Understanding Form 1099-SA

Who must file a 1099-SA form?

As an HSA or MSA account holder, you’re not responsible for completing or filing your own Form 1099-SA. Instead, the institution that administers your account must send you and the IRS a copy each year you take distributions from your account.

Generally, they must do so by January 31 of the following calendar year. Depending on your administrator, you may receive an electronic or paper copy. Alternatively, some providers make the document downloadable through their websites.

If you withdrew funds from your HSA or MSA last year, but haven’t received your 1099-SA tax form by mid-February, check your online account. If the document isn’t accessible through your dashboard, contact your administrator.

How to read form 1099-SA.

Form 1099-SA contains details about your HSA distributions that you need to complete your annual income tax return. Most notably, that refers to the following:

• Box 1. Gross Distribution – This section displays the total withdrawals from your account in the previous tax year. That includes the amounts distributed to you or paid to a medical service provider on your behalf. 
• Box 2. Earnings on Excess Contributions – HSAs and MSAs have annual contribution limits. If you put too much into the account in a given tax year, the excess contributions are subject to a 6% annual excise tax until you remove them. Once you do, this section displays the earnings that the excess amount generated while in your account.
• Box 3: Distribution Code – This section tells you what kind of distributions you received. It will indicate normal distributions, a return of excess contributions, distributions made after the account holder became disabled, or distributions after the account holder’s death.
• Box 4: FMV on Date of Death – If the account holder passed away during the previous tax year, this section displays the fair market value of the assets in the health savings account on the date they died. Beneficiaries may need this information for their records.
• Box 5: HSA, Archer MSA, MA MSA – This section confirms which type of health or medical savings account you own.

In addition to this data, Form 1099-SA includes your personal identifying information, such as your name, address, and taxpayer identification number. It also contains the same information for the “payer.” In this case, that’s your HSA plan administrator.

Make sure to double-check that these details are accurate. If they don’t match your tax records and you believe your provider made an error, contact them to reconcile the mistake before your tax deadline.

To give you an idea of what you can expect to receive, here’s an example of a blank Form 1099-SA, Copy B.

What is a 1099-SA form used for?

As the owner of an HSA, MSA, or MA MSA, you must report all distributions you take from the account on your annual income tax return. If you have an HSA, you must fill out Form 8889 and file it with Form 1040. If you have an MSA, use Form 8853 instead.

Form 1099-SA is used to make sure that you, your HSA provider, and the IRS agree on the total amount of distributions you took in the previous year. The total amounts you report should match the amount shown in Box 1.

However, Form 1099-SA doesn’t tell you whether your distributions are taxable or non-taxable. You must use your own records to determine which withdrawals belong in each category.

Distributions are tax-free when you use them to pay for qualified medical expenses. These refer to medical and dental products and services that prevent or alleviate physical or mental illnesses or disabilities for you, your spouse, or your dependents.

For example, that would include the cost of flu shots, physical therapy, and allergy medicine. However, it doesn’t cover insurance premiums, except for long-term care insurance, health care continuation coverage, and Medicare.

If your distributions in the previous tax year exceed your qualified medical expenses, you must include the excess amount in your gross income. The amount will be taxable as ordinary income and subject to an additional 20% tax.

Consult a CPA for tax guidance.

HSAs and MSAs provide some impressive tax benefits, but the rules that govern them can be challenging to navigate. That’s especially true if you use them alongside other tax-advantaged accounts, as many taxpayers do.

If you want to minimize your annual tax burden, it’s best to consult with an experienced tax professional, such as a Certified Public Accountant (CPA). They can help you remain in compliance with regulations and optimize your long-term tax strategy.