Health Savings Accounts
by Caleb Reading
I have an HSA. It’s not a flex plan. The money is mine, in a high-interest savings account, and it rolls over every year. I put before-tax dollars into it, then keep track of all my eligible expenses throughout the year. I charge them to a 0% credit card (paying the minimum plus $1) while the HSA money compounds at ~5%. Since the checks are expensive, I write myself one check for the year’s medical expenses at the end of the year, and keep an itemized list (with receipts) of what the check is for with my tax papers in case of an audit. In the meantime, I’m pocketing interest. So far, no problems.
One thing to pay attention to, for tax purposes, is if your employer appears to be depositing the money or if you are. If you both take a tax deduction on it, that’s going to raise some red flags.
Contributions made by your employer are not included in your income. Contributions to an employee’s account by an employer using the amount of an employee’s salary reduction through a cafeteria plan are treated as employer contributions. You can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income.
Contributions by a partnership to a bona fide partner’s HSA are not contributions by an employer. The contributions are treated as a distribution of money and are not included in the partner’s gross income. Contributions by a partnership to a partner’s HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner’s gross income. In both situations, the partner can deduct the contribution made to the partner’s HSA.
Contributions by an S corporation to a 2% shareholder-employee’s HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee’s gross income. The shareholder-employee can deduct the contribution made to the shareholder-employee’s HSA.
Form 8889. Report all contributions to your HSA on Form 8889, Health Savings Accounts (HSAs), and file it with your Form 1040. You should include all contributions made for 2006, including those made by April 17, 2007, that are designated for 2006. Contributions made by your employer are also shown on the form.
You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. Your employer’s contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. Follow the instructions for Form 8889. Report your HSA deduction on Form 1040, line 25.
Isn’t the IRS just so much fun?
Some more links:
HSA-related tax forms and publications: