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I started contributing to HSA last year and have some doubt about claiming the tax deduction. My situation is as follows:

  • I enrolled in HDHP plan starting May 20th 2014. I am still enrolled in the plan. By last month rule I can make contribution for the full year.
  • My employer contributed $2000 to the account through payroll deduction (before tax).
  • I contributed $800 in February 2015.

While filling form 8889 (using the free file fillable forms website), I enter the following amounts in each line:

  • Line 1: Self-only (never had family coverage during anytime in 2014)
  • Line 2: 800
  • Line 3: 1925 ( = 7 * 3300 / 12 )
  • Line 9: 2000

The form then calculates Line 13 to be zero and asks me to enter the amount on line 25 of form 1040. This does not make sense to me as I thought I should be getting tax deduction on the $800 I have contributed to the HSA plan.

I think I should be entering 3300 on line 6 of form 8889. Is this correct?

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  • "My employer contributed $2000 to the account through payroll deduction (before tax)." If it was a payroll deduction before tax, then you contributed it.
    – mhoran_psprep
    Mar 29, 2015 at 15:31
  • So how do I distinguish between before and after tax contribution?
    – mythealias
    Mar 29, 2015 at 16:54
  • To determine how much you contributed vs how much your employer contributed see my answer to this question: money.stackexchange.com/a/28481/5414
    – mhoran_psprep
    Mar 29, 2015 at 18:08
  • @mhoran_psprep Regarding your first comment: If you contribute to your HSA via payroll deduction, and it comes out before tax, it counts as an employer contribution for the purposes of form 8889.
    – Ben Miller
    Apr 25, 2017 at 20:56

1 Answer 1

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First, some assumptions:

  • I'm assuming that you made your $800 contribution yourself with money you had already been taxed on, and you did not make this contribution through payroll deduction.

  • I'm also assuming that when you made the contribution you designated it as a prior-year contribution with your HSA bank/custodian.

If those assumptions are correct, then yes, if you are using the last-month rule, you should be able to deduct this contribution on your 1040.

The trick is found in the instructions for Form 8889, Line 3:

  1. If the last-month rule (see Last-month rule, earlier) applies, you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month of your tax year.

  2. If you were, or were considered, an eligible individual for the entire year and you did not change your type of coverage, enter $3,350 for a self-only HDHP or $6,750 for a family HDHP on line 3. (See (6) in this list.)

As a result, under the last-month rule, you would enter $3300 (which was the correct amount in tax year 2014) on Line 3, and Line 13 will end up being $1300, allowing you to enter your $800 contribution on Form 1040, Line 25.

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