Updated October 18, 2026. Quick answer: Part III applies only if you stopped being an eligible individual during a testing period. Line 18 is the last-month rule amount, line 19 is a qualified HSA funding distribution, line 20 adds them as income, and line 21 multiplies line 20 by 10%.
IRS worksheets read line by line: Form 8889 Line 3 Limitation Worksheet.
What Part III is for
The instructions say “Use Part III to figure any additional income and adjustments to income that must be reported on Schedule 1 (Form 1040) and additional taxes that must be reported on Schedule 2 (Form 1040) for failure to be an eligible individual during the testing period for:” “Lastmonth rule (see Lastmonth rule, earlier), or” “A qualified HSA funding distribution (see the Instructions for line 10, earlier).”
The testing period
For the last-month rule: “The testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month”. The consequence is “If you fail to remain an eligible individual during this period, other than because of death or becoming disabled, you will have to include in income the total contributions made that would not have been made except for the lastmonth rule.”
The instructions also say “Include the amount in income in the year in which you fail to be an eligible individual.” The HSA funding distribution has its own testing period, described in the line 10 instructions on the Form 8889 lines 9 to 13 page.
Lines 18 and 19: where the numbers come from
Line 18 is labeled on the form “Last-month rule”. The instructions say “You can use the Line 3 Limitation Chart and Worksheet (in these instructions) for the year the contribution was made to determine the contribution you could have made if the lastmonth rule did not apply.” “Enter on line 18 the excess of the amount contributed over the redetermined amount.”
Line 19 is “Qualified HSA funding distribution”. The instructions say “Enter the total of any qualified HSA funding distribution (see line 10).” The limit chart referred to on line 18 is explained on the Form 8889 lines 3, 4 and 5 page.
Lines 20 and 21: income and the additional tax
Line 20 reads “Total income. Add lines 18 and 19. Include this amount on Schedule 1 (Form 1040), Part I, line 8f”. Line 21 reads “Additional tax. Multiply line 20 by 10% (0.10).” The instructions have no separate paragraph headed Lines 20 and 21, so the form’s own wording carries the rule. Here is a computed illustration, not an IRS example: suppose line 18 is $1,500 and nothing is on line 19. Line 20 would then be $1,500. The 10% additional tax would be one tenth of that.
Where it goes next
The form says line 21 should “Include this amount in the total on Schedule 2 (Form 1040), Part II, line 17d”. Schedule 2 is explained on the Schedule 2 lines 17c to 17f page, and line 20 is carried to Schedule 1, which attaches to Form 1040.
Edition and line numbers
This page reads the 2025 Form 8889 and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. The form says “Attach to Form 1040, 1040-SR, or 1040-NR.” Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its lines differently. The form itself is walked through on the Form 8889 page.
Common mistakes
- Completing Part III when no testing period was missed. It applies to “failure to be an eligible individual during the testing period”.
- Counting a death or disability as a failure. The instructions exclude failures “other than because of death or becoming disabled”.
- Reporting the income in the wrong year. The instructions say “Include the amount in income in the year in which you fail to be an eligible individual.”
Related: Form 8889, Schedule 2 lines 17c to 17f, HSA and the Medicare six month lookback, and HSA after leaving your employer.
Sources
- Instructions for Form 8889, Health Savings Accounts (2025): https://www.irs.gov/pub/irs-pdf/i8889.pdf
- Form 8889, Health Savings Accounts (HSAs) (2025): https://www.irs.gov/pub/irs-pdf/f8889.pdf
Read from the IRS documents linked above on October 18, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.