Understanding the tax benefits of your HSA is easy

An HSA provides triple tax savings — the money you contribute to your HSA goes in, grows and comes out income tax free when used for qualified medical expenses. Account earnings from interest and investments are also tax free.

You can use your pretax HSA dollars to cover thousands of qualified health expenses like doctor visits, cold medicine, first aid kits, sunscreen, prescription refills and more.

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You can save even more by shopping at Optum Store. Use code OPTHSA5 with your HSA to receive a 5% discount.

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The HSA contribution deadline is the same as the tax filing deadline for that plan year, typically April 15. Some states or areas of the country may have more time due to local holidays or natural disaster extensions. Contact the IRS or your tax advisor for information.

See annual contribution limits

If you do make excess contributions, you can avoid being penalized by completing an Excess Contribution and Deposit Correction Request Form to have excess funds returned to you. This and other account forms are available after you sign in.

It’s up to you to maintain records to verify that funds were used for qualified medical expenses. Funds used for nonqualified expenses will be taxed as income and subject to a 20% penalty.

If you mistakenly use your HSA for a nonqualified expense, you can return the funds to your HSA to avoid the penalty. Sign in to your account and download the Withdrawal Correction Form. Optum Financial must receive it by the tax filing deadline.

If you're 65 or older or enrolled in Medicare, you can use your HSA for nonmedical expenses without incurring a tax penalty. Those distributions will be treated like retirement income and will be subject to normal income tax.

There are three IRS tax forms you need to be aware of:

• Form 1099-SA shows the amount of money you spent from your HSA during the tax year.
• Form 5498-SA shows the amount of money contributed to your HSA for the tax year.
• Form 8889 is the form you fill out and submit with your tax return.

To download your tax forms, simply sign in to your account online.

Form 1099-SA shows the amount of money you spent from your HSA during the tax year. It is typically available at the end of January. It will be posted to your account online and mailed, if you chose that option.

Additional information about IRS Form 1099-SA:

• Box 1 includes your total distributions for the tax year.
• Box 2 shows any earnings on the excess while it was in the account.
• Box 3 shows the distribution code. Different codes will display depending on the situation. Code 1 summarizes all reportable distributions made during the year. This does not include fees or investment losses as these are not reportable. Code 2 reports any excess contribution corrected that were processed against your account. For all other code descriptions, please contact a tax professional.
• Any corrections processed before January 1 of next year are reflected on this form. However, any corrections processed during the next year will generate a corrected tax document.
• If you had any contributions that apply to the tax year, you’ll also get tax form 5498-SA.

Form 5498-SA shows the amount of money contributed to your HSA for the tax year. It is also typically available around the end of January. If you contribute in the new year for the previous tax year, you will get another 5498-SA form in May.

Additional information about IRS Form 5498-SA:

• Box 2 shows your total contributions made for the tax year, including those made for the previous year, if applicable.
• You have until this year's tax filing deadline to submit contributions for the tax year. If you make any contributions in the new year before that deadline, you will receive an updated 5498-SA in May.
• To get your total contributions for the tax year, add Box 2 plus Box 3. Note that if this includes contributions for the previous year, you need to review your updated 5498 for that year and subtract Box 3.
• The Fair Market Value consists of your HSA cash balance and any investment balance as of December 31 of the tax year.
• If you had a reportable distribution for the tax year, you’ll also get tax form 1099-SA. If you did not use (no distributions) your HSA in the tax year, you will not get a 1099-SA.

You need to file IRS form 8889 with your income taxes to report contributions and distributions from your health savings account (HSA). Use your 1099-SA form for the distribution activity and your December bank statement for contributions. IRS form 5498-SA should be retained for your records, but is not required as part of your tax return.

Form 8889 can be downloaded from IRS.gov at any time.

If the contributions shown on your W-2 don’t match your Form 5498-SA, you probably made after-tax contributions or contributions between January 1 and tax day for the previous tax year.

In addition to Forms 1099-SA, 5498-SA and 8889, it's important to keep track of your spending in case you need to prove funds were used for qualified medical expenses. It’s up to you to do this and to report any funds used for nonqualified medical expenses.

Each state can decide to follow the federal tax guidelines for HSAs or establish its own. State law is subject to change. For up-to-date information, talk with a tax advisor regarding your state’s rules or visit your state’s department of revenue office.

The following states tax both HSA contributions and earnings (interest and capital gains):

• California
• New Jersey

Consult your financial advisor or state department of revenue for more information.

The following states do not have state income tax, which means there are no income tax deductions for HSA contributions:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

However, New Hampshire and Tennessee tax HSA earnings (interest and dividends) if you make a taxable withdrawal from your account.