Health savings accounts show up on your Form W-2 in Box 12 using code “W,” which covers all employer contributions to an employee’s HSA. If this amount isn’t included, or it is incorrect, you’ll need to take action to make sure it was reported correctly to the IRS by your employer, as well as file the right amount to the IRS. You’ll first request your employer make the change, but if that doesn’t work, you’ll have to get in touch with the IRS.
If your employer omits HSA information from your W-2, request that they issue an amended W-2 with the information. If this is ineffective, you’ll have to file a W-2 complaint with the IRS.
HSA Omitted From W-2 Form
When you look at your W-2, Box 12 should have a section that lists your HSA contributions along with the letter “W.” This is the code specific to HSA contributions. If no such code exists but you have a figure in that box, your employer may have simply forgotten the code. If the box is blank, though, they likely left your contribution off altogether.
The first step when you notice anything incorrect on your W-2 is to get in touch with your employer. They will need to redo the forms and issue a new W-2, hopefully in plenty of time for you to get your taxes filed ahead of the mid-April deadline. If it’s a previous employer, though, or your employer won’t help, you’ll have to take further action.
Next Steps If Employer Refuses
When there’s no HSA on their W-2 Forms, taxpayers are urged to first try to work with their employer to fix it. By the end of February, if no updated W-2 is in your hands, you’ll need to file a W-2 complaint with the IRS. You can do this by calling 800-829-1040 during IRS business hours or by visiting an IRS Taxpayer Assistance Center.
Once the complaint is on record, the IRS will send a letter to your employer requesting that they provide an updated W-2 Form within 10 days. At the same time, the agency will also send you the paperwork necessary to file a substitute for your W-2, Form 4852, which you’ll use if your employer doesn’t furnish the updated document in time.
Requesting a Wage Transcript
If you need to use Form 4852, it isn’t enough to just tally up your HSA contributions. You’ll also need to make sure it matches what was reported to the IRS. The IRS keeps a wage transcript of everything that is reported on each taxpayer. This may include the amounts reported by your employer that you can then compare to the totals on your W-2.
Unfortunately, though, you may have difficulty getting a transcript for the previous year’s taxes, since this year’s tax information may not be complete until July. If that’s the case, the best you’ll be able to do is pull records on your contributions and report the total. You can check back later to verify it matches what your employer reported.
Taxability of HSA Employer Contributions
You may wonder just how much you’ll owe in taxes on HSA contributions in the first place. The biggest benefit of an HSA is that the money you put in is nontaxable. The employer part of the contribution is nontaxable if it's issued as part of a cafeteria plan. Even if it isn't, though, it's often nontaxable as long as it follows the IRS's strict guidelines for the way it's issued.
There is good news, though. Even if the HSA employer contribution part of your plan is taxable, you’ll be able to deduct the amount you contributed from that. You’ll do this on Form 8889, Health Savings Accounts. Here you’ll also include any employer contributions that were not made as part of a cafeteria plan and determine how much you owe.
HSAs and Cafeteria Plans
Many HSAs are nontaxable all around, though, thanks to a setup called Section 125. This is also known as a cafeteria plan, and it allows an employee to enjoy fully tax-free contributions to an HSA account. Employers often gravitate toward these plans because they can deduct the contributions on their taxes this way.
However, even without a Section 125 plan, employers may make nontaxable contributions to an employee’s HSA. In order to do this, though, the contributions must follow a set of rules, including that they must be distributed fairly. Whether the contributions are through a cafeteria plan or not, they still must be reported.
Employer Contributions and HSA Limit
Due to its nontaxable status, HSA contributions are limited, both for employers and employees. These limits can change from one year to the next, but your benefits plan adviser will likely make you well aware of that cap. The cap includes any HSA employer contribution your company makes. Combined, your contributions for the year cannot exceed the limit.
For 2019, individual coverage for employees caps at $3,500 per year. This was an increase of $50 over 2018. For families, employees can contribute up to $7,000, a $100 increase from 2018. If you’re over the age of 55, you can do a one-time catch-up contribution of $1,000, which was the same maximum in 2018.
Qualified Medical Expenses for HSA
You’ll not only see contributions to your HSA on W-2 statements, but you’ll also need to pay close attention to restrictions on your plan throughout the year. Generally speaking, the money in your HSA can be used to pay for expenses related to the diagnosis, cure, mitigation, treatment or prevention of disease. This includes any copays and medical payments you make that your high-deductible insurance plan doesn’t cover.
The good news is that your HSA will cover things some insurance plans don’t. You can use it to purchase items like eyeglasses and contact lenses, for instance. However, you won’t be able to use it to cover costs like cosmetic surgery, gym memberships or medications ordered from other countries.
Limits on Out-of-Pocket Expenses
In order to qualify for an HSA, you’ll have to sign up for a high-deductible health plan. Whether you receive an HSA employer contribution, or you fully fund the plan yourself, the tax benefits mean you have to follow the IRS’s rules. The minimum deductible that your health plan can have can change, but your employer will likely keep up with that part of it when presenting you with your insurance plan options.
The current minimum deductible for HDHPs is $1,350 for individuals and $2,700 for families. The maximum out-of-pocket expense for HSA plans is $6,750 for individuals and $13,500 for families. Out-of-pocket costs include all those deductibles and copays you pay when you go to the doctor or emergency room or pick up a prescription at the pharmacy.
Other Benefits of an HSA
When you put your money in an HSA, any interest it earns is nontaxable, but it also remains there until you use it. That means if you don’t use it during the current plan year, it rolls over to the next. That makes it a great way to set aside money for future healthcare expenses.
Even when you take the money, though, you’ll enjoy a tax savings. As you use it on healthcare expenses, you, of course, won’t pay tax on that money. However, you’ll also be able to withdraw that money once you reach the age of 65 at no penalty. Prior to that time, nonhealthcare-related withdrawals will be taxed at 20 percent plus taxes.
HSA Owner Deaths and Spouses
During the HSA setup process, you’ll be asked to designate a beneficiary. This designation is important in case something happens to you. If you die with money in your HSA and your beneficiary is your spouse, the account will become an HSA for your spouse, effective the date of your death. This means the spouse will see the HSA on W-2 Forms from that employer from that point forward.
As with the original HSA accountholder, a spouse beneficiary of an HSA can use the money to pay for qualifying medical expenses. If you have outstanding bills, your spouse can also use the money in the HSA to pay those off. Perhaps most importantly, though, your spouse can also use the account to pay for your children’s medical costs.
Unmarried HSA Owner Deaths
If an unmarried HSA account owner dies, the HSA stops serving as an HSA. This means the money immediately becomes taxable. The person you named as a beneficiary will receive the fair market value of the HSA, as well as a W-2 Form with the amount listed. Your beneficiary has to claim the fair market value on her taxes as taxable income for that year. The good news is that because the distribution was due to death, she won’t have to pay the 20 percent penalty on top of taxes.
In some cases, HSA accountholders name their estate as the beneficiary. When this is the case, the HSA also immediately becomes taxable upon your death. The fair market value of the HSA will be included along with other income on the estate’s tax form for that year.
Employer HSA Responsibility
In addition to issuing W-2s for each employee with the HSA amount included, employers can take a tax deduction for the contributions they made to employee HSAs. You’ll report them along with other employer-provided medical costs you’ve incurred during the year. You won’t have to pay employment taxes on these costs.
It is up to the employer to determine throughout the year whether an HSA contribution will be included in an employee’s income. If it will be, the employer will need to include it as part of income tax withholdings from each paycheck to ensure the employee pays enough taxes throughout the year to avoid underpaying.
Personal HSA Plans
If you’re self-employed or your employer doesn’t provide a health plan, you can sign up for an HSA on your own. To qualify, you’ll need to first sign up for a high-deductible health plan and then choose an HSA. Your contributions to your private HSA will be tax deductible at tax time, which means if you have an employer, you may want to adjust your withholdings to compensate for your reduced savings when you deduct those HSA costs.
To report your individual HSA contributions at tax time, you’ll use Form 8889 and include it when you submit your Form 1040. You can file these deductions even if you don’t itemize your taxes.
You may find that it’s less convenient to have to remember to drop your HSA payments into the account, so it will help to set up an automatic withdrawal to go to your plan. You can even do this on payday to match what you’d get if an employer were handling things.
- HSA Edge: HSA Employer Contributions on W2 Box 12 “W”
- IRS.gov: General Instructions for Forms W-2 and W-3
- IRS.gov: W-2 - Additional, Incorrect, Lost, Non-Receipt, Omitted
- IRS.gov: Topic Number 159 - How to Get a Transcript or Copy of Form W-2
- Bankrate: What to Do If You Don’t Get Your W-2 From the Boss and You Want to File Taxes Early
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- 20 Something Finance: How to Contribute to an HSA Outside of an Employer Payroll Deduction