Are HSA Contributions Reported on W-2?

A Health Savings Account (HSA) functions as a tax-advantaged savings account specifically designed for healthcare expenses. It is available to individuals enrolled in a high-deductible health plan (HDHP), providing a way to save and pay for qualified medical costs with potential tax benefits.

How HSA Contributions Appear on Your W-2

Contributions made to a Health Savings Account through an employer’s payroll system are reported on your Form W-2. These amounts are listed in Box 12 of the W-2, identified by Code W. This code encompasses all contributions made through payroll, including both the employer’s contributions and any pre-tax contributions an employee chooses to make via payroll deductions.

These contributions, when made through a payroll deduction, are excluded from federal income tax calculations. They are also exempt from Federal Insurance Contributions Act (FICA) taxes, which include Social Security and Medicare taxes. This pre-tax treatment means the money goes into your HSA before these taxes are calculated, reducing your taxable income for the year. The exclusion from FICA taxes is a distinct advantage of payroll contributions compared to direct contributions.

Reporting Contributions Made Directly

Contributions an individual makes directly to their Health Savings Account, without using an employer’s payroll deduction system, are not reported on Form W-2. These direct contributions are still tax-deductible, allowing you to reduce your taxable income. You must report these contributions yourself when filing your annual income tax return.

To claim the deduction for direct contributions, you will use IRS Form 8889. This form is used to report all HSA activity for the year, including contributions, distributions, and any rollovers. Properly completing Form 8889 ensures that your direct contributions are accounted for and the appropriate deduction is applied to your federal income tax.

Overall Tax Benefits of HSA Contributions

HSA contributions offer several tax advantages, often referred to as a “triple tax advantage.” First, the contributions themselves are tax-deductible, whether made pre-tax through payroll or as a direct contribution deducted on your tax return. This immediate deduction helps lower your adjusted gross income.

Second, the funds within an HSA grow tax-free over time. Any interest earned, dividends, or investment gains within the account are not subject to federal income tax as long as they remain in the account.

Third, qualified distributions for eligible medical expenses are also tax-free. This means when you withdraw money from your HSA to pay for medical care, prescription drugs, or other qualified expenses, you do not owe federal income tax on those withdrawals.