HSA – Demystifying Tax Form 5498-SA

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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.