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Health Savings Account


What is a Health Savings Account?

A Health Savings Account, or HSA, is a tax-exempt trust or custodial account that a taxpayer sets up with a qualified HSA trustee. Distributions from an HSA are nontaxable if the funds are used for qualified medical expenses. A taxpayer must be an eligible individual to qualify to contribute to an HSA.

No permission or authorization from the IRS is necessary to establish an HSA.To set up an HSA a taxpayer will need to work with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of an individual retirement arrangement (IRA) or Archer MSA.The HSA can be established through a trustee that is different from the taxpayer’s health plan provider.


An HSA is created by:

  • Enrolling in a High-Deductible Health Plan (HDHP) and then
  • Opening a tax-exempt trust or custodial account, with a qualified HSA trustee, to pay for qualified medical expenses

While you can use the funds in an HSA at any time to pay for qualified medical expenses, you may contribute to an HSA only if you have a High Deductible Health Plan (HDHP) — generally a health plan (including a Marketplace plan) that only covers preventive services before the deductible. For plan year 2021, the minimum deductible is $1,400 for an individual and $2,800 for a family. For plan year 2022, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. When you view plans in the Marketplace, you can see if they’re “HSA-eligible.”

For 2021, if you have an HDHP, you can contribute up to $3,600 for self-only coverage and up to $7,200 for family coverage into an HSA. For 2022, if you have an HDHP, you can contribute up to $3,650 for self-only coverage and up to $7,300 for family coverage into an HSA. HSA funds roll over year to year if you don’t spend them. An HSA may earn interest or other earnings, which are not taxable.


HSA Benefits

The benefits of having an HSA include:

  • Amounts contributed to an HSA, except for employer contributions, can be used as an adjustment to income.
  • Contributions to an HSA by an employer may be excluded from gross income; this includes contributions made through a Section 125 cafeteria plan.
  • The contributions remain in the account and are carried over, without limit, from year to year until the taxpayer uses them.
  • The interest and other earnings on the assets in the account are tax-free.
  • Distributions will be tax-free if used to pay unreimbursed qualified medical expenses.
  • An HSA is portable, so it stays with taxpayers even if they change employers or leave the work force.
  • There is no deadline by which qualifying expenses must be reimbursed by the HSA.

Rules for Married Individuals:

  • In the case of married individuals, each spouse who is an eligible individual who wants to have an HSA must open a separate HSA. Married couples cannot have a joint HSA, even if they are covered by the same HDHP; however, distributions can be used to cover the qualified expenses of the other spouse.
  • In the event of the death of one of the married individuals, the HSA will be treated as the surviving spouse’s HSA if the spouse is the designated beneficiary of the HSA.

What are the eligibility requirements?

Eligibility to open your tax-exempt HSA is based on meeting these basic requirements:

  • Must be covered under a qualified high deductible health plan (HDHP)
  • Must not have coverage by another type of health plan
  • Cannot be claimed as a dependent on another person’s tax return
  •  Cannot be enrolled in Medicare

Please contact your tax advisor to determine your eligibility.

What qualified expenses can be covered with an HSA?

Your HSA funds can be used on a 100% tax-free basis for the following:

  • Qualified medical expenses
  • Travel expenses to receive qualified medical care
  • COBRA or other medical insurance during times of unemployment
  • Long-term care insurance premiums

A great deal of healthcare costs, including many alternative medicines, are considered “qualified medical expenses” under an HSA.For more detailed information, refer to IRS Publication 502.


More Frequently Asked Questions

What are the contribution limits?

Contribution limits are set by the IRS. For current contribution guidelines, please visit: IRS Publication 502.

What’s a high deductible health plan?

A high deductible health plan (HDHP) is an alternative health insurance plan to a traditional HMO or PPO plan. As the name implies, an HDHP has a higher deductible than regular health insurance plans. This may mean more out-of-pocket expenses up front. But once the deductible is met, an HDHP typically pays for 100% of covered medical costs. So in the long run, an HDHP usually means less—often significantly less—out-of-pocket expenses.

What about that initial high deductible?

That’s where combining your HDHP health insurance to a health savings account (HSA) comes in. By accumulating funds in your HSA, you will have the cash needed to cover those costs. What’s even better is your HSA is tax exempt.

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