HSA tax benefits
It's always good to remember the HSA triple-tax benefit, which can be handy information when employees prepare to file their taxes.
- Reduce taxable income - HSA contributions through payroll are made pre-tax, which lowers tax liability on paychecks. Manual contributions are tax deductible when filing taxes each year.
- Tax-free earnings - Interest growth earned on HSA funds is never taxed.
- Tax-free distributions - HSA funds are not taxed when used for eligible expenses.
How much can be contributed to an HSA?
The IRS does set up annual contribution limits so only a certain amount of money is eligible to claim these benefits.
The table below displays the current HSA contribution limits. Current contribution information can be found on the U.S. Department of Treasury website at treas.gov.
|Tax Year||Individual Coverage Limits||Family Coverage Limits|
Once age 55, members can contribute an additional $1,000 towards their HSA (either individual and family coverage).
Can employees still make HSA contributions for the last tax year?
The deadline to make HSA contributions in most states for the 2022 tax year was May 17th, 2021. Due to severe winter storms, members in Texas, Oklahoma, and Louisiana were able to make contributions through June 15th. Typically, the IRS allows members to make HSA contributions for a tax year through the next year's tax filing deadline, typically April 15th.
As of right now, members can only make contributions for the 2021 tax year, and they can do so through April 15th, 2022.
To make a contribution, they can log in at CapitalBlueCross.com and click Make a Deposit to transfer funds directly from their bank account. Or, they can send a check with a contribution form to Further.
How much have they already contributed for the current year?
They can log in to see their most recent statement. The statement should include how much has been contributed for 2023.
Sign in at CapitalBlueCross.com and click Login in the top right corner. Enter your username and password and click Sign In. Click the Account Summary link in the middle of the page, directly below your account balance.
Choose the Accounts tab and click on Statement to generate a tax year statement.
What if they over-contributed to their HSA?
Any contributions over the IRS’s limit for the year are excess contributions. A six percent excise tax is imposed on the account holder for excess individual or employer contributions for each tax year.
If an upcoming employer contribution will go over the limit, they must make every reasonable effort to notify the employer before the contribution is made.
If excess contributions have been made, the employee won’t pay a six percent excise tax on the excess amount if they:
- Withdraw the excess contributions by the due date of the tax return and
- Withdraw any earnings on the withdrawn contributions and include the earnings in “other income” on the tax return for the year
To withdraw the excess contribution, the employee can sign in at hellofurther.com and click Submit a Claim. Choose HSA Withdrawal Request and the distribution type Excess Contribution. Further will compute the taxable earnings on the excess contributions for them on their next 1099-SA IRS reporting. If contributions are made with pretax dollars, then both the withdrawal and the earnings are included in their taxable income.
What documentation do they need for the HSA when they file their taxes?
Employees will be mailed two forms each year:
- Form 1099-SA reports any withdrawals made in a tax year by January 31 each year.
- Form 5498-SA by May 31 each year reports contributions made for a specific tax year.
They are responsible for keeping records to support withdrawals and to complete Form 8889 and attach it to Form 1040 when they file their taxes.
Employees should hang on to receipts from HSA purchases. They don't need to submit them when they file their taxes but the IRS does require them to hold on to their receipts for seven years in case they are audited.
If they have any questions, call Capital Blue Cross customer service at 877.293.7041.