How to Report HSA Contributions on Form 1040

Health Savings Accounts (HSAs) provide tax advantages for individuals with high-deductible health plans, allowing them to set aside pre-tax dollars for medical expenses. Properly reporting HSA contributions on Form 1040 ensures taxpayers receive the appropriate tax benefits and avoid penalties.

Reporting Contributions

HSA contributions must be reported on Form 1040. The total amount, including personal and employer contributions, is recorded on IRS Form 8889, which is attached to Form 1040. Employer contributions, listed in Box 12 of the W-2 with code W, are pre-tax and should not be included in the deductible amount on Form 8889.

Form 8889 calculates the deduction, which is then transferred to Schedule 1, Line 13, before being entered on Form 1040. Contributions made outside of payroll deductions may qualify for an above-the-line deduction, reducing adjusted gross income (AGI), even if the taxpayer does not itemize.

Taxpayers should ensure reported amounts on their W-2 match actual contributions to avoid errors and potential IRS scrutiny. Rollovers from other HSAs or Archer MSAs are not considered contributions and should not be included.

Eligibility Criteria for the Deduction

To qualify for an HSA deduction, the taxpayer must be covered by a high-deductible health plan (HDHP) that meets IRS guidelines. For 2024, an HDHP must have a minimum deductible of $1,600 for self-only coverage or $3,200 for family coverage, with out-of-pocket maximums of $8,050 and $16,100, respectively.

The individual cannot be enrolled in non-HDHP coverage, with limited exceptions such as dental, vision, or preventive care plans. Enrollment in Medicare disqualifies new HSA contributions, though existing funds can still be used for qualified expenses. Dependents claimed on another person’s tax return are also ineligible.

Married taxpayers with separate HSAs can each contribute up to the individual limit. If they have family coverage under one plan, their combined contributions cannot exceed the family limit of $8,300 for 2024. Proper allocation between spouses is necessary to avoid excess contributions and penalties.

Excess Contributions

Exceeding the IRS contribution limits results in excess contributions, which are not tax-deductible and incur a 6% excise tax for each year they remain in the account. For 2024, the maximum contributions are $4,150 for individuals and $8,300 for family coverage. An additional $1,000 catch-up contribution is allowed for account holders aged 55 and older.

Excess contributions can occur due to miscalculating employer contributions, contributing after enrolling in Medicare, or mid-year coverage changes. To avoid penalties, taxpayers can withdraw the excess and any earnings before the tax filing deadline, including extensions. Withdrawn earnings must be reported as income for the year received. If not corrected in time, excess amounts remain in the account and continue to incur penalties.

Potential Penalties

Using HSA funds for non-qualified expenses results in income tax and a 20% penalty on the withdrawn amount. This penalty is waived if the account holder is 65 or older, disabled, or deceased, at which point withdrawals are treated as ordinary income.

Taxpayers must keep records of HSA withdrawals. While receipts are not required when filing taxes, documentation such as receipts, explanations of benefits (EOBs), or bank statements is necessary in case of an audit. If the IRS determines withdrawals were not for qualified expenses, they may be reclassified as taxable income, with penalties applied retroactively.