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What is a 1099-SA form?
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What is a 1099-SA form?
We’ll just go ahead and say it – there are a lot of 1099 forms. If you’re self-employed, you know exactly what we’re talking about. There are 1099 forms that report your earned income, like the 1099-NEC, but there are also forms, like the 1099-SA, that tell the IRS how much you withdrew from your health insurance account every year.
This applies to Health Saving Accounts (HSA) and Medical Savings Accounts (MSA) like Archer Medical Savings Account (Archer MSA) and Medicare accounts (Medicare MSA). If you receive Form 1099-SA, you’ll need to report it when filing your tax return.
If you have multiple health insurance plans, you’ll need to file a separate form for each plan. The form you’ll use to report Form 1099-SA depends on the type of account you have and whether it is an inherited account or a personal account.
Key takeaways:
- Form 1099-SA shows the annual distribution amount from a health insurance account
- It is different from earned income 1099 forms like 1099-NEC or 1099-MISC
- Receivers of this form must report it on their tax return using Form 8889 or Form 8853
Table of contents
I received Form 1099-SA. What does this mean?
You’ll usually receive the 1099-SA form from your health insurance provider by the end of January, like all other 1099 forms. Opening an account like this is actually beneficial to your taxes as you can deduct any contribution you make to the account.
And most of the time, the distribution you receive from the account can be used tax-free. This is especially useful for self-employed individuals who are often in charge of paying for their health insurance.
In addition to being able to claim a deduction on the contributions you make to your account for the current year, certain accounts like HSAs and Archer MSAs allow you to carry over any unused balances with no expiration date.
You can also invest the health insurance account contributions and use those earnings tax-free as long as you spend them on IRS-approved health expenses. We’ll talk about this a little more in the next section.
You’ll have to report any earnings on your return if you pass your contribution limits for that tax year. If you ended up withdrawing past your limit, you’d have to report this on your taxes as well, even if you used it for qualified health expenses. You may also have to pay a penalty.
Quick tip
Use a 1099 tax calculator to find other tax deductions you can use to lower your tax bill.
What health expenses are tax-free?
The IRS allows you to use the distribution from your health plan account to pay for certain medical expenses tax-free. While there is no specific list that the IRS has provided, the general rule is that you should be able to itemize that expense on Schedule A when you file.
You’ll know if you spent your distribution on tax-free health expenses by checking box 3 on your Form 1099-SA. If the distribution code is one, your expenses are tax-free. If the code is five, you’ll have to report the unspent distribution amount as income.
How do I file Form 1099-SA?
The good news is that you don't have to actually file Form 1099-SA since it’s done by a medical insurance provider. So, it’s a little different from how you would normally report 1099 forms related to self-employment, like the 1099-K.
This is because this form is only relates to your federal income tax and not your self-employment tax. Now there are two ways you can report the 1099-SA form: with Form 8889 or with Form 8853. Form 8889 is for individuals who have a Health Savings Account (HSA), either paid for themselves or inherited due to the death of their spouse.
Form 8853 is used by individuals who have an MSA (Archer, Medicare). In both cases, you would attach this to your Form 1040. Any unused distribution from either type of account will be taxable. For MSA plans, you’ll also need to pay an additional 20% which you can directly calculate on Form 8853.
Another thing to remember is that MSA distributions can only be used to pay for expenses of the account holder while HSA distributions can be used for the account holder, spouse and their dependents.
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