Do contributions to a Health Savings Account (HSA) need to be reported when filing taxes?

[ta_nyc]

Every year I max out my contributions to my Health Savings Account (HSA). For 2022, my total contributions were $3,649.98. I was not aware that when filing taxes that contributions to a HSA needed to be reported to the IRS. I also did not know deductions from a HSA for medical related expenses also needed to be reported to the IRS. Apparently, Tax Form 8889 should be filed for theses sorts of transactions. I will make sure to complete Tax Form 8889 going forward. However, in the years I did not do this, what are the consequences? Were my contributions not considered tax free?

[DawnC]

If you made the contributions through an employer (most people do), those contributions were reported in Box 12 with a Code W.   As long as you entered those amounts when you prepared your taxes, TurboTax will automatically include those amounts on Form 8889 and generate the applicable tax credit.   For the distributions - and as long as the distributions were used for qualified medical expenses, the amounts are not taxable anyway.    You get form 1099-SA for distributions which you will enter into TurboTax.    

[ta_nyc]

Thank you. What is a 1099-SA? How do I secure a copy of a 1099-SA? Who is sending this to me and by when should I receive it by? In 2022, I used contributions from my HSA to fund medical expenses of $377.55. I saved all my receipts. How do I report this distribution if I have not received a 1099-SA?

[MarilynG1]

You should a Form 1099-SA from your HSA Plan Administrator when distributions are made from your plan for Medical Expenses.

In the HSA section in TurboTax, you can enter the amount of Medical Expenses you paid with an HSA Distribution (even if you didn't receive a 1099-SA).   

As mentioned above, it is not a taxable event in either case; it is just reporting.  Continue saving your receipts.

Here's more detailed info on HSA's.

@ta_nyc 

[ta_nyc]

Thank you so much! I understand now.

[Opus 17]

We don't know what you did in the past.  You will need to review your prior tax returns.  You may need to file amended returns to report the expenses and contributions even if it does not change your taxes.

Contributions made by payroll deduction are reported on your W-2 and should be automatically captured by any tax software and added to form 8889.  Extra contributions you make out of pocket are reported on s separate line of form 8889.  You must file the form to certify that you were enrolled in an eligible HDHP.   Without that certification, the IRS may assume your contributions are ineligible and send you a bill for taxes and penalties.

You must also report your withdrawals from an HSA on form 8889, and certify they were used for qualifying medical expenses.  If you don't certify the withdrawals, the IRS may assume your withdrawals are not qualified, and will send you a bill for taxes and penalties.

The overall point is, the IRS doesn't have to assume anything in your favor (like the fact your expenses are allowable).  You have to put it all in writing. 

[ta_nyc]

If I forgot to self report 2020 distributions I took from my HSA to pay for medical expenses can I still file today? What happens if I fail to self report? Does the IRS send me bill? What does this look like? If I receive a bill from the IRS, can I share receipts for medical expenses to avoid paying bill?

[Opus 17]

@ta_nyc 

If you failed to report distributions taken in 2020 on your 2020 tax return, you would address that now by filing an amended 2020 tax return.  It won’t change your tax owed, but it would include a form 8889 that would report the distributions and certify that they were all used for qualified medical expenses.  Exactly how you amend will depend on what version of the program you used in 2020. If you did not use TurboTax in 2020, you can prepare an amended return manually, or you can use TurboTax, but it will be a little more complicated. Please let us know if you need more instructions.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-return/amend-change-correct-return-a...

(In fact, if the only thing you need to do is to include form 8889, and you have a printed copy of your original 2020 return, it would be fairly simple to manually prepare the amended return.)

if you don’t file the amended return, then eventually, the IRS should contact you about the discrepancy. (I’m surprised they haven’t done so already, I suppose they are still backlogged from the pandemic. Their computer system should automatically detect that you have a 1099 reporting a distribution without a matching form 8889 on your tax return.)  The IRS is likely to send a letter that says something like, you failed to report income from your HSA. We propose assessing a certain amount of tax plus penalties and interest. If you agree with the tax assessment, mail us a check. If you disagree with the tax assessment, you have 30 days to write us a letter explaining the situation.

At that point, you would answer back explaining that your HSA distribution was used for qualified medical expenses, but that you forgot to include form 8889. You could include a copy of form 8889 and a letter with your signature on it, that might be satisfactory for the IRS. They might or might not want to see actual medical bills, and they might or might not want you to actually file an amended return.  (With the first letter, I would not send copies of actual medical bills, but I would send a list or spreadsheet of expenses that matches the HSA distribution. Let the IRS inform you if they want to see the actual bills.)

[JohnB5677]

If I forgot to self report 2020 distributions I took from my HSA to pay for medical expenses can I still file today? 

• Yes, you can file your 2022 tax return.  However, if you did have HSA distributions, please include them.
• After you check off that you have an HSA, almost the first screen is asking if you spent any money out of the HSA. Answer "yes", and enter your 1099-SA information in the subsequent screens.
• Also, if you know you've made an error on your 2020 tax return, you can file an amended return.

What happens if I fail to self report?

• The IRS will identify the distribution and deem it taxable income.

Does the IRS send me bill? 

• They may prepare a bill, or just send you an inquiry.  If they do send a bill, it will always be for the most tax possible.

What does this look like?

• It will be an official IRS form.  Probably a CP (something).  It will possibly have a contact number and a name in the top right side.

If I receive a bill from the IRS, can I share receipts for medical expenses to avoid paying bill?

• Yes, you will need documentation for the medical bills you paid, but do not do anything until you've contacted the IRS and they give you guidance.