Document Payments of Medical Bills With HSA for Taxes
Documenting payments of medical bills with Health Savings Account (HSA) funds for tax purposes may seem like a daunting task, but it is actually relatively easy. The structure of an HSA allows you to fund the account with pre-tax dollars in the same way as contributing to a 401K retirement plan. However, you must use this tax-free money during the year for qualified medical expenses. There are a few simple steps to follow to ensure you retain the proper documentation.
Instructions
Document HSA payments for taxes
1. Save receipts for qualified medical expenses when you use money in your HSA for those expenses. If you did not save receipts or have misplaced them, use a copy of your monthly HSA statement and note on the statement the purpose of the expense. A list of qualified medical expenses is available on the IRS website.
2. Add up the amount of money you spend using HSA funds for qualified medical expenses. Although you do not have to attach receipts to your tax forms, you will need a list of these expenses and the total amount of money they represent. Keep the receipts, copies of HSA statements, tax worksheets and your notes with your tax files for the year in case the IRS requests them.
3. Complete IRS Form 8889 and attach it to your personal tax return. Form 8889 asks you to document the amount of money contributed to an HSA during the tax year as well as the amount of money spent out of the HSA on qualified medical expenses. This money is not subject to tax, so you will need to use your calculations to figure what proportion of your income is tax-free.
4. You must meet all eligibility requirements each year to continue receiving this tax-free benefit. You do not qualify for HSA benefits in any year if another taxpayer claims you as a dependent or if you receive Medicare assistance.
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