HSA Contributions: How to Find Them on Your W-2 Form

One of the most effective and highly advantageous ways to increase your tax deductions and save money for medical expenses is to make HSA contributions.

HSA (Health Savings Account) is a personal savings account that lets you withdraw tax-free funds for healthcare expenses.

This article will discuss the requirements, advantages, and disadvantages of acquiring a health savings account. You will also learn to monitor your contributions on your W-2 form and other related HSA contributions forms.

Key Takeaways

• To qualify for a health savings account, you must be enrolled in a High-Deductible Health Plan (HDHP). You must not be enrolled in any other health savings plan.
• When comparing HSA contributions and Medicare, those who enroll in Medicare coverage automatically lose their HSA eligibility.
• HSA contributions are tax-free for as long as the funds withdrawn are used to cover qualified medical expenses.
• The 2023 limit for HSA contributions is $3,850 (self-coverage) and $7,750 (family coverage). For 2024, the limitations are $4,150 (self-coverage) and $8,300 (family coverage).

What is a Health Savings Account (HSA)?

A health savings account (HSA) is a tax-advantaged personal savings account that enables you to allocate money for qualified medical expenses. With a HSA, you can put aside money pre-tax and ultimately reduce your overhead healthcare costs.

It is important to note that contributions to a health savings account only count if one has a High Deductible Health Plan (HDHP). An HDHP is a health plan that may be used to pay major medical expenses and the costs of preventive services before taxes are deducted.

Examples of qualifying medical or healthcare expenses HSAs cover include ambulance costs, psychiatric care, prescription drugs, acupuncture, qualified long-term care services, and doctor consultations.

Financial institutions, banks, and credit unions typically offer health savings accounts. Employers can set up and provide their employees with the said type of savings account.

Eligible individuals can purchase their coverage in the individual or family market without an employer-sponsored HSA plan. If you bought individual or family coverage, you may contribute individually or have your family members contribute to the plan.

How Do HSA Contributions Work?

Here’s how HSA contributions work:

Your health savings account provides the financial assistance you need to cover qualified healthcare expenses. If you do not use your health savings account for healthcare expenses, you can still use the money in your account as you see fit.

You need not worry about losing the money in your account because, depending on the type of account you purchased and arranged, your contributions can grow over time with the return of investment or interest.`

If you are covered by an HDHP in 2023, you can contribute to your account from 2023 until April 15, 2024.

Regarding taxation, you will receive three documents to aid in reporting your withdrawals, contributions, and possible tax deductions. These documents include IRS Form 1099-SA, Form 5498-SA, and your W-2 form.

The purpose of each tax document is elaborated on in the following section.

How do HSA Contributions Appear on Tax Forms?

Your HSA contributions are reflected on your pay stubs and different tax forms, specifically:

W-2 Form

To report or find your HSA contributions on your W-2 form, look for Box 12. Box 12 is where HSA contributions made via pre-tax payroll deduction are reflected. All HSA contributions withheld through payroll deductions are marked ‘employer contributions’ with the code ‘W.’

Form 8889

The IRS Form 8889 reports contributions to your health savings account, including employer contributions made on your behalf.

Before completing your Form 8889, you must acquire all the necessary information on pre-tax contributions you or your employer made and your annual HSA distributions.

You can get the said information from your W-2 Form and 1099-SA.

Form 1099-SA

Form 1099-SA reports all your health savings account withdrawals within the tax year. You can find your total annual distributions in Box 1 of the said form.

If all your distributions are used to cover qualified medical expenses, then Box 3 on your Form 1099-SA must showcase distribution code no. 1, or the code used to describe regular, tax-free withdrawals.

Form 5498-SA

Form 5498-SA is mainly used for informational purposes.

Box 2 reports the total contributions made in your HSA in 2023, plus all contributions made in 2023 for 2022. Box 3 reports the entire Archer MSA or HSA contributions you made in 2024 for 2023.

Box 4 reports rollover contributions in your health savings account in 2023.

Pay stubs

You can usually find your HSA contributions on your pay stub under the pre-tax deductions column. Contributions to HDHP with a health savings account are the first items deducted from your gross earnings.

HSA Contributions Limits

There are limits to HSA contributions that change annually. The IRS set limitations to prevent eligible individuals from overcontributing to their health savings accounts and incurring penalties.

For 2023, the limits are $3,850 for self-contributions and $7,750 for family contributions.

For 2024, the limits are $4,150 for self or individual contributions and $8,300 for family coverage. Meanwhile, the allowed catch-up contributions for people aged 55 and above remain $1,000.

HSA Contributions Eligibility

The IRS has set a list of eligibility standards to qualify for a HSA:

• You must not be enrolled in Medicare or any other type of health coverage
• You must have a qualified High Deductible Health Plan (HDHP)
• You must not have been claimed or declared dependent on another taxpayer’s return

The qualifications listed above mean that, for 2023, your HSA-eligible plan must have a maximum out-of-pocket of $15,000 for family coverage and $7,500 or less for self-only coverage.

Also, regarding the minimum annual deductible amount, your health plan must have at least $3,000for family coverage and $1,500 for self-only coverage.

HSA Contributions Deadline

The deadline for HSA contributions typically follows the same due date imposed by the IRS for filing taxes. That means for the 2023 tax year, you have until April 15, 2024, to contribute to your health savings account.

This year, the contributions deadline was set for April 18, 2023.

Special Considerations for HSA Contributions

There are special considerations for HSA contributions, and these are:

• If you have yet to reach your maximum contribution limit by the end of the year, you can make additional contributions before the last day of the year. If you make your contributions before the deadline, your contributions will still count.
• You can take your account if you leave your job. You can keep your HSA at your current provider or move your account to a new one.
• Those who pay qualified medical expenses the same amount as the set deductible for your health plan will split the coverage for additional qualified medical expenses with the plan holder.

5 Benefits of Making HSA Contributions

Below are some of the most notable advantages of contributing to a health savings account:

• Lowers payroll and federal taxes for employers. When employers make pre-tax payroll contributions, it reduces their payroll tax liability. The same effect happens when employers also contribute to their employees’ HSAs since contributing to employee HSAs excludes contributions to the employer’s HSAs. As such, contributions are not subject to FICA and federal income taxation. Furthermore, employers can deduct their taxes using their HSA contributions by adding them to their business costs.
• Boosts employee satisfaction. Health savings accounts for employees prove helpful when they encounter a medical emergency or need extra funding to cover their healthcare needs. Also, HSA contributions are tax-deductible, particularly on employees’ tax returns.
• No Use It or Lose It policy. One advantage of HSA vs. FSA (Flexible Spending Account) is that the Use it or Lose it rule does not apply to your HSA contributions. You can continuously invest in your HSA, and all unused HSA funds roll over to the following year.
• Offers complete control over funds. You have full control over what to do with your HSA funds. Whether you save or spend it, the money is yours to consume, invest, liquidate, or transfer to another HDHP.
• It helps save for retirement. By the time you reach 65, you can use the money in your health savings account to cover eligible medical expenses without worrying about taxes. You can also use your HSA contributions to cover other costs and not incur penalties.
• Boosts employee satisfaction. Health savings accounts for employees prove helpful when they encounter a medical emergency or need extra funding to cover their healthcare needs. Also, HSA contributions are tax-deductible, particularly on employees’ tax returns.

4 Potential Downsides of Making HSA Contributions

There are also a couple of disadvantages and limitations that counter the benefits you can experience when making HSA contributions.

These disadvantages include:

• Limited availability. Only some people are qualified to contribute to a health savings account. You must have a high-deductible health plan to be eligible.
• Taxes and penalties. While HSA contributions help reduce employers' tax liabilities and offer tax-free withdrawals, it becomes a different story if you withdraw contributions for non-qualified medical expenses.
• Record-keeping is a must. Maintaining all essential records tied to your HSA contributions and withdrawals is crucial. Documenting all transactions in your HSA proves helpful when you need to prove that you used the funds exclusively for qualified healthcare costs.
• Possible fees. Unfortunately, some health savings accounts charge monthly or per-transaction maintenance fees that often cost more than the potential interest earned by your account.

Final Thoughts

Contributing to an HSA is a must if you want to reduce your taxes while having a trustworthy source of funds to cover your medical expenses.

Remember the pros and cons of making HSA contributions and the essential tax forms you must fulfill to keep your account records updated and prevent unnecessary penalties.