ACA Reporting
ACA Compliance Lessons Learned From Recent Reporting Seasons
Common themes emerge when reflecting on recent ACA reporting seasons that can help employers reduce administrative burdens and improve accuracy.
Employers
Employees with HSAs Must File Form 8889
Employees who contribute to or take a distribution from an HSA must file Form 8889 with their federal tax return.
As the tax season approaches, employers should remind employees who contribute to a Health Savings Account (HSA) that they must file IRS Form 8889 with their federal tax return. This form is required for reporting HSA contributions and distributions.
What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals save for medical expenses. HSAs are available to individuals enrolled in a high-deductible health plan (HDHP). Contributions to an HSA can be made by the individual, their employer, or both. Funds in an HSA grow tax-free and can be used to pay for qualified medical expenses.
Who is Eligible for an HSA?
To participate in an HSA, an individual must:
- Be covered under an HDHP.
- Not have any other health coverage that disqualifies them, such as certain types of additional insurance.
- Not be enrolled in Medicare.
- Not be claimed as a dependent on someone else’s tax return.
What Can HSA Funds Be Used For?
HSA funds can be used to pay for a wide range of qualified medical expenses, including:
- Doctor visits and hospital care.
- Prescription medications.
- Dental and vision care.
- Mental health services.
- Long-term care expenses.
If HSA funds are used for non-qualified expenses, the amount withdrawn will be subject to income tax and an additional 20% penalty. However, the 20% penalty does not apply to individuals age 65 or older.
What is Form 8889?
Form 8889, Health Savings Accounts (HSAs), is used by HSA account holders to:
- Report contributions to their HSA.
- Report distributions from the HSA for qualified medical expenses.
- Calculate any applicable tax or penalties for non-qualified distributions.
The IRS recently released instructions for the 2024 version of Form 8889, providing updated guidance on how to complete the form. Employers should encourage employees to review these instructions and consult a tax professional if needed to ensure accurate reporting.
A Final Reminder
For employees who contribute to an HSA, filing Form 8889 is a key part of their tax reporting responsibilities. Employers can support their teams by providing educational resources about HSAs and tax filing requirements.
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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
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