Important Clarification for HSA Contribution Reporting on W-2 Forms

As 2009 tax time rapidly approaches, employers who have a Health Savings Account (HSA) should be aware of some important points regarding contribution reporting. Whether you complete your own W-2s or use a payroll service, you will want to ensure that all employer contributions made to an employee’s HSA are recorded on the employee’s W-2 in Box 12 with Code “W”. This is described on page 6 of the W-2 instructions on the IRS website. Furthermore, this figure should also include amounts the employee contributed to the HSA through a section 125 cafeteria plan (explained on page 13 of the W-2 instructions).

In addition to reporting HSA information on your employees’ W-2 forms, you should be aware of other forms your employees may receive throughout the year that are associated with their HSA. The following is a brief explanation of these forms:

Form 8889
This is the main form on which employees should report all contributions to their HSA account (including contributions made by their employer). It is also used by the employee to report distributions made from their account during the course of the year. The form 8889 should be filed when employees do their taxes along with their 1040.

Form 1099-SA
This form is used by trustees or banks to report account distributions to both the employee and the IRS. The trustee must send this form to the HSA owner by February 1, 2010, and must report this to the IRS by March 1, 2010 (due by March 31, 2010, if filed electronically). Employees can use this information to help complete the distribution section of form 8889.

Form 5498-SA
This form is used by trustees to report annual participant contributions, as well as the fair market value of any existing HSA accounts. Trustees must send this report to the HSA owner and the IRS by June 1, 2010. This form is for the HSA owner’s informational purposes only and does not need to be filed with the IRS. The contribution amount contained on this form should have already been filed on form 8889.

Should you have additional questions regarding HSA contribution reporting, please contact our office at 919-403-1986.

Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.

IRS CIRCULAR 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

December 10, 2009

Hill, Chesson & Woody Employee Benefit Services

194 Finley Golf Course Rd, Suite 200,
Chapel Hill, NC 27517
Phone: 919.403.1986
Fax: 919.869-2063

www.hcwbenefits.com