1099-SA: Everything You Need to Know
Form 1099-SA is used by the Internal Revenue Service (IRS) for the reporting of any distributions made from a health savings account or medicals savings account.4 min read
Form 1099-SA is used by the Internal Revenue Service (IRS) for the reporting of any distributions made from a health savings account or medicals savings account. The Form 1099-SA will be provided to the employee/taxpayer if that employee/taxpayer was the recipient of health savings account or medical savings account distributions in that tax reporting year. In other words, the purpose of the Form 1099-SA is to detail any funds that have been distributed from your health savings again that tax year.
Health savings account distributions can generally occur when an employee uses his/her health savings account to pay for allowable medical expenses, an employee who has cashed out the health savings account balance or an employee seeking to reimburse oneself for allowable medical expenses. In the event one of these situations occurred, the health savings account custodian bank would provide an employee/taxpayer with the specific information surrounding your distribution so that the taxpayer will be able to complete IRS Form 8889 with their individual tax return. The Form 1099-SA functions as a control mechanism to observe the funds that have left an employee’s health savings account, while Form 8889 is a verification mechanism to ensure that the health savings account monies were spent in accordance with the allowances. In the event of IRS audit, a taxpayer may be asked to demonstrate via receipts that all expenses were for allowable under the regulation.
Parts of Form 1099-SA
The Form 1099-SA is a two-part form broken out into a left side and a right side. The left side will contain information about the bank that acted as trustee and any account information, while the right side will include a variety of information related to the amount of distribution, taxation and classification.
Items Reported on Form 1099-SA
The following items are generally reported within a Form 1099-SA
- Box 1: Gross distribution – this box will detail the entire amount that was distributed from the taxpayer’s health savings account in the respective tax year
- Box 2: Excess contribution earnings – the amount detailed in this box reflects those earnings that accrued as a result of annual contributions made in excess of regulation
- Box 3: Code of Distribution – identifier that reflects the manner in which the funds were distributed. Examples of some codes are disability, death, normal distribution and prohibited transaction
- Box 4: Fair Market Value of account on death - this box will detail the fair market value amount of the savings account at the time of death
- Box 5: This is a checkbox that details whether the account is a health savings account, MA MSA or Archer MSA – the box will detail the type of account from which a distribution was in the tax year.
The information populated on the Form 1099-SA will form the basis of the information needed to be entered on Form 8889.
Distribution Codes under Form 1099-SA Box 3
Form 1099-SA is a form that contains a number of boxes providing detailed information about the taxpayer’s health savings distributions. Box 3 of the Form 1099-SA details six distribution codes. Each Form 1099-SA is restricted to one health savings account and only one specific distribution code. As such, a taxpayer may receive more than one Form 1099-SA depending on the circumstances. The purpose of this is to allow the IRS the ability to differentiate between the tax treatments afforded to different distribution types in a taxpayer’s health savings account. The following are the six distribution codes associated with Form 1099-SA Box 3:
- Normal distributions is a code used to identify those distributions for the taxpayer (e.g., getting reimbursed for a qualified medical expense) or any payment that is made directly to a medical professional. In addition, a normal distribution code is used if no other distribution code will apply to the taxpayer’s situation
- Excess contributions – if a taxpayer has contributed in excess to their health savings account and proceeds to remove those excess contributions to avoid a tax penalty, the removal of those funds will be flagged by this code
- Disability code is used to identify those distributions made from a health savings account after the taxpayer has been disabled. By using this distribution code, the amount will flow into Line 17a within the Form 8889
- Death distribution code is used to identify those distributions that were paid to the estate of a taxpayer who has died during that tax year
- Prohibited transaction code will identify any distributions that were not allowable under the regulation or were made in error
- Like distribution code 4, this code reflects distributions made to a beneficiary in the event of death that was not a spouse.
Can Anyone Contribute to a Health Savings Account (HSA) or Medical Savings Account (MSA)?
Every individual is not afforded the right to contribute to a health savings account or medical savings account. Generally, in order to qualify, an individual must be presently covered by a health plan with a high deductible, cannot be a Medicare enrollee and is not eligible for declaration as a dependent on another taxpayer’s filing.
Plan Tax Benefits of Health Savings Account (HSA) and Medical Savings Account (MSA)
Employees who are eligible to contribute to a health savings or medical savings account are positioned via the tax law to save quite a bit of tax money, both in near and future terms. The employee is allowed to deduct any contributions made to the health savings account in the year in which the contributions were made as well as the employee may rollover any remaining balances for use at some point in the future. These rollover balances can even be invested to earn additional income from the balance that will not be subjected to taxation, so long as the money is spent on allowable medical expenses. An individual may use his/her health savings accounts to make distributions outside of taxation if those funds are used for allowable medical expenses. The individual will receive a Form 1099-SA to reflect the exact amount of distributions received from the health savings account in the given tax year.
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