A Health Savings Account (HSA) provides a tax-advantaged method for individuals to save and pay for qualified medical expenses. This account allows for pre-tax contributions, tax-free growth through investments, and tax-free withdrawals for eligible healthcare costs, making it a valuable tool for managing present and future medical expenditures. HSAs are designed to empower individuals with greater control over their healthcare finances, offering a unique combination of savings and investment potential.
HSA Eligibility Requirements
Establishing and contributing to an HSA requires meeting specific criteria set by the Internal Revenue Service (IRS). An individual must be covered under a high-deductible health plan (HDHP). For 2025, this means a deductible of at least $1,650 for self-only coverage or $3,300 for family coverage, with out-of-pocket maximums not exceeding $8,300 for self-only or $16,600 for family coverage. Individuals must not have other health coverage that is not an HDHP, with exceptions for dental, vision, or long-term care insurance. Enrollment in Medicare also disqualifies an individual, and they cannot be claimed as a dependent on someone else’s tax return.
Who Can Contribute Funds to an HSA?
While specific eligibility criteria govern who can own and personally contribute to an HSA, various parties can deposit funds into an eligible individual’s account. The eligible account holder can contribute to their own HSA directly by the individual, often pre-tax through payroll deductions if offered by an employer, or as a tax-deductible contribution when filing taxes. Employers can also contribute to an eligible employee’s HSA, and these contributions are generally excluded from the employee’s gross income. Family members or any other person can also make contributions to an eligible individual’s HSA. Contributions from third parties are generally not tax-deductible for the contributor, but they still count towards the eligible individual’s annual contribution limit.
Understanding HSA Contribution Limits
The IRS sets annual contribution limits for HSAs, which vary based on the type of health plan coverage. For 2025, the maximum contribution for individuals with self-only HDHP coverage is $4,300, and for those with family HDHP coverage, it is $8,550. These limits encompass all contributions made by the individual, their employer, and any other third parties. Individuals aged 55 and older are permitted to make an additional “catch-up contribution” of $1,000 annually. If an individual becomes eligible or ineligible for an HSA during the year, the contribution limit is typically prorated based on the number of months they were eligible.
What Happens with Ineligible or Excess Contributions?
Contributing to an HSA when not eligible or exceeding the annual limits can result in penalties. If an individual makes contributions while not meeting the eligibility requirements, those contributions are not tax-deductible and are subject to a 6% excise tax. This 6% excise tax applies to the ineligible amount for each year it remains in the account. Similarly, contributions that exceed the annual IRS-set limits are also subject to a 6% excise tax. To avoid these penalties, excess contributions, along with any earnings attributed to them, must be withdrawn from the HSA by the tax filing deadline, including extensions.