step 15: Maintain Records for Future Reference
Keep copies of Form 1099-SA, receipts for qualified medical expenses, records of all HSA contributions and distributions, and documentation of HDHP coverage dates. The IRS may request verification of qualified medical expenses at any time, even years after you take a distribution. Maintain organized records to substantiate that all HSA distributions were used for qualified expenses or properly reported as taxable income.
Important Reminders
Medicare Enrollment: You cannot contribute to an HSA for any month you are enrolled in Medicare, even if you remain covered by an HDHP. Stop HSA contributions six months before applying for Social Security benefits if Medicare Part A coverage will be retroactive.
Dependent Coverage: You can use HSA funds tax-free to pay qualified medical expenses for any person who qualifies as your dependent, even if that person has a gross income exceeding the dependent exemption threshold or files a joint return.
Rollover Limitations: You can make only one HSA-to-HSA rollover per 12-month period. Trustee-to-trustee transfers are not rollovers and have no frequency limitations.
Death of Account Beneficiary: If the surviving spouse is the designated HSA beneficiary, the account remains an HSA. If anyone else inherits the HSA, it ceases to be an HSA as of the date of death, and the fair market value becomes taxable to the beneficiary.
Excess Employer Contributions: If your employer contributed more than your contribution limit, the excess must be included in your gross income unless withdrawn by the return due date. Excess employer contributions are reported as “Other income” on Schedule 1 (Form 1040), Part I, line 8.
Common Errors to Avoid
Failing to file Form 8889 when required, even if you have no taxable income. Incorrectly reporting cafeteria plan contributions on line 2 instead of line 9, and using the last-month rule without understanding the testing period requirement, and claiming HSA deductions for expenses incurred before the HSA was established. Including insurance premiums as qualified medical expenses when they do not qualify. Forgetting to allocate the family coverage limit between spouses when both have separate HSAs. Not adjusting contributions when HDHP coverage changes mid-year or when Medicare enrollment begins.
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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.
