In today’s complex tax landscape, health insurance plays an increasingly vital role. For millions of Americans, health insurance is not only essential for healthcare but also a significant factor in how taxes are filed. One such form tied to health insurance is the IRS Form 1098. In this article, I’ll explore everything you need to know about this form, its connection to health insurance, and how it impacts both individuals and tax preparers.
Table of Contents
What is Form 1098?
Form 1098, officially known as the “Mortgage Interest Statement,” is not a form that most people associate directly with health insurance. However, health insurance-related matters come into play when considering health savings accounts (HSAs), flexible spending accounts (FSAs), and other specific tax-deductible health insurance contributions.
The confusion often arises due to the similarity in the names of health-related forms, such as Form 1095, which reports health coverage information. Nevertheless, for this guide, I will focus on how health-related financial contributions, particularly involving Health Savings Accounts (HSAs), could show up on a 1098.
Forms Connected to Health Insurance
While many individuals are familiar with their W-2 or 1040 forms during tax season, it’s worth understanding the roles other forms like Form 1095 or Form 1098 play when it comes to health insurance. In particular, Form 1095 is used by health insurers to report the status of an individual’s health coverage. For those who are part of a health savings account, the focus should be on how those contributions are treated during tax filings.
Form 1095 vs. Form 1098
Let’s take a moment to compare Form 1095 and Form 1098 for clarity.
| Form | Purpose | Connection to Health Insurance |
|---|---|---|
| 1095-A | Reports health coverage through marketplace plans | Indicates months of coverage and amounts for subsidies |
| 1095-B | Reports basic health coverage through insurers | Proof of coverage to avoid penalties under the ACA |
| 1095-C | For large employers to report coverage offered | Reports if your employer offers health insurance |
| 1098 | Mortgage interest deductions and other benefits | Sometimes connected to HSA contributions in specific cases |
As seen, Form 1098 itself is usually unrelated to health insurance, but if you contribute to an HSA (Health Savings Account), the link may appear when you’re filing taxes. It’s not directly linked to the healthcare plan itself, but HSA contributions are sometimes reported in association with insurance policies, and deductions can lower your taxable income.
Health Savings Account (HSA) and Its Role in 1098
A Health Savings Account (HSA) offers a unique and tax-efficient way to manage your healthcare expenses. These accounts are designed for individuals with high-deductible health plans (HDHPs). The HSA provides tax benefits, including tax-free contributions, tax-free growth, and tax-free withdrawals when used for eligible medical expenses.
When filing taxes, the IRS requires information about HSA contributions. This information is typically provided on IRS Form 8889, but it might also be indirectly related to Form 1098 in cases where contributions to your HSA are made through payroll deductions.
For example, if your employer offers an HSA plan and contributes to it on your behalf, the employer will report the contribution on your W-2. However, if you make direct contributions to the account, it will be your responsibility to report the contributions during tax filing. This is where the 1098 may come in handy if related forms (like your W-2 or 8889) cross-reference specific deductible amounts.
Example:
Let’s say you have an HSA with an annual contribution of $3,500. That amount could be deducted from your taxable income, which might be documented alongside other tax deductions like mortgage interest using a 1098 form, though it’s a secondary form and not the primary one. If you use a direct debit to contribute to your HSA, your financial institution may report those transactions alongside your mortgage deductions on Form 1098, but this is typically not the case unless your health-related deductions are somehow linked.
How Does the IRS View Health Insurance Contributions?
While the 1098 form itself doesn’t directly address health insurance premiums, it’s crucial to consider how tax-deductible contributions to health insurance, including through your employer, are calculated.
The IRS allows individuals to deduct health insurance premiums paid through an HSA or an FSA (Flexible Spending Account) from their taxable income, which reduces the overall tax liability. If you are self-employed or have purchased health insurance on the open market, you can deduct those premiums from your taxable income. The IRS, in turn, allows individuals to report these deductions and contributions through various other forms—Form 1040, Form 8889, and others.
Example of Calculating Deduction:
Imagine you are self-employed, and you contribute $5,000 in premiums towards your health insurance. Here’s how the tax deduction process might work:
- Total income: $50,000
- Health insurance premium contribution: $5,000
- Adjusted taxable income: $50,000 – $5,000 = $45,000
Thus, your taxable income decreases by the premium amount. This helps reduce the overall amount of tax you’ll owe.
Flexible Spending Accounts (FSAs) and Health Insurance
Another popular option for reducing taxable income is using a Flexible Spending Account (FSA). FSAs are employer-sponsored accounts where employees can put pre-tax dollars into an account used for healthcare expenses. This reduces taxable income because the contribution is deducted before taxes are applied.
If you’re employed and use an FSA, your employer might provide the necessary documents to report the total contribution on your annual tax form. These forms might not always be labeled with “1098,” but they often provide information that can contribute to lowering your tax obligations.
Key Differences Between HSA and FSA
For individuals who have access to both an HSA and an FSA, it is important to know the differences between them, as they each come with their own set of benefits and limitations. Here is a quick comparison:
| Feature | Health Savings Account (HSA) | Flexible Spending Account (FSA) |
|---|---|---|
| Eligibility | Must be enrolled in a high-deductible health plan (HDHP) | Must be offered through an employer |
| Contribution Limits | $3,850 for individuals, $7,750 for families (2025) | $3,050 per year (2025) |
| Tax Benefits | Tax-free contributions, earnings, and withdrawals | Pre-tax contributions, no tax on withdrawals for medical expenses |
| Rollovers | Contributions roll over year to year | “Use it or lose it” within the plan year |
Conclusion
Health insurance is more than just a policy that helps pay for medical care; it’s also deeply intertwined with our taxes, and understanding how this connection works can help you maximize your tax benefits. The 1098 form, while primarily focused on mortgage interest, plays a critical role for some individuals who use HSAs, FSAs, and other tax-deductible health-related expenses to reduce taxable income.
As tax laws change, it’s essential to stay informed about how forms like the 1098 relate to your health insurance contributions. You should consult a tax professional or accountant if you have questions regarding your health insurance-related deductions, as they can ensure that you take advantage of all the opportunities available to reduce your tax liability.
