The confusion stems from the label of “employer contributions.” Both the employee and employer contributions should be showing in box 12, code W.   IRS Publication 969, for tax year 2008 ( page 10)  indicates that contributions made by the employer via salary reduction are not included in the employee’s  income.  Contributions to an employee’s account by an employer using the amount of  an employee’s salary reduction through a cafeteria plan are treated as employer contributions.  Thus the total is displayed on the W2.

Therefore, the amount in Box 12 will include all of the employee payroll deductions and any employer money contributed. This is PRE-TAX money and gets reported on Form 8889 (required of all HSA account owners) as an EMPLOYER contribution (Line 9). Because there were no taxes deducted form this amount the employee/taxpayer cannot deduct it from gross income.

However, if the employee were to send money directly to the HSA, that amount would be reported on line 2 of Form 8889. The total of lines 2 and 9 cannot exceed the maximum annual contribution limits set by the IRS for the applicable tax year.

A friendly reminder to employees enrolled in the HSA informing them of the requirement to complete Form 8889, along with the explanation above, might reduce some of the questions directed to your HR department.

More info for the employees – Two tax forms will be sent to the employee/taxpayer, and to the IRS. The first is Form 1099-SA. This form is sent no later than January 31. Form 1099-SA tells you what distributions have been made from the health savings account during the calendar year. The amount in Box 1 of your 1099-SA will be reported on Form 8889.

The second form is Form 5498-SA. This form is sent out no later than May 15, but definitely after the tax filing deadline of April 15. Form 5498-SA cannot be sent any earlier because taxpayers have until April 15 to make contributions to the prior year’s HSA. This form included ALL contributions made between January 1 of the reportable tax year (e.g. 2008) and April 15 of the following tax year (e.g. 2009). Box 1 will be blank unless you have an MSA. Box 2 will have all the contributions to your HSA made in 2008, including any contributions made for 2007 in 2008. Do not report this on your Form 8889. Box 3 has the HSA contributions made in 2009 for 2008. Note that both boxes 2 and 3 may, or may not, match the amount reported on line 2 of Form 8889.

Two tax forms will be sent to you, and to the IRS. The first is Form 1099-SA. This form is sent no later than January 31. Form 1099-SA tells you what distributions have been made from your health savings account during the calendar year. The amount in Box 1 of your 1099-SA will be reported on Line 14a of Form 8889. (Form 8889 is required when filing your taxes if you have a health savings account).

The second form sent to you is Form 5498-SA. This form is sent out no later than May 15, but definitely after the tax filing deadline of April 15. Form 5498-SA cannot be sent any earlier because taxpayers have until April 15 to make contributions to the prior year’s HSA. This form included ALL contributions made between January 1 of the reportable tax year (e.g. 2008) and April 15 of the following tax year (e.g. 2009).

Here is what goes in each Box of the 5498-SA:

Box 1. Employee or Self-Employed Person’s Archer MSA Contributions Made in 2009 and 2010 for 2009
No HSA information is to be reported in box 1 Enter the employee’s or self-employed person’s regular contributions to the Archer MSA made in 2009 and through April 15, 2010, for 2009. Report gross contributions, including any excess contributions, even if the excess contributions were withdrawn.

Box 2. Total Contributions Made in 2009
Enter the total HSA or Archer MSA contributions made in 2009. Include any contribution made in 2009 for 2008. Also include qualified HSA funding distributions (trustee-to-trustee transfers from an IRA to an HSA under section 408(d)(9)) received by you during 2009. You may, but you are not required to, report the total MA MSA contributions the Secretary of Health and Human Services or his or her representative made in 2009. Do not include amounts reported in box 4.

Box 3. Total HSA or Archer MSA Contributions Made in 2010 for 2009
Enter the total HSA or Archer MSA contributions made in 2010 for 2009.

Box 4. Rollover Contributions
Enter rollover contributions to the HSA or Archer MSA received by you during 2009. Include qualified HSA distributions (direct transfers of contributions form employers FSAs and HRAs to an HSA under section 106(e). These amount s are not to be included in box 2.

Box 5. Fair Market Value of HSA, Archer MSA, or MA MSA
Enter the FMV of the account on December 31, 2009.

Box 6. Checkbox
Check the box to indicate if this account is an HSA, Archer MSA, or MA MSA.

What tax forms do I need to complete?

All taxpayers who have a health savings account must complete Form 8889 if:

• they, or someone on their behalf, made contributions to their HSA.
• they received any HSA distributions in the  just-past calendar year.
• they failed to be an eligible individual during the testing period.
• they acquired an interest in an HSA because of the death of the account beneficiary.

If you find that you have made an excess contribution to your HSA and failed to remove it prior to filing your taxes, including extensions, you may also be required to complete Form 5329.

Where can I find Tax forms?

• Visit www.irs.gov/formspubs/

1. Fees for care. In this model the fees charged are directly related to medical care, as described by the IRS, and would generally be considered as eligible medical expenses under the HSA guidelines.
2. Annual Physical. Here a fee is charged for an annual physical, usually comprehensive in scope, that includes no additional non-medical services. The physical is considered to be medical care and would generally be considered as eligible medical expenses under the HSA guidelines.
3. Annual physical plus amenities. Here a fee is charged for an annual physical and some additional non-medical services (amenities). The physical is considered to be medical care and would generally be considered as eligible medical expenses under the HSA guidelines. The amenities (e.g. retainer fess or timely access to a physician) are not eligible medical expenses under the HSA Guidelines. If the Physician group provides itemized billing for the services included, the physical can be reimbursed from the HSA as a medical expense, but the “amenities” cannot. In the case where the physician group furnishes only a global bill with no itemization for specific services, it may be difficult to prove the expense was eligible.
4. Amenities Only. Here the fees collected by the physician groups are exclusively for amenities like retainer fees or guaranteed timely access. These are not medical expenses and as such are not generally reimbursable by the HSA.

The rationale is detailed below.

The final decision as to whether an expenditure is primarily for medical care, or is merely beneficial to general health, is a question of fact ( i.e. would be supported by evidence unique to the situation in question). If you have questions about your situation after reviewing this answer, you should consult your tax advisor or tax attorney.

Section 213(a) Of the IRS code allows a deduction for uncompensated expenses for medical care of an individual, the individual’s spouse or a dependent, to the extent the expenses exceed 7.5 percent of adjusted gross income. Section 213(d)(1) provides, in part, that medical care means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. This is the basis for all HSA eligible medical expenses.

Under § 1.213-1(e)(1)(ii) of the Income Tax Regulations, the deduction for medical care expenses will be confined strictly to expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness. An expense that is merely beneficial to the general health of an individual is not an expense for medical care. Whether an expenditure is primarily for medical care or is merely beneficial to general health is a question of fact.

This is echoed in IRS Publication 502:

“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include dental expenses. Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.”

Pub 969 (which speaks directly to additional HSA allowable expenses) again references 502 and makes no mention of physician concierge services:

“Qualified medical expenses. Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. These are explained in Publication 502, Medical and Dental Expenses. ” Publication 969 goes on to include over the counter medications and certain insurance premiums but is silent on the issue of concierge services, considering them to have been addressed in Publication 502.

Yes. IRS Notice  2008-59, Q&A 33 addresses the question of a dependent being claimed by a former spouse.   

Q-33. Do qualified medical expenses for HSA purposes include the § 213(d) medical expenses incurred by an account beneficiary’s child who is claimed as a dependent by the account beneficiary’s former spouse?

 A-33. Yes.

To qualify for relief, the economic stimulus funds must be withdrawn by April 15, 2009, in most cases. Without this relief, taxes, penalties and other special rules would apply to amounts removed from these types of accounts. Regular tax refunds are not eligible for this relief.

Eligible tax-favored accounts include traditional and Roth IRAs, health savings accounts, Archer medical savings accounts, Coverdell education savings accounts, and qualified tuition programs. Thus, a taxpayer whose $1,200 stimulus payment is directly deposited into their IRA can take out up to $1,200 from the IRA, tax-free and penalty-free.

In general, the deadline for these withdrawals is the due date or extended due date for filing a 2008 return. This means April 15, 2009, for most taxpayers, or Oct. 15, 2009, for those who obtain tax-filing extensions.

Details on reporting these withdrawals and claiming relief will be included in tax forms and instructions for 2008. Other details are in Announcement 2008-44 online at www.irs.gov.

From IRS Publication 504:

 ”Health savings account (HSA). If you transfer your interest in an HSA to your spouse or former spouse under a divorce or separation instrument, it is not considered a taxable transfer. After the transfer, the interest is treated as your spouse’s HSA.”