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A Better Understanding of Form 8889

by Tim Schlotterer

The Health Savings Account (HSA) is an individual tax-advantaged savings account designed to allow you to save for and pay your medical bills.  In addition to completing Form 1040, you may also have to complete Form 8889 and submit it with your tax return.  The purpose of Form 8889 is to report contributions made to your HSA (whether made by you, your employer, or both), and to report distributions made from your HSA.  If you (or someone on your behalf, such as an employer) made contributions to your HSA, received distributions from your HSA, or acquired an interest in an HSA due to death of the account owner during the previous tax year, you must file Form 8889.

To be eligible to have contributions made to your HSA, you must be covered under a high deductible health plan and have no other health coverage except permitted coverage.  If you are an eligible individual, anyone can contribute to your HSA.  You must be considered an eligible individual on the first day of a month to take an HSA deduction for that month.  Therefore, if you are an eligible individual on the first day of the last month of the tax year, you are considered to be an eligible individual for the entire year.

Distributions made to an HSA used exclusively to pay qualified medical expenses of the account beneficiary, spouse, or dependents are excludable from gross income.  Qualified expenses for HSA purposes are unreimbursed medical expenses that could otherwise be deducted on Schedule A of your 1040. You can receive distributions from an HSA even if you are not currently eligible to have contributions made to the HSA.  However, any part of a distribution not used to pay qualified medical expenses is includable in gross income and is subject to an additional 10% tax unless an exception applies.

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