Taxes Tax Planning The Tax Benefits of Health Savings Accounts (HSAs) The HSA tax deduction By William Perez Updated on December 21, 2022 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Fact checked by David Rubin Sponsored by What's this? & In This Article View All In This Article Qualifying Rules for HSAs Contribution Limits for HSAs HSA Contributions and Taxes Earnings Are Tax-Exempt Withdrawing From Your HSA Your HSA as a Tax-Planning Tool Where and How to Claim Deductions Frequently Asked Questions (FAQs) Photo: Morsa Images / DigitalVision / Getty Images Health savings accounts (HSAs) are tax-deductible savings plans that allow you to put aside pre-tax dollars for future health care expenses. Pre-tax dollars are subtracted from your pay before taxes are withheld, so you don't pay tax on that portion of your income. According to the Internal Revenue Service (IRS), an HSA is a tax-exempt custodial or trust account that's set up with a trustee. Distributions aren't taxed as long as you use the money to pay for qualified medical expenses. Key Takeaways Health savings accounts (HSAs) are tax-deductible savings plans that allow you to save pre-tax dollars for future medical expenses. Pre-tax dollars are subtracted from your pay before taxes are withheld, so you don't pay tax on that portion of your income.Eligibility rules require that you be enrolled in a high-deductible health insurance plan to qualify for an HSA. There's a cap on how much you can contribute and save each year when it comes to health savings accounts. Withdrawals from an HSA are tax-free as long you use the money to pay for qualified medical expenses. Qualifying Rules for HSAs Eligibility rules require that you be enrolled in a high-deductible health insurance plan to qualify for an HSA. The high-deductible plan must meet certain requirements. For 2022, the minimum annual deductible limit is $1,400 for self-only coverage ($1,500 for 2023) and $2,800 for family coverage ($3,000 for 2023). There are no income limitations to qualify for health savings accounts, unlike individual retirement accounts (IRAs), which do have income limits. Contribution Limits for HSAs There's a cap on how much you can contribute each year when it comes to health savings accounts. The contribution limits to HSAs for those under a high deductible plan are as follows: For 2022, contribution limits to HSAs are $3,650 for self-only coverage and $7,300 for those with family coverage.For 2023, contribution limits to HSAs are $3,850 for self-only coverage and $7,750 for those with family coverage. Contributions made by your employer count toward these limits. Those who are age 55 or older can contribute an additional $1,000. This "catch-up" contribution isn't indexed for inflation, so it's the same amount from year to year. Plus, you can make this additional contribution at any time during the year. Note You are not permitted to make HSA contributions if you're enrolled in Medicare. Tax Treatment for HSA Contributions Contributions to an HSA are tax-deductible on your Form 1040 tax return as an adjustment to income. However, you don't have to take them as an itemized deduction for medical expenses, which is advantageous because itemized medical deductions are limited to expenses paid in excess of 7.5% of your adjusted gross income in the tax year 2022. Important The IRS indicates that contributions to your HSA made by your employer can be excluded from your gross income, but you also can't claim a tax deduction for them. Contributions for a particular tax year are due by the same day as the filing deadline for your tax return, which is usually April 15, unless this date falls on a weekend or a holiday or is otherwise extended. Earnings Are Tax-Exempt Earnings, such as interest and dividends from the money contributed to an HSA, are tax-exempt at the federal level. Interest or other investment income earned on the contributions are not included in your tax return. Withdrawing From Your HSA Withdrawals from an HSA are tax-free as long you use the money to pay for qualified medical expenses. "Qualified" expenses are detailed in IRS Publication 502, Medical and Dental Expenses. They include most medical costs, from birth control pills to guide dogs to surgery. They also include mileage traveling to and from treatment, but not costs associated with items that are just considered "healthy," like vitamins or gym memberships. Qualified expenses include costs incurred on behalf of yourself, as well as your spouse and any dependents. Using an HSA as a Tax-Planning Tool HSAs accumulate earnings and income without being subject to forfeiture the way flexible spending accounts are if they're not used. Money held inside an HSA can be withdrawn at any time for qualified medical expenses, so an HSA can be used to accumulate tax-free income for use later in life. You can build tax-free savings for future medical expenses as you age. Tip HSAs additionally offer people with few medical expenses a tax deduction upfront in the years that contributions are made. How To Claim the Deduction Financial institutions report HSA contributions on IRS Form 5498-SA, which is sent to both the taxpayer and the IRS. You can then report your tax-deductible HSA contributions on Form 8889, with the total contributions transferred to and reported on your Form 1040. Frequently Asked Questions (FAQs) Can you file federal tax returns for free if you want to deduct HSA contributions? Tax-filing services like H&R Block have service tiers starting at a free filing option. However, these free filing options typically only include the most basic tax forms, so you might have to pay extra for a level of service that processes Form 8889 and deducts HSA contributions. Depending on your income, you may qualify for IRS Free File, which may allow you to process your tax return for free. When can I take the HSA deduction? HSA contributions are deductible for the year in which you made them. In other words, if you made HSA contributions in 2022, then you will claim the corresponding deductions when you file your 2022 tax return before the April 18, 2023 deadline. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans." HealthCare.gov. "High Deductible Health Plans (HDHPs) & Health Savings Accounts (HSAs)." IRS. "Rev. Proc. 2022-24," Page 2. IRS. "Rev. Proc. 2021-25," Page 2. IRS. "Rev. Proc. 2021-25," Page 1. IRS. "Rev. Proc. 2022-24," Page 1. IRS. "Topic No. 502 Medical and Dental Expenses." IRS. "Publication 502, Medical and Dental Expenses." HealthCare.gov. "Using a Flexible Spending Account (FSA)." IRS. "IRS Free File Online: Browse All Offers." IRS. "Publication 509, Tax Calendars for Use in 2023 (Draft)," Page 5.