Tax - Tax Form - Health Savings Account (HSA) - 5498-SA

HSA – Demystifying Tax Form 5498-SA

Intro

Health Savings Accounts (HSA) are powerful, but can be complicated and confusing. One of those areas of confusion comes from Form 5498-SA. In this episode, we explain why you receive 5498-SA in May as well as some HSA pitfalls to avoid. We also discuss how contributions are reported in 5498-SA Box 2 and Box 3, in addition to W-2 if you contribute through payroll.

Podcast

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Hey everybody, welcome to the Bigger Insights Finance podcast, the best podcast for helping

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you live a life that you don’t need a vacation from.

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Here at Bigger Insights, we like HSAs, but admittedly, they can be a little bit confusing

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sometimes. And one of those areas of confusion, especially for people who are new to HSAs,

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is the Form 5498-SA. HSAs are somewhat popular, but unfortunately, no one really seems to

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teach these things. So we’re going to do our best to demystify this form a little bit for you,

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at least from an HSA perspective. And the reason I say that is because this form also applies to

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Archer Medical Savings Accounts, Medicare Advantage Medical Savings Accounts. But we’re

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going to focus on HSAs for this episode. But before we dive into that, just keep in mind,

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we’re not CPAs, we’re not tax attorneys, we’re not Enrolled Agents, and this is not tax advice.

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So make sure you run any of this by your tax advisor before you make any changes that might

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affect your taxes. One of my motivations for making this episode is I still remember my reaction

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when I received my first 5498-SA. I was thinking, “Why the face? Why am I receiving a tax form in May?”

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When, you know, obviously tax season is over. “I filed my return months ago. What is this?

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Am I going to have to amend my return or something like that?” So we’re going to talk about that.

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And we’re going to talk about some things to look for, because there are some pitfalls here,

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and you want to make sure that everything is accurate. So this tax form is informational.

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You get a copy, the IRS gets a copy, but you don’t attach it to your return. What this form is

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primarily used for is reporting your contributions to your HSA, so the IRS can do things like make

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sure you’re not over contributing, or making sure that you are actually qualified to contribute to

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your HSA, or making sure that you’re not lying about how much you’re contributing to your HSA,

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because the IRS will take your word for it when you deduct your HSA contributions until they receive

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this form. So the reason why you receive 5498-SA in May is because the tax code allows you to apply

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HSA contributions between January 1st and Tax Day, either to the current tax year or to the

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previous tax year. So for example, I’m recording this episode on March 8th, 2023. At this time,

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if I have an HSA, and I’m allowed to contribute to it, I can make a contribution today and apply

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it to tax year 2022. Now that does complicate things a little bit, but it’s also a very good

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tax planning tool, because what this allows you to do is to wait to contribute to your HSA

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until you have a very clear picture of what your tax return is going to look like. And then you can

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decide how much to contribute to your HSA. And that might not sound like a big deal to you,

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but keep in mind, you can also do this with other accounts like IRAs and 401ks. So this is one of

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the tax planning techniques that I use every year. I don’t contribute to my IRA or my HSA until

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usually all of my 1099s roll in. Because at that point, I can see exactly what my income is. And

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then I can calculate what the optimal contributions to these accounts are. Which in some cases might

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be the maximum contribution. In others, it might be zero, but usually it’s somewhere in between.

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So because of this rule, HSA custodians have until Tax Day plus about a month or a month and

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a half or something like that to get you this form. So don’t panic when you see this form.

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It’s supposed to go out in May, just make sure that the numbers on it are correct.

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All right, so now let’s talk specifically about two of the boxes, box two and box three. Box two

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documents the total contributions that you’ve made to that HSA in the prior tax year. So if I

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contributed $1,000 to my HSA in December 2022, in May 2023, I would see $1,000 in box two.

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Box three shows the total contributions that I made to that HSA in the current tax year,

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but decided to apply them to the prior tax year. So this is usually what applies in my case. So if

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I was to make say a $500 contribution today, March 8th, and apply it to 2022, when I get my

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5498-SA in May, it would show that $500 contribution in box three. And the reason why they have these

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separate boxes, as opposed to just lumping all the contributions together, is to help make it clear to

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the IRS when you made your contributions and in what year you’re applying them to. Because otherwise

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it could get kind of confusing. So let’s say I maxed out my 2022 contributions in December 2022,

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and then I maxed out my 2023 contributions January 1st, they need to make sure that I didn’t apply

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those January 1st contributions to 2022, because if I did, then I would have over contributed.

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Another thing to keep in mind is that if you have HSA contributions either through payroll,

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like they were deducted from your paycheck, or if you have contributions from your employer,

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those are all reported on W-2 box 12 as well. So if that applies to you, make sure that when

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you receive your W-2, that those contribution amounts are correct. And if they’re not,

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you need to get them corrected as soon as possible. And then when you receive your 5498-SA,

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make sure that those values match if you only have payroll contributions. Now, if you have payroll

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contributions, and you’re making contributions personally, which you shouldn’t do, if you can

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avoid that, we’ll talk about that in a future episode, then you need to make sure that your

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5498-SA shows the sum of the contributions that you made through payroll, and your personal

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contributions. And you want to be very careful and make sure that all these numbers are exactly the

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way they’re supposed to be. Because there are penalties if you over-contribute. And believe it

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or not, employers do make mistakes with HSAs. I’ve had that happen to me multiple times.

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Just as a little teaser, I’ll tell a story in a future episode, we’re working on one called

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“11 HSA Pitfalls to Avoid”, in which my employer screwed up not only my 5498-SA, but also my 1099-SA.

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So make sure you subscribe and stay tuned for that. Because like we said, we like HSAs,

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they’re very, very powerful, but there are a lot of pitfalls. And we also apologize in advance if

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that title ends up becoming 12 or 13 or 14 pitfalls or something like that. Because that episode

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started out with, I think, five or seven. And I just keep thinking of more pitfalls that either

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I’ve fallen into, or I’ve seen other people fall into, or just things that I’ve learned over the

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years in studying HSAs. So look forward to that. We’re also going to be producing more episodes

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on HSAs, IRAs, 401ks, other types of accounts, investing in stocks, bonds, precious metals,

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commodities, real estate, etc., asset protection, basically all things personal finance. And if

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you’d like more help, you could consider becoming a Bigger Insights client. We help our clients

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manage their finances through one-on-one sessions. So if that sounds interesting to you,

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go over to our website, BiggerInsights.com, and fill out the very short form at the bottom of the

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page. And we’ll reach out to you to schedule your initial consultation. So thanks for tuning in.

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Look out for your 5498-SA forms, and make sure they’re accurate.

Disclaimer

We are not CPAs, tax attorneys, or other tax professionals and nothing in this episode should be construed as tax, financial, health, or other advice. Contributing to or changing contribution elections involves risk, which may not appropriate for some. Do not make changes to your HSA without first consulting your financial advisor. See our full Disclaimer for more details.

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