Health Savings Account (HSA) | Life & Health

01 / UNDERSTAND

The essentials

The health plan provides insurance coverage. The HSA is a separate, individually owned account with federal tax advantages: eligible contributions are deductible or excluded from income, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. Those expenses can include deductibles, copayments, and coinsurance. [1–3]

OWNERSHIP

Individual ownership

The balance carries forward each year and remains with the account holder after a job change.

FUNDING

More than one contributor

The eligible individual, an employer, or others may contribute, within the combined annual limit.

Who can contribute?

Generally, contribution eligibility requires HSA-eligible health coverage, no disqualifying other coverage, no Medicare enrollment, and no eligibility to be claimed as another taxpayer’s dependent. [2]

For 2026: Individual-market Bronze and Catastrophic plans are treated as HSA-compatible. A high deductible alone does not establish eligibility for every other plan. [5]

EXAMPLE

Maya leaves her job with $2,400 in her HSA. She keeps the $2,400. If her new coverage makes her ineligible to contribute, she can still use her existing balance for qualified medical expenses.

Watch the wording: Losing eligibility to contribute is different from losing access to money already in the account.

02 / HOW IT WORKS

From enrollment to a medical bill

An HSA involves two separate pieces: qualifying health coverage and an account with a financial institution. In a workplace, the employer may help arrange both.

Confirm eligibility and enroll in coverage

The worker enrolls in an HSA-eligible health plan through an employer or the individual market. Other coverage and Medicare enrollment can affect contribution eligibility, so the plan label alone is not enough. [2]
Open the HSA

The worker completes the account provider’s application. An employer may offer a preferred provider, or the individual may open an HSA with a qualified bank, credit union, or other custodian. Health-plan enrollment does not by itself establish that the account is open. No separate IRS approval is required. [2, 6]
Arrange contributions

Through payroll: If offered, the employee elects an amount to be deposited from each paycheck. Contributions through a qualifying cafeteria plan are generally pretax. The employer may contribute as well.

Directly: An eligible individual can deposit personal funds with the HSA provider and generally claim the applicable federal income-tax deduction. Employer and personal contributions count toward the same annual limit; a pretax payroll contribution cannot also be deducted a second time. [3, 7]
Pay or reimburse a qualified expense

The account holder can pay using an HSA debit card if available, or pay personally and request a distribution to reimburse the expense. The expense must qualify, must generally follow account establishment, and cannot already have been reimbursed elsewhere. Receipts support the tax treatment; an HSA card transaction alone does not prove eligibility. [2, 3, 6]

PAYROLL EXAMPLE

A worker elects $100 per paycheck for 24 paychecks: $2,400. The employer adds $600. Total contributions are $3,000, and both amounts count toward the applicable annual limit. If a qualified $250 bill is paid from the account, $2,750 remains, ignoring earnings, fees, and other activity.

Exam distinction: An HSA pays from the money available in the account. An annual contribution election does not make the full year’s planned deposits immediately available.

03 / FOLLOW THE MONEY

Know the tax treatment

Contributions

Eligible personal contributions are generally deductible; qualifying employer contributions are generally excluded from income.

Account growth

Interest and investment earnings grow free of federal income tax.

Qualified withdrawals

Withdrawals for qualified medical expenses are generally tax-free.

An expense must qualify and generally must have been incurred after the HSA was established. An expense reimbursed tax-free from the HSA cannot also be claimed as a medical expense deduction. [2, 3]

What if the money pays for something else?

A nonmedical withdrawal is generally taxable. Before age 65, it also generally carries an additional 20% tax. That extra tax does not apply after age 65, disability, or death; ordinary income tax can still apply. [3]

For example, a 40-year-old who takes $500 for a vacation generally owes income tax on $500 plus a $100 additional tax, assuming no exception applies.

04 / COMPARE

Three similar names. Different rules.

Start with who funds it and what happens to unused money.

HSA, HRA, and health FSA at a glance
Key distinction	HSA	HRA	Health FSA
Full name	Health savings account	Health reimbursement arrangement	Flexible spending arrangement
Who contributes?	Eligible individual, employer, or others	Employer only	Employee; employer may also contribute
Unused money	Remains in the individual’s account	Carryover depends on plan terms	Generally use it or lose it; a plan may allow a limited carryover or grace period
Leaving a job	Account stays with the individual	Further reimbursements depend on plan terms	Generally ends with employment; continuation rights may apply