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How Are Contributions to an HSA Deducted?

Whether you open a health savings account on your own or get one through your employer, you have a number of options for funding that account. If your HSA is linked to your employer-provided health plan, you can fund it through payroll deductions, just like you do with your 401k. If you buy the plan on your own, you can make regular contributions whenever you want, provided you do not exceed the maximum contribution limits set by the IRS.

  1. Employer Contributions

    • Some employers offer their employees a combination of a high-deductible health plan and a health savings account. High-deductible health plans generally have lower premiums than traditional plans, and that can save both workers and employees a lot of money. To encourage workers to sign up for those less-expensive plans, those employers often offer to partially fund the HSA on behalf of those workers. The employer might contribute a lump sum at the beginning of each year or make regular contributions throughout the year.

    Payroll Deductions

    • Employees who sign up for a health savings account offered by their employers typically have the option of contributing to their funds through regular payroll deductions. The payroll deduction option can make it easier for workers to contribute, since the money comes out before they have a chance to spend it. Since those contributions can come out on a pre-tax basis, the workers can save money on taxes as well.

    Direct Contributions

    • Those who open their health savings accounts on their own make direct contributions, rather than contributions through payroll deduction. HSA holders can set their contributions up however they want, either by making regular transfers from a bank account or by making several lump sum contributions throughout the year.

    Contribution Limits

    • The IRS imposes limits on the amount you can contribute to your HSA each year. It is therefore very important to review those limits each year before you start contributing to your HSA. For 2011 the limit for an individual HSA contribution is $3,050. If you have a plan that covers your entire family, you can contribute up to $6,150. There is also a special provision that allows those 55 and older to contribute an extra $1,000 to their health savings accounts, provided those contributors are not currently covered by Medicare.

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