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Is Money Deducted From a Paycheck for a Health Savings Account Taxable?

A health savings account allows you to put aside pre-tax money to pay for health care expenses not covered by your insurance company. When you open an HSA, you can save money on health care expenditures, since you are essentially paying with money that has not, and will not, be taxed by the federal government.

  1. Health Savings Account

    • Understanding the ins-and-outs of health savings accounts is important, since opening such an account can have a significant impact on your tax bill. By coupling a health savings account with a high deductible health plan, or HDHP, you can reduce the monthly premiums for the health insurance you need, while at the same time saving money on your tax bill. You can open an HSA through your employer if your company offers such a plan, or you can open one on your own at one of the many banks, brokerage firms and mutual fund companies that offer those plans.

    Contribution Limits

    • If you have your HSA through your employer, you can make contributions through payroll deduction, the same way you invest in your 401(k) and pay your taxes. That makes putting that health care money aside relatively painless, and since you are investing with pre-tax dollars, every dollar you invest lowers your taxable income. The IRS does, however, place limits on the amount you can contribute to an HSA, and your payroll contributions cannot exceed that amount. For 2011, you can contribute up to $3,050 to a single HSA and $6,150 to a family plan. If you are 55 or older, you can contribute an extra $1,000.

    Pre-Tax Dollars

    • When you contribute money to your HSA account through payroll deductions, the money you contribute is deducted from your taxable income. That means you can lower your tax liability considerably just by putting money aside for your health care expenditures. If you normally get a tax refund, contributing to a health savings account can help you get a bigger one. And if you normally owe money, contributing to an HSA might be enough to tip the balance back toward a tax refund, or at least a break-even point.

    Tax Deduction

    • You can save money by contributing to a health savings account even if your employer does not let you deduct the money from your paycheck. You can contact the administrator of your HSA account and contribute directly, either with one lump sum payment or a series of transfers from your bank account. You can contribute as often as you like, provided you do not go over the current HSA plan contribution limits.

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