HSA Service Center

Health savings accounts (HSAs) are tax-favored savings arrangements for individuals and families covered by high deductible health insurance plans. HSAs were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and became available January 1, 2004.

HSAs allow for tax-deductible contributions and tax-free distributions if distributed amounts are used to pay for qualified medical expenses. Qualified medical expenses include expenses incurred by spouses and dependents even if they are not eligible for an HSA. Although employers may contribute to an employee’s HSA, each HSA is owned and controlled by the individual, not the employer.

HSA Eligibility

Who is eligible to establish an HSA?

Any eligible individual may establish an HSA. Eligibility is determined on a monthly basis. To be eligible, an individual must meet all of the following requirements.

Covered under a high deductible health plan (HDHP) on the first day of the month
Generally not covered by any health plan that is not an HDHP (exceptions exist for coverage that is not part of an HDHP for accidents, disability, dental care, vision care, long-term care, or permitted insurance)
Not enrolled in Medicare
Not able to be claimed as a dependent on another person’s tax return

The owner of an HSA is called the "HSA owner."

NOTE: Permitted insurance is insurance under which substantially all of the coverage provided relates to liabilities incurred under workers’ compensation laws, tort liabilities, liabilities relating to ownership or use of property (e.g., automobile insurance), insurance for a specified disease, or illness and insurance that provides a fixed payment for hospitalization.

What type of health plan is considered an HDHP?

A health plan is an HDHP if the plan satisfies the following annual deductible and out-of-pocket expense requirements for self-only or family coverage.

Self-only coverage: Annual deductible of at least $1,650 for 2025 and $1,700 for 2026, and an out-of-pocket expense (deductibles, co-payments, and other amounts, but not premiums) cap of $8,300 for 2025 and $8,500 for 2026.

Family coverage: Annual deductible of at least $3,300 for 2025 and $3,400 for 2026, and an out-of-pocket expense (deductibles, co-payments, and other amounts, but not premiums) cap of $16,600 for 2025 and $17,000 for 2026.

Family coverage with individual deductibles: In cases where family coverage has individual deductibles, the plan is considered an HDHP if no amounts are payable from the health plan until the family has incurred covered medical expenses in excess of the minimum annual deductible ($3,300 for 2025 and $3,400 for 2026), and the plan has an out-of-pocket expense cap of $16,600 for 2025 and $17,000 for 2026.

NOTE: These amounts may be increased for annual cost-of-living adjustments.

EXAMPLE: Which plan is considered an HDHP?

Plan A: Steve Johnson purchases health insurance for himself and his family for 2026. His plan has a $5,000 family deductible with a $1,000 individual deductible.

Plan B: Steve Johnson purchases health insurance for himself and his family for 2026. His plan has a $5,000 family deductible with a $3,400 individual deductible.

Answer: Plan A provides payment of covered medical expenses for any member of Steve’s family if the member has incurred covered medical expenses during the year in excess of $1,000, even if the family has not incurred covered medical expenses in excess of $3,400. Thus, benefits are potentially available under the plan even if the family’s covered medical expenses do not exceed $3,400. Because Plan A provides family coverage with an annual deductible of less than $3,400, the plan is not an HDHP.

Plan B satisfies the requirements for an HDHP because the plan only provides payment for covered medical expenses if any member of Steve’s family incurs covered medical expenses during the year in excess of $3,400.

Can a network plan be an HDHP?

Yes. A network plan is a plan that generally provides more favorable benefits for services provided by its network of providers than for services provided outside the network. When determining if a plan is an HDHP, the out-of-pocket expense limits for services provided outside of a network of preferred providers are disregarded. In other words, if a plan otherwise meets the requirements of an HDHP, but the out-of-pocket expense limits for out-of-network services exceed the maximum annual out-of-pocket expense limits allowed for an HDHP, the plan will still be considered an HDHP.

EXAMPLE: Is the plan described below an HDHP?

Sarah has self-only coverage under her health plan for 2026. She may access services from either a network of preferred providers, or she may choose to receive services from out-of-network providers. When she uses in-network providers, her health plan has a $1,700 deductible and a $4,000 out-of-pocket expense limit. Alternatively, when she accesses services from out-of-network providers, her deductible is $2,000, and her out-of-pocket expense limit is $12,000.

Answer: Yes. Sarah’s plan is an HDHP because it meets the deductible and out-of-pocket expense restrictions for self-only coverage when she uses network providers. Out-of-network provider expenses are disregarded when determining if an individual has an HDHP.

Can a plan still qualify as an HDHP if there is no deductible for preventive care?

A plan will still qualify as an HDHP even though it may not have a deductible (or has only a small deductible) for preventive care. Except for preventive care, in order to be an HDHP, a plan may not provide benefits for any year until the deductible for that year is met.

Establishing an HSA

How can HSAs be established?

Any eligible individual can establish an HSA with a qualified HSA trustee or custodian. An eligible individual who is an employee may establish an HSA with or without involvement of the employer.

Beneficiaries: Although naming beneficiaries is not required, an HSA owner should name a beneficiary(ies) to receive the HSA assets upon his death. HSA owners also may wish to change their death beneficiaries.

Who can be an HSA trustee or custodian?

Any insurance company or any bank (including a similar financial institution as defined in section 408(n)) can be an HSA trustee or custodian. In addition, any other person already approved by the IRS to be a trustee or custodian of IRAs or Archer medical savings accounts (MSAs) is automatically approved to be an HSA trustee or custodian.

Persons other than banks, insurance companies, or previously approved IRA or MSA trustees or custodians may request approval to be a trustee or custodian in accordance with the procedures set forth in Treasury Regulation Section 1.408-2(e) (relating to nonbank trustees).

How does a trustee or custodian know that an individual is eligible to establish an HSA?

Although proof is not required, a trustee or custodian may ask for proof or certification that a potential HSA owner is eligible to establish an HSA. For example, the trustee or custodian may request documentation that verifies that the individual is covered by a health plan that meets all of the requirements of an HDHP.

HSA Contributions

Who may contribute to an HSA?

Any or all of the following are eligible to contribute to an HSA in a given year.

An eligible individual (defined earlier)
An eligible individual’s employer (if applicable)
Any other person

What if an employer wants to make an HSA contribution for an employee?

If an employer chooses to make HSA contributions for one employee, the employer generally must make comparable contributions on behalf of all eligible employees with comparable coverage during the same period, which is known as the "comparability rule." Contributions are considered comparable if they are the same amount or the same percentage of each employee's deductible under the high deductible health plan (HDHP). The comparability rule is applied separately to part-time employees (i.e., employees who are typically employed for fewer than 30 hours per week). Employers who do not comply with the comparability rule during a period will be subject to an excise tax of 35 percent of the aggregate amount contributed by the employer to HSAs for that period.

EXAMPLE: Shady Oaks Spa offers two health plans, including an HDHP with self-only coverage. For each employee electing the HDHP with self-only coverage, the employer contributes $1,000 per year to an HSA on behalf of the employee. For employees who do not elect the HDHP, the employer makes no HSA contributions. Shady Oaks Spa’s plan and HSA contributions satisfy the comparability rule.

Can an HSA be funded through a cafeteria plan?

An HSA may be offered as an option under an employer’s cafeteria plan. In other words, an employee may elect to have amounts contributed as employer contributions to an HSA on a salary-reduction basis through the cafeteria plan. In fact, an employer could include both an HSA and an HDHP as options under its cafeteria plan, thus allowing an employee to contribute to the HSA and pay the premiums for the HDHP through salary reduction.

NOTE: The comparability rule does not apply to contributions made through a cafeteria plan.

What are the form and timing requirements for HSA contributions?

Contribution deadline: Individuals must make regular contributions to an HSA by the due date of their federal income tax returns (generally April 15), not including extensions. If the deadline for filing an individual's income tax return falls on a Saturday, Sunday, or legal holiday, he will have until the following business day to make his contribution. For example, you can make your 2025 tax year contribution anytime between January 1, 2025, and April 15, 2026. And you can make your 2026 tax year contribution any time between January 1, 2026, and April 15, 2027.

One or more payments are permitted: Contributions for the year can be made in one or more payments. Although the annual contribution limit is determined monthly, the maximum contribution may be made on the first day of the year.

Contributions other than rollovers must be in cash: Annual contributions must be made in cash. Assets from Archer MSAs and other HSAs may be rolled over in-kind to an HSA.

HSA contribution form: Financial organizations accepting HSA contributions must keep records of contributions. Obtaining a completed HSA contribution form from the HSA owner is essential to maintaining precise records that, in turn, generate accurate reports.

Aggregated contributions: All HSA contributions, regardless of who makes the contribution, are aggregated for purposes of applying the contribution limit. Qualified HSA funding distributions and Archer MSA contributions also are aggregated for purposes of applying the HSA contribution limit made for the same calendar year.

How much may be contributed to an HSA in calendar year 2025 and 2026?

General rule: For an eligible individual that is covered by the same HDHP plan for the entire calendar year, the maximum annual contribution is the statutory limit of $4,300 in 2025 and $4,400 in 2026 for those with self-only coverage, or $8,550 in 2025 and $8,750 in 2026 for those with family coverage. An HSA owner is treated as being covered by the same HDHP coverage (self-only or family) for the entire year as the coverage held on December 1.

NOTE: Contribution amounts may be adjusted for cost-of-living increases.

Contributions may be made by or on behalf of an eligible individual even if the eligible individual has no compensation, or the contributions exceed his or her compensation.

Catch-up contributions: Eligible individuals may make HSA catch-up contributions of up to $1,000 annually. For eligible individuals who are married and have family coverage, each spouse who is an eligible individual may make a catch-up contribution to his or her own HSA.

If an eligible individual will attain age 55 or older by the end of the calendar year, and he or she is an eligible individual for the entire year, he or she may make a full catch-up contribution.

What if someone is only eligible for a portion of the year?

If an HSA owner is HSA-eligible for only a portion of the year, he may make a full-year contribution if he remains HSA-eligible throughout a 13-month “testing period.” The testing period runs from the first day of the last month of the initial eligibility year through the end of the 12-month period following that month.

If HSA owners fail to maintain eligibility for the entire testing period, they must prorate the contribution limit for the number of months they were eligible. HSA owners must include ineligible contributions in gross income and pay a 10 percent testing period failure penalty tax on the ineligible amount.

What is the contribution limit if an individual switches HDHP coverage during the year?

HSA eligibility is determined on the first of each month. If an HSA owner changes HDHP coverage from self-only to family or family to self-only, she can add up the monthly limit for each month she was covered to determine her annual contribution limit, or she can determine her contribution limit as if she was covered by the same HDHP coverage for the entire year as the coverage held on December 1. With this rule, the HSA owner may increase, but does not have to decrease the contribution limit. For example if an HSA owner has self-only coverage throughout 2026, but switches to family coverage on November 1, 2026, and has family coverage through December 31, 2026, the HSA owner’s contribution limit is the family coverage contribution limit ($8,750 for 2026).

When must HSA contributions stop?

Once an individual enrolls in Medicare, contributions, including catch-up contributions, cannot be made beginning with the month the individual enrolls.

EXAMPLE: Pearl, who is covered under an HDHP with self-only coverage, attains age 65 and enrolls for Medicare benefits on March 1, 2026. Her 2026 contribution limit is 2/12 of the statutory contribution limit. She may make contributions for January and February, but may not make any contributions for March through December 2026 or thereafter.

How is a contribution limit determined for each spouse if one or both spouses have an HDHP with family coverage?

If both spouses are eligible individuals, the total contribution limit for both spouses cannot exceed the family coverage maximum contribution, divided equally between the spouses unless they agree upon a different division. Regardless of how the limit is divided between the spouses, the aggregate contributions between the two spouses cannot exceed the maximum annual contribution amount for family coverage, (i.e., $8,550 for 2025 and $8,750 for 2026).

EXAMPLE: Leah and Jon are married. They are both 42 years old and both have family coverage under HDHPs. In this scenario, Leah and Jon in aggregate cannot exceed a contribution of $8,750 for 2026. Each may contribute $4,400 to an HSA for 2026, unless they decide to divide the amount in a different way.

Catch-up contributions: One or both spouses may make catch-up contributions, if age eligible. For example, if both spouses are age 55 or older by the end of 2026, total contributions to their HSAs cannot exceed $10,750 ($8,750 maximum limit + $1000 catch-up for each spouse), when both have family coverage.

Archer MSA contributions: The family coverage limit is reduced by any contributions to Archer MSAs.

What is the tax treatment of an eligible individual’s HSA contribution?

Contributions made by an eligible individual: HSA contributions made by an eligible individual or his or her family members are deductible by the eligible individual when determining his or her adjusted gross income. Contributions are deductible whether or not the eligible individual itemizes deductions.

NOTE: The individual cannot also deduct the contributions as medical expense deductions.

Employer contributions: HSA contributions made by an employer to employees’ HSAs may be deducted by the employer. These contributions are excluded from the employees’ gross income, are not subject to withholding for income tax, and are not subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), or the Railroad Retirement Tax Act (RRTA).

NOTE: Contributions to an employee’s HSA through a cafeteria plan are treated as employer contributions. The employee cannot deduct employer contributions on his or her federal income tax return as HSA contributions or as medical expense deductions.

Tax-deferred earnings: Earnings on amounts in an HSA are tax-deferred and are not includable in gross income while held in the HSA.

What if HSA contributions exceed the eligible individual’s limit?

HSA contributions that exceed the contribution limit for the year, or contributions made by an ineligible individual, are considered excess HSA contributions. Excess contributions cannot be deducted on the individual’s tax return. Excess contributions made by employers are included in gross income by the employee to the extent they exceed the contribution limit (i.e., the employer must include this excess amount on the employee’s Form W-2, Wage and Tax Statement, as taxable wages).

A six percent excess contribution penalty tax is imposed on the HSA owner for each tax year the excess contribution remains in the account. If, however, the excess contribution for a tax year and the net income attributable (NIA) to the excess are paid to the owner by his or her tax return deadline, plus extensions (or by the end of the automatic six-month extension, for timely tax return filers), the excise tax does not apply. The excess contribution is not taxed when distributed, but the NIA is included in the HSA owner’s income for the tax year in which the distribution is withdrawn, and is generally subject to an additional 20 percent penalty tax.

HSA Portability

Are HSAs portable?

Transfers: HSA assets may be transferred from one HSA to another HSA with the same or different trustee or custodian. Additionally, a former spouse may transfer HSA funds to his or her own HSA if awarded all or a portion of a former spouse’s HSA as part of a divorce settlement.

Rollovers: Assets from Archer MSAs and other HSAs may be rolled over into an HSA. To avoid confusion over where the rollover assets originated (i.e., from an MSA or HSA) trustees and custodians are advised to verify the source of HSA rollover contributions, and ask specific eligibility questions concerning timeliness of the rollover (i.e., made within 60 days) and the 12-month rollover restriction.

The Tax Relief and Health Care Act of 2006 permits a one-time option to take a “qualified HSA funding distribution” and directly move Traditional or Roth IRA assets to an HSA. The qualified HSA funding distribution is limited to the annual HSA contribution amount, and offsets any regular HSA contributions for that year. The HSA owner must remain HSA-eligible for 12 months following the month of the qualified HSA funding distribution. If the HSA owner does not remain eligible for 12 months (for reasons other than death or disability), the qualified HSA funding distribution amount must be included in income and a 10 percent testing-period failure penalty tax applies.

HSA Distributions

When are HSA assets available for distribution?

HSA assets are payable on demand. There are no restrictions on when and how often an HSA owner may take distributions from an HSA. Using checks and debit cards are acceptable means of withdrawing HSA assets from the account.

Federal withholding does not apply to HSA distributions.

How are HSA distributions taxed?

Distributions from HSAs may be exempt from federal income tax and penalties, depending on whether or not the distribution is used to pay for qualified medical expenses.

Qualified distributions: Distributions from HSAs for qualified medical expenses of the HSA owner, his or her spouse, or dependents are exempt from federal income tax and penalties.

Nonqualified distributions: Distributions that are not used for qualified medical expenses are includable in the individual’s gross income. In addition, nonqualified distributions are subject to a 20 percent additional penalty tax, unless the distribution is made after the HSA owner’s death, disability, or attainment of age 65.

NOTE: HSA owners are responsible for making the determination as to whether an HSA distribution is qualified or nonqualified. The HSA owner should maintain records of his or her medical expenses sufficient to show that the distributions have been made exclusively to pay for qualified medical expenses, and are, therefore, excludable from gross income. HSA trustees or custodians, as well as employers who make contributions to an employee’s HSA, are not responsible for determining whether distributions are qualified or nonqualified.

What are qualified medical expenses?

Qualified medical expenses are expenses incurred after an HSA has been established, are not covered by insurance, and are paid by the HSA owner, his or her spouse, or dependents. Types of qualified medical expenses include

diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function on the body;
transportation for the essential medical care listed above;
qualified long-term care services;
premiums for qualified long-term care insurance, COBRA health care continuation coverage, health care coverage while an individual is receiving unemployment compensation;
for individuals over age 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance; and
certain amounts paid for lodging while away from home that is essential to medical care.

What is the tax treatment of an HSA after the death of the HSA owner?

The tax treatment of an HSA after the death of the HSA owner depends on whether a spouse or nonspouse is designated as the death beneficiary of the account.

Spouse as death beneficiary: If the death beneficiary is a spouse, the HSA is treated as the surviving spouse’s own HSA. Distributions to the surviving spouse for qualified medical expenses would be exempt from federal income tax and penalties.

Nonspouse as death beneficiary: If the death beneficiary is a nonspouse, the HSA ceases to be an HSA as of the date of death, and the nonspouse death beneficiary includes the fair market value of the HSA in his or her income for the year of the death.

NOTE: The amount that must be included in the death beneficiary’s income (unless the death beneficiary is the decedent’s estate) is reduced by any payments made by the HSA for the decedent’s qualified medical expenses, if paid within one year after death.

HSA Reporting

What are the IRS reporting requirements for HSAs?

HSA contributions are reported on IRS Form 5498-SA. Rollover amounts and the year-end fair market value are reported on this form as well. This form is required to be filed with the IRS and sent to the HSA owner by May 31 of the following year.

HSA distributions are reported on IRS Form 1099-SA. This form is required to be sent to the recipient by January 31 and to the IRS by February 28 of the year after distributions are made.

HSA Benefits

The following lists indicate how employers and individuals are likely to benefit from HSAs.

Employers: By offering HSAs through their cafeteria plans and/or providing employer HSA contributions, employers potentially have much to gain.

Contributions are considered employer-provided coverage for medical expenses
Increased ability to attract and retain employees
Lower overall health insurance costs

Employees: Employees might benefit from participating in an HSA program in the following ways.

Ability to carry over contributions
Portability of assets
Payment of medical costs with pretax dollars
Potential for additional employee benefits