How to Deduct HSA Contributions on Your Tax Return

A Health Savings Account (HSA) offers significant tax advantages for managing healthcare costs. Designed for individuals with high-deductible health plans, HSAs allow tax-deductible contributions, tax-free growth of funds, and tax-free distributions for qualified medical expenses. This triple tax advantage makes HSAs a valuable tool for optimizing healthcare savings and reducing your tax burden.

Understanding Your Eligibility for HSA Deductions

To contribute to an HSA and deduct contributions, you must meet specific IRS criteria. You must be covered by a High Deductible Health Plan (HDHP) on the first day of the month you contribute. For 2025, an HDHP requires a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. Annual out-of-pocket maximums cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

Other conditions apply beyond HDHP coverage. You cannot have other health coverage that is not an HDHP, with exceptions for vision, dental, or specific accident insurance. Individuals enrolled in Medicare are not eligible to contribute. You also cannot be claimed as a dependent on someone else’s tax return.

The IRS sets annual contribution limits based on coverage type. For 2025, the maximum contribution is $4,300 for self-only HDHP coverage and $8,550 for family HDHP coverage. An additional $1,000 catch-up contribution is allowed for individuals age 55 and over by year-end. These limits apply to all HSA contributions, including employer contributions.

Key Documents for HSA Tax Reporting

Several tax documents are important for accurate HSA reporting. Form 5498-SA reports total contributions made to your HSA for the year. Your HSA trustee or custodian issues this form, which includes contributions made through the tax filing deadline of the following year, designated for the prior tax year.

Form 1099-SA details any distributions from your HSA during the year. Your HSA trustee provides this form, which reports the gross amount distributed, regardless of its use for qualified medical expenses.

Your Form W-2 plays a role if your employer contributes to your HSA. Employer contributions, including payroll deductions, are reported in Box 12 of your W-2 with Code W. These pre-tax amounts are excluded from your taxable wages and included in your overall contribution limit.

Calculating and Reporting Contributions on Form 8889

Form 8889 is the primary document for calculating and reporting your HSA contributions and deduction. Part I addresses contributions and the resulting deduction. On Line 2, enter any personal contributions made directly to your HSA, including those made before the tax filing deadline for the prior year.

Employer contributions, reported in Box 12, Code W of your Form W-2, are entered on Line 9 of Form 8889. The form guides you in calculating your maximum allowable contribution based on your HDHP coverage and eligibility. This calculation accounts for annual contribution limits, including catch-up contributions for those age 55 and over.

If contributions exceed the annual limit, Form 8889 identifies the non-deductible portion. Excess contributions are subject to an excise tax, calculated on Form 5329. The net deductible amount, your allowable HSA deduction, is determined on Line 13 of Form 8889. This amount is then carried over to your main tax return.

Reporting HSA Distributions and Penalties

Reporting HSA distributions involves completing Part II of Form 8889. The total distributions received from your HSA during the year are reported on Line 14a, obtained from Box 1 of your Form 1099-SA.

Report qualified medical expenses paid using HSA distributions on Line 15. The IRS broadly defines qualified medical expenses to include costs for medical, dental, vision care, prescription drugs, and certain health insurance premiums like COBRA or long-term care. Maintain thorough records to substantiate these expenses.

Distributions not used for qualified medical expenses are taxable income, reported on Line 16 of Form 8889. A 20% additional tax typically applies to these distributions if the account holder is under age 65, not disabled, and not deceased. Exceptions exist for distributions made after reaching age 65, becoming disabled, or upon death.

Finalizing Your HSA Deduction on Form 1040

The final step in deducting HSA contributions involves transferring the calculated deduction to Form 1040. The deductible amount from Form 8889, Part I, Line 13, is carried over to Schedule 1 (Form 1040), Line 13, labeled “HSA deduction.”

Schedule 1 summarizes income adjustments. The total from Schedule 1, Part I, including your HSA deduction, transfers to Form 1040, Line 10, contributing to your Adjusted Gross Income (AGI). The HSA deduction is an “above-the-line” deduction, directly reducing your AGI, which can impact other tax calculations or credit eligibility.

Taxable distributions from your HSA, calculated on Form 8889, Part II, Line 16, are reported on Schedule 1 (Form 1040). These amounts are entered on Line 8b of Schedule 1, under “Other income.” Form 8889 must be attached to your tax return when filed.