HSA and tax filing

[yashK]

Hi

I am planning to enroll myself and family in HSA-HDHP plan. My employer also contributes some amount to HSA plan. I want to know if we reach the HDHP out of pocket maximum and we pay that money through HSA, do we need to declare anything while filing taxes. Do we need to preserve the receipts of the payments we made. Does my HSA bank give me any document giving details about the money I take out from HSA account.

[Opus 17]

You may use funds in an HSA for any qualified medical expenses for yourself, your spouse or your dependents, regardless of whether you have met the deductibles in your insurance plan.  The deductibles determine whether your plan is eligible for HSA contributions, but do not control when you may spend funds.

On your tax return, you must report your withdrawals (you will get a tax statement from the HSA bank called a 1099-SSA).  Turbotax will ask if all the withdrawals were spent for qualified medical expenses, if you say yes, the withdrawals are not taxed, and if you say no, the withdrawal is subject to income tax plus a 20% penalty.  

You are responsible for proving, if audited, that you only requested reimbursement for qualified medical expenses. You do not send receipts to the IRS with your tax return, but you should keep your receipts and other records for 3 years.  The HSA bank may not may not ask for proof to go with your expenses, but you must keep your own records.   

The HSA bank must issue a 1099-SSA in January to report your withdrawals, and must issue a form 5498-SSA to report your contributions, that's usually not issued until May, and you will need to use your own records to report your contributions on your tax return.  The HSA bank may also issue monthly or quarterly statements like any other bank, that will depend on the bank.

In addition to reporting withdrawals on your tax return, you must also report contributions, and there will be a check box to certify that you are enrolled in a qualified HDHP.  If your only contributions come from payroll (whether it's your money or an employer contribution) that will be on your W-2 and automatically detected by the program.  There is also a place in the program to manually enter contributions, the only thing you will enter here is extra contributions made outside of payroll, don't enter your payroll contributions again. 

[yashK]

Thank you so much for the detailed response @Opus 17 . My spouse previously had a HSA account in the past when she enrolled in HDHP plan before we were married. She never used that HSA money and still have some money in that account. Just want to confirm, I can still open a new HSA account, add her in my HDHP plan and use my HSA money for my as well as her medical bills. She plans to decline medical coverage from her employer for next year and will only have my family medical insurance.

Also, can we use her old HSA account next year for medical bills.

[Critter-3]

I can still open a new HSA account  YES  

add her in my HDHP plan  YES 

and use my HSA money for my as well as her medical bills  YES

Also, can we use her old HSA account next year for medical bills.  YES

[Opus 17]

@yashK 

Once a person has money in an HSA, they may spend it at any time for qualified medical expenses for the account holder, their spouse, or their dependents, even if they are no longer eligible to contribute.  So, yes, your spouse may request reimbursement from her old HSA for any current medical expenses.  They do not have to wait until next year if you have eligible expenses now.  

If you enroll in a family HSA-eligible HDHP now that includes your spouse, then you may open an HSA and make tax free contributions up to the family limit. It does not matter if your spouse has overlapping non-HSA eligible insurance, unless that insurance covers you as a secondary beneficiary.  If you have any secondary medical coverage, and that includes a spouse’s FSA (but not HSA) then you are not eligible to make tax-free contributions as long as that secondary coverage exists.  

If you are eligible to contribute to an HSA on December 1, then you could contribute up to the annual family maximum of $7300 for the calendar year 2022, by relying on the “last month rule.”  The last month rule says that if you are eligible on December 1, you may make a full years’ worth of contributions, as long as you maintain full eligibility for the entire next year.  (If you use the last month rule to make a large contribution for 2022 and then you lose your HSA eligibility in 2023, your 2022 contributions will retroactively be determined excess contributions and you will be subject to a penalty.)   You have until April 15, 2023, to make tax deductible contribution for 2022. If you have some payroll contributions in 2022 but not enough to fill the maximum, you can make extra out-of-pocket contributions from your checking account and then take a tax deduction on your tax return. Make sure you tell the HSA bank that the deposit is for the 2022 tax year instead of the 2023 tax year, this will be a selection on the website when you make the deposit.