Part V: Important Information & HSA Distributions
Please see IRS Publication 969
Tax-free distributions from your HSA can be made for qualified medical expenses you incur after you establish the HSA. Note: You do not have to take a distribution from your HSA in any given year; your HSA account can build up year-after-year on a tax-free basis.
You are the HSA owner and are responsible for using the account in a compliant fashion. DePaul University is not responsible for tax liabilities related to improper distributions from or contributions to the account.
A. Proper Use of HSA Accounts
- Avoid tax penalties by using HSA monies to pay for qualified medical expenses only ( this is fully the participant’s responsibility ).
- Retain records of all HSA account transactions for possible IRS auditing purposes.
- Ensure eligibility for making HSA contributions
- Ensure salary reduction elections are taken correctly from your pay and contributed to your account by monitoring HSA account activity on www.mybenefitwallet.com.
B. Qualified Medical Expenses
Qualified medical expenses are expenses for medical care as defined in IRC section 213(d) but only to the extent the expenses are not covered by insurance.
Generally the eligible medical and dental expenses are those that are listed in Publication 502
Expenses you take as an itemized deduction on Schedule A (Form 1040) are not eligible tax-free distributions from your HSA.
- Insurance premiums (other than long-term care premiums), even though listed in IRS Publication 502, are not eligible to be reimbursed through an HSA.
- It is important to carefully review Publication 969 and Publication 502 to understand what medical expenses are eligible.
- Qualified medical expenses are those incurred by yourself, your spouse, and other eligible dependents as described in IRS Publication 969.
C. HSA Distributions for Non-Qualified Expenses
If the money is used for any purpose other than qualified medical expenses, the expenditure is taxed as regular income and in most cases also subject to an additional 20% tax penalty. There are some exceptions to the 20% penalty such as for individuals who are disabled or over age 65. Please consult IRS Publication 969.
D. HSA contributions and distributions must be reported with your income tax return on Form 8889.
You must report your HSA contributions and distributions on your annual tax filing by submitting Form 8889 with your Form 1040. Each year, you will need to file this form if you have any activity (contributions and /or distributions) in your HSA during the year. The information you need for Form 8889 will be on tax documents you receive from Mellon Bank and from your DePaul University W-2. You may want to consult a tax a tax advisor when completing Form 8889.
Reporting Contributions on Your Return
HSA contributions are shown in box 12 of Form W-2 with code W. The amount shown in this box not only includes the employer contribution made by DePaul University, but also the amount you contributed to your HSA through pre-tax payroll deductions (these deductions are made through DePaul University Section 125 Cafeteria Plan.) This is the amount you should enter on form 8889 as the employer contribution amount.
Report all HSA contributions and distributions on Form 8889 following the instructions on the Form and file it with your Form 1040. You should include all contributions made for the year, including any contributions you made directly to your HSA that were not made through the University. This includes your direct contributions through mid-April of the following year.
You will have excess contributions if the contributions to your HSA for the year are greater than the legal limits described in the instructions for Form 8889. Please refer to the instructions to Form 8889 to determine if you have excess contributions and the steps you must take should you have excess contributions.
Note that DePaul University will not monitor whether or not contributions exceed the legal maximums. You, the participant, are responsible for ensuring that your contributions stay within allowed limits and, if they exceed those limits, you must take the appropriate actions.
Reporting HSA Distributions on Your Return
You should expect to receive a Form 1099-SA from Mellon Bank, as the Custodian of you HSA. The Form 1099-SA will include all distributions from you HSA during the year. You are responsible for reporting the distributions to the IRS with your annual tax filing.
Distributions from an HSA that are used for qualified medical expenses for eligible individuals are excludable from gross income. Distributions not used for qualified medical expenses for eligible individuals must be reported as income and are also subject to an additional 20% penalty tax in most circumstances. See IRS publication 969 and IRS Form 8889 instructions for additional details.
Important: The University does not provide tax advice and the above information should not be construed as tax advice. You are responsible for the correct filing of your tax return and not the University. Therefore, please consult your tax advisor and carefully review the applicable tax instructions in completing your tax filing.
Records You Should Retain on File
- Receipts of all expenditures qualified medical expenses that substantiate the distributions made from your HSA.
- If you also participated in a Limited Purpose FSA (LP FSA), you should also retain copies of receipts for expenses submitted for FSA reimbursement - legitimate expenses for LP FSA reimbursement are limited to vision, dental, and medical expenses above the High Deductible Health Plan deductible limit.
If you have any questions, please contact the Benefits Department firstname.lastname@example.org or (312)362-8232.
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