Health Savings Accounts (HSAs)are becoming the norm when it comes to health insurance. Unlike health insurance, a health savings account works similar to an individual retirement account. There are two parts to a health savings accounts. Contributions and Distributions.
Contributions are the amounts you and your employer put into the health savings account. Distributions are the expenses you pay out of your health savings account.
Contributions paid your employer will show up on the W-2 box 12 with a code “W” and the amount of the HSA contributions. Distributions are reported on Form 5498-SA.
Once you have these two pieces of information, then you are ready to prepare the IRS Form 8889. The distribution portion of the HSA is very important because the distributions tie into the un-reimbursed medical expenses.
HSA contributions are pre-taxed. Distributions that are used for un-reimbursed medical expenses are taxable.
So it’s very important that when you have HSA’ distributions that you enter the amount of your un-reimbursed medical expenses on the Form 8889. Otherwise, your HSA distribution is taxable.
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