How To Report Contributions To An Employer-Sponsored Health Savings Account
Individuals who have a health savings account are required to file a certain tax form if there is any activity in the HSA during the year. Even if the HSA is completely funded by an employer, the employee still must file the additional form if there is any account activity. Tax filers are sometimes confused about how to report HSA activity due to some of the terminology used on the HSA tax form.
IRS Form 8889 is used to report HSA activity. If you have an HSA funded only by your employer, the inclusion of Form 8889 may sometimes have no direct effect on your Form 1040. In other words, Form 8889 can be required even if no numerical entry from Form 8889 is carried forward to Form 1040.
Employers typically make HSA contributions through an employee benefit program referred to as a cafeteria plan. The employer realizes payroll tax savings on fringe benefits paid through a cafeteria plan. A company-sponsored HSA can be funded solely by the employer, or there can be a cost-sharing arrangement in effect.
Up-front tax benefits of HSA contributions
If you fund a company-sponsored HSA through a cafeteria plan, your contribution is not subject to federal income tax, Social Security tax, or Medicare tax. The confusion in completing Form 8889 often arises because your contribution to a company-sponsored HSA is routed through your employer before reaching the HSA.
Some employees who have an HSA are not certain of how much they contribute to an employer-sponsored HSA. The distinction is not that important, because an employee contribution routed through an employer is not deductible on Form 1040. The tax deduction on Form 1040 for an HSA is for individuals who fund an HSA without going through a cafeteria plan. As a result, nobody receives a double tax benefit.
Form W-2 information
The total contributions to your company-sponsored HSA should be shown in box 12 of your Form W-2. The code "W" should also appear alongside the HSA contribution amount. There is no further breakdown on Form W-2 of employer contribution and employee contribution. Only the total contribution amount is needed, since that is the figure to enter on Form 8889.
Line 9 of Form 8889 is labeled as an employer contribution, but the amount to enter on line 9 is the total HSA contributions that were routed through your company. Form 8889 is designed so that there is no second tax deduction for cafeteria plans.
Form 8889 is also used to report any distributions from an HSA. Contact an accountant or a company like Hough & Co CPA for more information on tax preparation services.