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HSA Contribution Instructions

A health savings account (HSA) is a special type of tax-advantaged, trustee-based financial account that must be used in conjunction with a high-deductible health insurance policy. HSAs can typically be established through any financial institution that is already approved by the Internal Revenue Service to act as a trustee or custodian for individual retirement accounts (IRA). There are specific rules that govern contributions to HSAs.

  1. Limits

    • The amount of money that an individual may contribute to a health savings account is limited by federal regulation. The limit may be adjusted from year to year. Health savings accounts that are associated with an individual high-deductible health insurance policy are limited to a maximum of $3,050 for the 2010 tax year. Health savings accounts that are associated with a family high-deductible health insurance policy are limited to a maximum of $6,150 for the 2010 tax year.

    Contributors

    • Employers who offer a health savings account as part of their employee benefit program may contribute toward the employee's HSA. Employees may also contribute to their employer-sponsored HSA, but total contributions may not exceed federally mandated levels. There is no earned income requirement for individuals to open or maintain an HSA. An individual, a family member or any other person may make contributions to an individual's HSA.

    Taxes

    • Employees who make contributions to their health savings accounts through payroll deduction may elect to make their contributions with pretax dollars through salary reduction. Individuals who fund their own HSA with after-tax dollars may deduct the amount of their contributions from their taxable income when they file their federal income taxes. Employers who make contributions to their employees' HSAs may deduct the contributions as a business expense. The employer and employee may not both take a deduction for the same contribution.

    Considerations

    • Contributions to a health savings account must be made with cash. Contributions may be made up to the tax filing deadline, which is typically April 15 for the previous tax year. Contributions made to an HSA are allowed to grow tax free while the funds remain in the HSA. Withdrawals from an HSA that are used to pay for qualified health care expenses are free from federal income taxes. Funds withdrawn for other reasons may be subject to federal income taxation plus a 10 percent tax penalty.

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