Instructions for Form 8889 (2006)

Specific Instructions

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Name and social security number (SSN). Enter your name(s) as shown on your tax return and the SSN of the HSA beneficiary. If married filing jointly and both you and your spouse have HSAs, complete a separate Form 8889 for each of you.

Part I—HSA Contributions and Deductions

Use Part I to figure:

Your HSA deduction,
Any excess contributions you made (or those made on your behalf), and
Any excess contributions made by an employer (see Excess Employer Contributions beginning on page 4).

Figuring Your HSA Deduction

The amount you can deduct for HSA contributions is limited by the applicable portion of the HDHP's annual deductible (line 3) reduced by any contributions to your Archer MSAs (line 4) and any employer contributions (line 9). If you were age 55 or older at the end of 2006, you can increase the contribution limit to your HSA by up to $700 (line 3 or line 7 depending on your type of coverage and marital status).

You can make deductible contributions to your HSA even if your employer made contributions. However, if you (or someone on your behalf) made contributions in addition to any employer contributions, you may have to pay an additional tax. See Excess Contributions You Make on page 4.

You cannot deduct any contributions you made after you were enrolled in Medicare. Also, you cannot deduct contributions if you can be claimed as a dependent on someone else's 2006 tax return.

How To Complete Part I

Complete lines 1 through 11 as instructed on the form. However, if you, and your spouse if filing jointly, are both eligible individuals and either of you have an HDHP with family coverage, complete a separate Form 8889 for each spouse as follows.

If either spouse has an HDHP with family coverage, you both are treated as having only the family coverage plan. Disregard any plans with self-only coverage.
If both spouses have HDHPs with family coverage, you both are treated as having only the family coverage plan with the lowest annual deductible.

Combine the amounts on line 11 of both Forms 8889 and enter this amount on Form 1040, line 25. Be sure to attach both Forms 8889 to your tax return.

Line 1

If you were covered by a self-only HDHP and a family HDHP at different times during the year, check the box for the plan that was in effect for a longer period. If you were covered by both a self-only HDHP and a family HDHP at the same time, you are treated as having family coverage during that period.

Line 2

Do not include employer contributions or amounts rolled over from another HSA or Archer MSA. Contributions to an employee's account through a cafeteria plan are treated as employer contributions. See Rollovers on this page.

Line 3

When figuring the amount to enter on line 3, apply the following rules.

Use the family coverage amount if you or your spouse had an HDHP with family coverage. Disregard any plans with self-only coverage.
If you and your spouse had more than one HDHP with family coverage, use the plan with the lowest annual deductible.
If you had family coverage with both an umbrella deductible and an embedded deductible for each individual covered by the plan, your annual deductible is the smaller of the:
1. Umbrella deductible, or
2. Embedded individual deductible multiplied by the number of family members covered by the plan.

Example. In 2006, you had family coverage under an HDHP for you and your spouse. Both of you were under age 55 at the end of 2006. Your HDHP will pay benefits for any family member whose covered expenses exceed $2,000 (the embedded individual deductible) and will pay benefits for all family members after the covered expenses exceed $5,000 (the umbrella deductible). Your annual deductible is $4,000 (the smaller of $5,000 or $4,000 ($2,000 × 2)). Your maximum HSA deduction is $4,000 (the smaller of $4,000 or $5,450).

If you did not have the same coverage on the first day of every month during 2006, or you were age 55 or older at the end of 2006, go through the chart at the top of the Line 3 Limitation Chart and Worksheet on this page for each month of 2006. Enter the result on the worksheet next to the corresponding month.

If eligibility and coverage did not change from one month to the next, enter the same number you entered for the previous month.

Please click here for the text description of the image.

line 3 limitation chart and line 3 limitation worksheet

Line 6

Spouses that have separate HSAs and had family coverage under an HDHP at any time during 2006, use the following rules to figure the amount on line 6.

If you were treated as having family coverage for each month you were an eligible individual, divide the amount on line 5 equally between you and your spouse, unless you both agree on a different allocation (such as allocating nothing to one spouse). Enter your allocable share on line 6.
If you were not treated as having family coverage for each month you were an eligible individual, use the following steps to determine the amount to enter on line 6.

Step 1. Refigure the contribution limit that would have been entered on line 5 if you had entered on line 3 the total of the worksheet amounts only for the months you were treated as having family coverage. When refiguring line 5, use the same amount you previously entered on line 4.

Step 2. Divide the refigured contribution limit from Step 1 equally between you and your spouse, unless you both agree on a different allocation (such as allocating nothing to one spouse).

Step 3. Subtract the part of the contribution limit allocated to your spouse in Step 2 from the amount you previously entered on line 5. Enter the result on line 6.

Example. In 2006, you are an eligible individual and have self-only coverage under an HDHP with a $1,200 deductible. In March, you get married and as of April 1, you have family coverage under an HDHP with a $2,400 deductible. Neither you nor your spouse were age 55 or older at the end of 2006 so you do not qualify for the additional contribution amount. Your spouse has a separate HSA and is an eligible individual from April 1 through December 31, 2006. The contribution limit for the 9 months of family coverage is $1,800 ($2,400 × 9/12). You and your spouse can divide the $1,800 in any allocation you agree to. Your contribution limit for the 3 months of self-only coverage is $300 ($1,200 × 3/12). This amount is not divided between you and your spouse. If you and your spouse divide the contribution limit for the months of family coverage equally, you will show $1,200 on line 6 ($2,100 from your original line 5 minus $900 allocated to your spouse). Your spouse will show $900 on line 6.

Line 7

Additional Contribution Amount

If, at the end of 2006, you were age 55 or older and married, use the Additional Contribution Amount Worksheet below if both of the following apply.

You or your spouse had family coverage under an HDHP on the first day of the month.
You were not enrolled in Medicare for the month.

Enter the result on line 7.

If items (1) and (2) apply to all months during 2006, enter $700 on line 7.

Additional Contribution Amount Worksheet

1.	$ 700 × number of months eligible
2.	Divide line 1 by 12. Enter here and on line 7

Example. At the end of 2006, you were age 55 and married. You had family coverage under an HDHP from July 1 through December 31, 2006 (6 months). You were not enrolled in Medicare in 2006. You would enter an additional contribution amount of $350 on line 7 ($700 × 6/12).

Line 9

Employer Contributions

Employer contributions (including contributions through a cafeteria plan) include any amount an employer contributes to any HSA for you for 2006. These contributions should be shown in box 12 of Form W-2 with code W. If either of the following apply, complete the Employer Contribution Worksheet below.

Employer contributions for 2005 are included in the amount reported in box 12 of Form W-2 with code W.
Employer contributions for 2006 are made in 2007.

If your employer made excess contributions, you may have to report the excess as income. See Excess Employer Contributions beginning below for details.

1.	Enter the employer contributions reported in box 12 of Form W-2, with code W	1.
2.	Enter employer contributions made in 2006 for tax year 2005	2.
3.	Subtract line 2 from line 1	3.
4.	Enter employer contributions made in 2007 for tax year 2006	4.
5.	Employer contributions for 2006. Add lines 3 and 4. Enter here and on Form 8889, line 9	5.

Line 11

If you or someone on your behalf (or your employer) contributed more to your HSA than is allowable, you may have to pay an additional tax on the excess contributions. Figure the excess contributions using the instructions below. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the additional tax.

Excess Contributions You Make

To figure your excess contributions (including those made on your behalf), subtract your deductible contributions (line 11) from your actual contributions (line 2). However, you can withdraw some or all of your excess contributions for 2006 and they will be treated as if they had not been contributed if:

You make the withdrawal by the due date, including extensions, of your 2006 tax return (but see the Note on page 5),
You do not claim a deduction for the amount of the withdrawn contributions, and
You also withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings.

Excess Employer Contributions

Excess employer contributions are the excess, if any, of your employer's contributions over your limitation on line 8. If the excess was not included in income on Form W-2, you must report it as “Other income” on your tax return. However, you can withdraw some or all of the excess employer contributions for 2006 and they will be treated as if they had not been contributed if:

You make the withdrawal by the due date, including extensions, of your 2006 tax return (but see the Note below),
You do not claim an exclusion from income for the amount of the withdrawn contributions, and
You also withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings.

If you timely filed your return without withdrawing the excess contributions, you can still make the withdrawal no later than 6 months after the due date of your tax return, excluding extensions. If you do, file an amended return with “Filed pursuant to section 301.9100-2” written at the top. Include an explanation of the withdrawal. Make all necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed).

Part II—HSA Distributions

Line 12a

Enter the total distributions you received in 2006 from all HSAs. These amounts should be shown in box 1 of Form 1099-SA.

Line 12b

Include on line 12b any distributions you received in 2006 that qualified as a rollover contribution to another HSA. See Rollovers on page 2. Also include any excess contributions (and the earnings on those excess contributions) included on line 12a that were withdrawn by the due date, including extensions, of your return. See the instructions for line 11 beginning on page 4.

Line 13

Only include on line 13 distributions from your HSA that were used to pay or reimburse you for qualified medical expenses (see page 1) you incurred after the HSA was established. Do not include the distribution of an excess contribution taken out after the due date, including extensions, of your return even if used for qualified medical expenses.

In general, include on line 13 distributions from all HSAs in 2006 that were used for the qualified medical expenses (see page 1) of:

Yourself and your spouse.
All dependents you claim on your tax return.
Any person you could have claimed as a dependent on your return except that:
1. The person filed a joint return.
2. The person had gross income of $3,300 or more.
3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else's return.

You cannot take a deduction on Schedule A (Form 1040) for any amount you include on line 13.

Lines 15a and 15b

Additional 10% Tax

HSA distributions included in income (line 14) are subject to an additional 10% tax unless one of the following exceptions apply.

Exceptions to the Additional 10% Tax

The additional 10% tax does not apply to distributions made after the account beneficiary—

Dies,
Becomes disabled (see page 2), or
Turns age 65.

If any of the exceptions apply to any of the distributions included on line 14, check the box on line 15a. Enter on line 15b only 10% (.10) of any amount included on line 14 that does not meet any of the exceptions.

Example 1. You turned age 63 in 2006 and received a distribution from an HSA that is included in income. Do not check the box on line 15a because you (the account beneficiary) did not meet the age exception for the distribution. Enter 10% of the amount from line 14 on line 15b.

Example 2. You turned age 65 in 2006. You received distributions that are included in income both before and after you turned age 65. Check the box on line 15a because the additional 10% tax does not apply to the distributions made after the date you turned age 65. However, the additional 10% tax does apply to the distributions made on or before the date you turned age 65. Enter on line 15b, 10% of the amount of these distributions included in line 14.