Benefits

Health Savings Account (HSA): Eligibility, Contribution Limits, Tax Benefits, and Withdrawal Rules

A Health Savings Account (HSA) — also called an HSA savings account, health savings plan, health care savings account, healthcare savings account, or simply health savings HSA — is a tax-advantaged account available to individuals enrolled in a High Deductible Health Plan (HDHP). The HSA health savings account is administered by the Internal Revenue Service (IRS) under Section 223 of the Internal Revenue Code.

How does a health savings account work? An HSA account provides a triple tax advantage — often called the HSA triple tax advantage: contributions are tax-deductible (providing an HSA tax deduction on federal returns), earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. Unlike Flexible Spending Accounts (FSAs), health saving accounts roll over from year to year with no expiration — HSA funds never expire.

This page compiles the eligibility requirements for HSA health savings accounts, HSA contribution limits for 2025 and 2026, HSA eligible items and qualified expenses, HSA withdrawal rules, HSA tax benefits, and recent legislative changes from official IRS sources.

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HSA Eligibility Requirements

Health savings account eligibility requires meeting all of the following conditions under IRS Publication 969: the individual must be covered under an HDHP (high deductible health plan — also written as HDHP high deductible health plan), the individual must have no other health coverage that is not an HDHP (with limited exceptions for dental, vision, long-term care, and certain preventive care), the individual must not be enrolled in Medicare (HSA and Medicare cannot be combined — once enrolled in Medicare, new HSA contributions are no longer permitted), and the individual must not be claimed as a dependent on another person’s tax return. An HDHP and HSA work together: the high deductible health plan with HSA combination is the foundation of eligibility for an HSA account.

High Deductible Health Plan (HDHP) Requirements

An HDHP must meet minimum annual deductible and maximum out-of-pocket expense thresholds set by the IRS each year:

2025 HDHP requirements: Minimum annual deductible of $1,650 for self-only coverage ($3,300 for family coverage). Maximum annual out-of-pocket expenses of $8,300 for self-only coverage ($16,600 for family coverage).

2026 HDHP requirements: Minimum annual deductible of $1,700 for self-only coverage ($3,400 for family coverage). Maximum annual out-of-pocket expenses of $8,500 for self-only coverage ($17,000 for family coverage).

2026 Eligibility Expansion Under the One Big Beautiful Bill Act (OBBB)

The IRS announced expanded HSA eligibility effective for 2026 under the One Big Beautiful Bill Act. Starting January 1, 2026, bronze and catastrophic health plans available through a Health Insurance Marketplace Exchange are treated as HDHPs — even if they do not meet the traditional HDHP deductible and out-of-pocket requirements. This expands HSA eligibility to individuals enrolled in these plans who were previously ineligible. The IRS clarified in Notice 2026-05 that bronze and catastrophic plans do not need to be purchased through an Exchange to qualify for this treatment.

Additionally, telehealth and remote care services can now be provided before the HDHP deductible is met without disqualifying an individual from HSA contributions — made permanent effective for plan years beginning on or after January 1, 2025.

Individuals enrolled in certain Direct Primary Care (DPC) arrangements may also contribute to an HSA beginning January 1, 2026, and may use HSA funds to pay periodic DPC fees tax-free.

HSA Contribution Limits

The IRS sets annual HSA contribution limits that are adjusted for inflation each year:

HSA contribution limits 2025: $4,300 for self-only HDHP coverage. $8,550 for family HDHP coverage.

HSA contribution limits 2026: $4,400 for self-only HDHP coverage. $8,750 for family HDHP coverage. These represent the maximum HSA contribution amounts for the year.

HSA catch-up contribution: Individuals aged 55 or older by the end of the tax year can make an additional HSA catch up contribution of $1,000 above the standard limit. For 2026, an eligible individual aged 55+ with self-only coverage can contribute up to an HSA max of $5,400 ($4,400 + $1,000), and with family coverage up to a maximum HSA contribution of $9,750 ($8,750 + $1,000).

Contribution deadline: HSA contributions for a given tax year can be made until the tax filing deadline — April 15 of the following year. Health savings account contributions for the 2025 tax year can be made through April 15, 2026.

HSA employer contribution: Employer contributions to an employee’s HSA are excluded from the employee’s gross income and are not subject to federal income tax, Social Security tax, or Medicare tax. HSA employer contributions are reported on the employee’s W-2 in Box 12, Code W. Both employee and employer contributions count toward the annual HSA contribution limit.

HSA Tax Benefits

Health savings accounts offer a triple tax advantage — the most favorable tax treatment of any savings vehicle in the U.S. tax code under IRS rules:

HSA tax deduction (tax-deductible contributions): Contributions made by the individual (not through payroll) create an HSA tax deduction on Form 1040 Schedule 1, reducing adjusted gross income. Contributions made through employer payroll deduction (cafeteria plan) are pre-tax, meaning they are excluded from income before federal income tax, Social Security, and Medicare taxes are calculated. These HSA tax advantages apply regardless of whether the individual itemizes deductions.

Tax-free growth: Interest, dividends, and capital gains earned within the HSA — including from HSA investment accounts — are not subject to federal income tax while they remain in the account. This makes HSA investment a powerful long-term wealth-building tool.

Tax-free withdrawals: Distributions used to pay for qualified medical expenses (as defined by IRS Section 213(d)) are completely tax-free. This is what makes HSA and taxes uniquely favorable — no other account type offers tax-free contributions, tax-free growth, and tax-free withdrawals simultaneously.

HSA contributions are reported on IRS Form 8889, which must be filed with the individual’s tax return. The health savings account tax benefits apply at both the federal level and in most states (Alabama and California do not recognize HSA tax deductions at the state level).

HSA Eligible Items and Qualified Expenses

What does an HSA cover? What does HSA cover specifically? The IRS defines HSA qualified expenses — also called HSA eligible items, HSA approved items, or HSA eligible expenses — under Section 213(d) of the Internal Revenue Code. IRS Publication 502 provides the complete HSA eligible items list, which also serves as the health savings account eligible items reference. HSA qualified medical expenses include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body.

Common HSA eligible items and HSA covered expenses include doctor visits, hospital services, prescription medications, dental care (cleanings, fillings, crowns, orthodontics), vision care (eye exams, glasses, contact lenses), mental health services, physical therapy, laboratory fees, and medical equipment. Over-the-counter medications and menstrual care products are HSA qualified items without a prescription, following changes made by the CARES Act.

Expenses that are not HSA approved expenses include cosmetic surgery (unless related to a deformity from disease, congenital abnormality, or injury), health insurance premiums (with limited exceptions), gym memberships, and general wellness expenses not related to a specific medical condition.

Exceptions for premium payments: HSA funds may be used tax-free to pay for COBRA continuation coverage premiums, health insurance premiums while receiving unemployment compensation, and Medicare premiums (Part A, B, D, and Medicare Advantage) for individuals aged 65 and older. See COBRA Insurance Guide for details on continuation coverage costs.

HSA Withdrawal Rules

Health savings account withdrawal rules differ based on the purpose of the distribution and the age of the account holder:

Qualified withdrawals: Distributions from an HSA account for qualified medical expenses are tax-free and penalty-free at any age.

Non-qualified withdrawals before age 65: Distributions used for non-medical expenses are included in gross income and subject to a 20% additional tax penalty under IRC Section 223(f)(4).

Non-qualified withdrawals at age 65 or older (HSA at retirement): After age 65 (or upon becoming disabled or deceased), the 20% penalty no longer applies. Non-qualified distributions are still included in gross income and taxed as ordinary income — functionally equivalent to a traditional IRA distribution. This makes the HSA and retirement planning closely connected: unused HSA funds function as supplemental retirement savings after age 65.

No required minimum distributions (RMDs): Unlike 401(k)s and traditional IRAs, HSAs have no required minimum distributions. HSA funds can remain in the account indefinitely.

HSA rollover rules: HSA funds can be rolled over from one HSA to another through a health savings account rollover. The rollover must be completed within 60 days of receipt. Only one HSA rollover per 12-month period is permitted. Trustee-to-trustee transfers between HSAs are unlimited and do not count as rollovers.

HSA vs. FSA

HSA vs FSA is one of the most common benefits questions. An HSA and FSA are both tax-advantaged accounts for medical expenses, but the difference between an HSA and FSA is significant under IRS rules:

Rollover: HSA funds roll over indefinitely with no expiration. FSA funds generally must be used within the plan year — employers may offer either a $680 carryover (2026) or a 2.5-month grace period, but not both. An HSA is not the same as an FSA.

Ownership: HSAs are owned by the individual and are portable — the health savings account stays with the employee regardless of employment changes. FSAs are employer-owned accounts tied to the employer’s plan.

Eligibility: HSAs require enrollment in an HDHP. FSAs are available with any employer-sponsored health plan. Choosing HSA or FSA depends on the individual’s health plan type.

Contribution limits (2026): HSA limits are $4,400 (self-only) / $8,750 (family). Health FSA contribution limit is $3,400 per employee.

HSA investment: HSA funds can be invested in stocks, bonds, and mutual funds — HSA investment options vary by custodian. FSA funds cannot be invested.

An individual generally cannot contribute to both an HSA and a general-purpose health FSA in the same year. However, a limited-purpose FSA (restricted to dental and vision expenses) or a post-deductible FSA may be paired with an HSA.

HSA Upon Death

HSA treatment upon the account holder’s death depends on the designated beneficiary:

Spouse as beneficiary: The surviving spouse becomes the HSA owner. The account continues to function as an HSA with all normal tax benefits.

Non-spouse beneficiary: The account ceases to be an HSA as of the date of death. The fair market value of the account becomes taxable income to the beneficiary in the year of the account holder’s death, reduced by any qualified medical expenses of the decedent paid from the account within one year of death.

Estate as beneficiary: The fair market value is included in the decedent’s final tax return.

Frequently Asked Questions

What are the HSA contribution limits for 2026?

The IRS sets the 2026 HSA contribution limits at $4,400 for self-only HDHP coverage and $8,750 for family coverage. Individuals aged 55 and older can contribute an additional $1,000 catch-up contribution.

How does an HSA work?

How does an HSA account work? A health savings account (HSA) — sometimes written as “hsa what is it” in search — is a tax-advantaged savings account for individuals enrolled in a High Deductible Health Plan. Health savings account how does it work: contributions reduce taxable income, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. The benefits of HSA accounts include no expiration on funds, no required minimum distributions, and the ability to invest HSA funds for long-term growth.

Can I invest my HSA funds?

Yes. Most HSA custodians allow account holders to invest HSA funds in stocks, bonds, mutual funds, and other investment vehicles — these HSA investment options become available once the account reaches a minimum cash balance (varies by custodian). Investment earnings are tax-free while they remain in the HSA.

What happens to my HSA if I leave my job?

The HSA belongs to the individual, not the employer. Changing jobs, losing a job, or retiring does not affect HSA ownership. The account and its funds remain with the account holder. However, if the individual is no longer enrolled in an HDHP, new contributions cannot be made until HDHP coverage resumes.

Can I use HSA funds for my spouse or dependents?

Yes. HSA funds can be used to pay for qualified medical expenses — including approved HSA items — of the account holder, the account holder’s spouse, and any tax dependents — even if those individuals are not covered by the HDHP.

What is the difference between an HSA and FSA?

The difference between HSA and FSA is significant: a health savings account vs FSA comparison shows that HSAs are individually owned, require HDHP enrollment, and funds roll over indefinitely. FSAs are employer-owned, available with any health plan, and subject to use-it-or-lose-it rules. HSA contribution limits are higher ($4,400/$8,750 for 2026 vs. $3,400 for FSA) and HSA funds can be invested.

What is the penalty for non-medical HSA withdrawals?

Before age 65, non-qualified withdrawals are subject to a 20% additional tax penalty under IRS rules, plus inclusion in gross income. After age 65, the 20% penalty is eliminated, but the distribution is still taxed as ordinary income.

Sources

Update History

March 2026: Initial publication. Includes 2025 and 2026 contribution limits and OBBB eligibility expansion. Compiled from IRS Publications 969 and 502, Revenue Procedure 2025-19, and IRS Notice 2026-05. All URLs verified functional.

Other Content

This page compiles information from official government sources for general reference purposes. It does not constitute legal advice. Employment law is subject to legislative changes and judicial interpretation. For specific compliance questions, consultation with a licensed attorney. Last updated: March 2026.