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Filing Taxes on Your HSA and FSA

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are powerful tools for managing healthcare costs, but they can feel intimidating when tax season rolls around – especially if this is your first time filing with one. This guide walks you step-by-step through what you need to know, what forms you’ll receive, what you must report, and what you can safely ignore.

Understanding the Difference Between an HSA and an FSA

Before diving into tax forms, it’s important to understand how HSAs and FSA differ, because those differences drive everything at tax time.

What Is a Health Savings Account (HSA)?

An HSA is a personal savings account you can use to pay for qualified medical expenses. It is only available if you are enrolled in a qualified High-Deductible Health Plan (HDHP). The IRS gives HSAs special tax treatment to encourage saving for healthcare.

HSAs offer three major tax advantages:

  • Contributions are tax-free
  • The money grows tax-free
  • Withdrawals are tax-free when used for qualified medical expenses

Because of these benefits, the IRS closely tracks HSAs and requires specific tax forms each year.

What Is a Flexible Spending Account (FSA)?

An FSA is an employer-sponsored account that lets you set aside pre-tax money from your paycheck to pay for healthcare (or dependent care) expenses.

FSAs lower your taxable income automatically through payroll, so there is usually nothing you need to report on your personal tax return.

Why HSAs Matter at Tax Time (and FSAs Usually Don’t)

Why HSAs Must Be Reported on Your Tax Return

Because you personally own your HSA and receive tax benefits for contributing and spending from it, the IRS requires you to report HSA activity each year. This ensures:

  • You didn’t contribute more than allowed
  • You only used the money for eligible expenses (or paid taxes for noted prohibited transactions)

This reporting happens on IRS Form 8889, which is filed with your Form 1040.

Why FSAs Usually Don’t Appear on Your Tax Return

FSA contributions are already excluded from your income on your W-2. Since the tax benefit has already been applied, the IRS does not require a separate form for most people.

As long as your FSA stayed within IRS limits, you generally do not report anything about your FSA on your tax return.

The HSA Tax Forms You Will Receive and What They Mean

Understanding your tax forms makes everything much easier.

Form 1099-SA: Reports Your HSA Distributions

If you spent any money from your HSA, MEDSURETY will send you Form 1099-SA by late January. This form shows how much you withdrew and the type of account it came from.

You do not attach this form to your tax return – you use it to complete Form 8889.

Form 5498-SA: Reports Your HSA Contributions

Form 5498-SA shows your total contributions, employer contributions, and your HSA’s fair market value.

This form is for your records only and is not filed with your tax return.

The Most Important Form: IRS Form 8889

Form 8889 is the core of HSA tax filing. If you had an HSA at any point during the year, this form tells the IRS exactly what happened – how much went in, how much came out, and whether anything is taxable.

Part I: Reporting Your HSA Contributions – Where Most First-Timers Get Confused

Here you report all contributions made by you and your employer and determine how much you can deduct.

Line 2: HSA Contributions You Made Outside of Payroll

This is where you report money you personally deposited into your HSA, such as bank transfers or one-time contributions.

Do NOT include payroll deductions here – those go on Line 9.

2025 Contribution Limits

  • Self-only: $4,300
  • Family: $8,550
  • Catch-up (age 55+, not on Medicare): +$1,000

If you are married and both spouses are eligible for a catch-up contribution, each spouse must have their own HSA to contribute the extra $1,000.

Line 9: Employer Contributions (Including Payroll Deductions)

This includes all contributions made through payroll – both yours and your employer’s.

Find this on your W-2 in Box 12, Code W.

Part II: Distributions – Reporting What You Spent

This section tells the IRS how much you took out of your HSA and whether it was used correctly. Here you report how much you withdrew during 2025 and how much was used for qualified medical expenses. Use Form 1099-SA to complete this section.

If your withdrawals were for qualified expenses, it remains tax-free. If not, this section calculates the taxable amount and penalty.

Part III: Additional Tax (If Applicable)

If you used HSA funds for non-qualified expenses, this section calculates the 20% additional tax (unless you qualify for an exception such as being age 65+ or disabled).

What Counts as a Qualified Medical Expense?

Qualified medical expenses are costs for diagnosis, treatment, or prevention of disease. Common examples include:

  • Doctor and hospital visits
  • Prescriptions
  • Dental and vision care
  • Mental health services

Most health insurance premiums are not qualified expenses, with a few IRS exceptions such as COBRA premiums or certain long-term care premiums.

Filing Tips and Common Situations

You Only Contributed, Didn’t Withdraw

You may not get a 1099-SA if you didn’t withdraw; if you made contributions outside payroll, you’ll still report them on Form 8889 to claim the deduction.

You Withdrew for Qualified Expenses

You must report this on Form 8889 even though it’s not taxable—otherwise the IRS could assume the distribution was non-qualified.

You Withdrew for Non-Medical Use

Such amounts are taxable and likely subject to the 20% penalty unless you meet an exception (age 65+, disability, or death).

You Exceeded Contribution Limits

Excess contributions reduce or eliminate your deduction and may require additional tax adjustments.

Final Filing Checklist for HSA and FSA Users

  • Gather Form 1099-SA (if you took withdrawals)
  • Gather Form 5498-SA (for reference)
  • Complete IRS Form 8889
  • Keep your medical receipts for your records
  • Confirm your FSA stayed within limits

When to Get Help

If you changed jobs, had multiple HSAs, over-contributed, or used funds for non-qualified expenses, a tax professional can help ensure everything is filed correctly.

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