A Health Savings Accounts (HSA) provides a tax advantage to offset health care expenses. This tax-exempt custodial account is established exclusively for the purpose of paying or reimbursing qualified medical expenses. It is available to taxpayers in the United States who are enrolled in a high deductible health plan (HDHP).
The money in your HSA remains available for future qualified medical expenses even if you change health insurance plans, go to work for a different employer, or retire.
Contributions can come from you, your employer, a relative or anyone else who wants to add to your HSA. The Internal Revenue Service does, however, set limits. For 2022, for example, the limit is $3,850 for individuals and $7,750 for families, plus an additional $1,000 “catch-up” contribution for anyone age 55 or older by the end of the tax year.
Contributions are typically made with pre-tax dollars, through payroll deductions at your employer. As a result, they are not included in your gross income and are not subject to federal income taxes. In most states, contributions are not subject to state income taxes.
The maximum HSA contribution limit is $3,850 per year for an individual, while families can contribute $7,750. There is also a catch-up contribution limit of $1,000 for those who are age 55 or older (note: catchup contributions for retirement accounts start at age 50).
If you make contributions with after-tax dollars, you can deduct them from your gross income on your tax return, reducing your tax bill for the year.