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Are HSA Contributions Taxable?

A Health Savings Account, or HSA, is an excellent way to budget for the high cost of medical care. An HSA allows individuals to put money aside on a pretax basis to pay for medical expenses not covered by their health care plans. The contributions to an HSA are not taxable, and in fact those contributions can actually lower your tax liability.

  1. Payroll Deductions

    • If your employer offers an HSA as part of a high deductible health plan, you can make your contributions through payroll deductions. If you choose this option, the money you contribute comes out of your paycheck on a pretax basis. This effectively lowers the amount of your taxable income and, therefore, your tax liability.

    Tax Deduction

    • If you choose to make your HSA contribution directly, you can claim a tax deduction for the amount you put in. Since the money you put into the plan is not subject to taxes, every dollar you put in lowers your taxes. You can contribute as much as you want, up to the limit established by the IRS.

    Contribution Limits

    • The IRS places limits on the amount you can contribute to your HSA. The IRS revisits these limits each year, using a number of factors, including the rate of inflation. It is a good idea to check those limits each year before you make your contribution. If you contribute too much to your HSA, you could be subject to an excess contribution penalty from the IRS.

    Tax Return

    • When you file your tax return, you can take a deduction for the amount you contributed to your HSA account. If you use tax preparation software like Tax Act, Turbo Tax or H & R Block at Home, you can use the question and answer format to enter your HSA contribution and figure your HSA contribution. Otherwise you can enter the amount of your HSA contribution directly on the 1040 form.

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