Are HSA Contributions Tax Deductible?
Key takeaways:
Contributing to a health savings account (HSA) allows you to pay for qualified medical expenses with tax-free dollars.
If you have an HSA through an employer, you can make contributions on a pretax basis.
If you have an HSA that’s not through an employer, you may be able to deduct your contributions on your tax return.
Contributing money to your health savings account (HSA) can help you save money on healthcare costs.
The money you contribute to an HSA can be used to pay for qualified medical expenses tax-free. You can also invest the funds in your account and receive tax-free earnings. And, depending on how you contribute money to your HSA, you may be eligible to deduct the contributions on your tax return.
How does an HSA work?
An HSA is a special tax-advantaged savings account for individuals who have a qualified high-deductible health plan (HDHP). You can use the account to pay for qualified medical expenses, such as allergy medication and prescription eyeglasses.
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Depending on your job, your employer may offer you an HSA as part of its wellness incentives. You can determine how much you want to allocate from your paycheck to the HSA (up to the annual limit). Your employer will then automatically deduct the money from your paycheck before taxes are taken out. This means you are contributing pretax dollars to your account.
If your employer doesn’t offer you an HSA or you are self-employed, you can open an account on your own at a bank or brokerage firm. In this case, you will have to manage the contributions you make to the account. You can send the money to your HSA provider or use an automatic bank transfer program. Since you are not funding your HSA through a payroll deduction, you will have to claim your tax benefit when you submit your tax return.
Are HSA contributions deductible on your tax return?
Yes. HSA contributions may be tax deductible depending on how the funds are added to the account.
If you contribute money to your HSA through your paycheck, you can not deduct the contributions on your tax return. However, if you contribute dollars to the account directly — meaning, without going through your employer’s payroll department — you can deduct the contributions on your tax return for the year.
How do HSA contributions work?
There are annual contribution limits for HSAs, which are set by the IRS. These amounts change each year to account for inflation. The contribution limit for your HSA depends on the type of plan you have (individual or family coverage) and your age. For example, the HSA contribution limit for an individual plan in 2025 is $4,300, up from $4,150 in 2024. If you have a family plan, the 2025 contribution limit increases to $8,550, up from $8,300 in 2024.
There is something called a “catch-up contribution” if you are 55 or older. This allows you to contribute an additional $1,000 for the year. For example, suppose you are 58 and have an individual plan. In 2025, you can contribute up to $5,300 to your HSA.
Enrolling in a high-deductible health plan? Learn how a health savings account (HSA) works and if you qualify to contribute to one.
Qualified medical expenses: You might be surprised to learn that you can use your HSA to pay for these qualified medical expenses.
Are you self-employed? You may be able to open an HSA on your own if you meet the requirements.
Cafeteria plan
Cafeteria plans, also known as Section 125 plans in the Internal Revenue Code, give participants an opportunity to receive benefits such as group-term life insurance and HSAs on a pretax basis. This means your contributions to an HSA will reduce the amount of income on which you pay taxes. For example, if your contribution for the year is $2,000 and your gross income is $70,000, then the amount of your gross income that’s subject to income taxes is $68,000.
With a Section 125 plan, your employer will manage your HSA contributions through a salary reduction arrangement. All you have to do is determine the amount you would like to have deducted from your salary every paycheck. Then, your employer will automatically deduct that amount from your paychecks before taking out income tax and other taxes.
Rules for HSA tax deductions
Your HSA provider will send you Form 5498-SA at the end of the tax year. This form gives you a summary of your HSA contributions. Here’s what you need to know:
This form shows how much you added to your HSA during the year.
If your contributions weren’t taken from your paycheck pretax, you can claim an HSA deduction. Use the amounts on Form 5498-SA to help calculate it.
Report your deduction on Form 8889. Then, include that amount on line 13 of Schedule 1, Part II of your Form 1040 when filing your taxes.
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Generally, you have to itemize your deductions to take advantage of many IRS deductions. However, you do not have to itemize your deductions to claim the HSA tax benefit. You can claim the standard deduction, which is a fixed amount based on your filing status.
HSA tax advantages
An HSA has distinct tax advantages that distinguish it from other accounts. If you qualify to contribute to an HSA, you can take advantage of these tax benefits.
1. Contribute pretax dollars or receive a tax deduction
If you use an employer’s Section 125 plan, your HSA contributions are made with pretax dollars. But if you set up your own HSA at a financial institution, you can deduct your contributions on your tax return.
You can also deduct contributions on your tax return if your employer offers an HSA that is not a Section 125 plan and makes contributions on your behalf. These contributions are considered income, which can then be offset by a tax deduction.
2. Pay for medical expenses with tax-free dollars
With some tax-advantaged accounts, such as a 401(k) or an individual retirement account (IRA), you have to wait until you reach a certain age until you can spend the contributions. But this is not the case with an HSA. You can spend the money in your HSA any time you want to pay for qualified medical expenses, without incurring taxes or penalties. The funds in your account will not expire.
Here are a few examples of HSA-eligible medical expenses:
Crutches
Glasses
Hospital services
Lab fees
Lactation expenses
Pregnancy test kits
Prescription medications
Wheelchairs
X-rays
Some services and items, such as cosmetic surgery and vitamins, don’t count as qualified medical expenses unless they are considered medically necessary. In such cases, you will likely need a letter of medical necessity from your healthcare professional explaining your condition and why the recommended treatment is needed. If you use your HSA to pay for nonqualified expenses, you’ll owe income tax and a 20% penalty on these amounts.
Generally, you cannot use an HSA to pay for healthcare insurance premiums. However, there are exceptions, such as premiums for qualified COBRA coverage or long-term care insurance. But you can use your HSA funds for deductibles, copayments and coinsurance.
3. Allow your investment earnings to grow tax-free
The funds you contribute to your HSA never expire. You can use your unspent funds to invest in assets, including:
Stocks
Bonds
Exchange-traded funds
Mutual funds
And you do not have to report your investment earnings on your tax return. The earnings are tax-free unless you use them for nonqualified expenses.
Frequently asked questions
One downside of an HSA is that it requires an HDHP, which can mean higher out-of-pocket costs before insurance kicks in. Also, if you don’t use the funds for qualified medical expenses, you’ll face taxes and a penalty on withdrawals before age 65.
If you contribute to your HSA with after-tax dollars, your HSA contributions are considered an above-the-line deduction, also known as an adjustment to income. This allows you to deduct your contributions directly from your gross income, regardless of whether you itemize deductions or take the standard deduction. On the other hand, below-the-line deductions, also known as itemized deductions, are deducted after you calculate your adjusted gross income (AGI). Above-the-line deductions are beneficial because they lower your AGI, which can impact your eligibility for other tax benefits and credits.
The bottom line
You can deduct contributions to a health savings account (HSA) if you set up your own account — meaning, you do not have an account through an employer. This is also the case for contributions an employer makes on your behalf to an HSA that is not part of a Section 125 plan.
However, you cannot deduct contributions if they are taken out of your paycheck and added to a Section 125 plan, as they are made with pretax dollars.
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References
Internal Revenue Service. (n.d.). Section 125 – Cafeteria plans – Modification of application of rule prohibiting deferred compensation under a cafeteria plan.
Internal Revenue Service. (2024). About Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA information.
Internal Revenue Service. (2024). Form 8889.
Internal Revenue Service. (2024). Publication 502 (2024), medical and dental expenses.
Internal Revenue Service. (2024). Schedule 1 (Form 1040).
Internal Revenue Service. (2025). Topic No. 551, standard deduction.
This article is solely for informational purposes. This article is not professional advice concerning insurance, financial, accounting, tax, or legal matters. All content herein is provided “as is” without any representations or warranties, express or implied. Always consult an appropriate professional when you have specific questions about any insurance, financial, or legal matter.
