An HSA — a health savings account — is a tax-exempt account you hold at a bank, credit union or brokerage, set up for one purpose: paying medical costs. Money goes in without being taxed, grows without being taxed, and comes out without being taxed when you spend it on qualified medical expenses. No other common account in the US tax code offers all three breaks on the same dollars.
There is a catch, and it is the whole design of the thing. You can only contribute to an HSA while you are covered by a high-deductible health plan (HDHP) and meet a few other conditions. The account itself, though, is yours for life. It is not tied to your employer, the balance never expires at the end of the year, and whatever you do not spend stays invested or saved for future medical bills — including in retirement.
The rules below follow IRS Publication 969, the IRS guide to HSAs, and the IRS revenue procedures that set the dollar limits each year.
Who is eligible for an HSA?
Eligibility is judged month by month. For any month to count, all four of these must be true on the first day of that month:
- You are covered by an HDHP. This is a health plan that meets IRS tests for a minimum deductible and a maximum out-of-pocket limit (the figures are in the table below; for how deductibles work generally, see what an insurance deductible is). The plan can come from an employer or from the Health Insurance Marketplace. HealthCare.gov marks qualifying plans as “HSA-eligible,” and from 2026 all Marketplace Bronze and Catastrophic plans count as HSA-eligible as well.
- You have no other health coverage that pays for general medical care before your HDHP deductible is met.
- You are not enrolled in Medicare — any part of it.
- Nobody else can claim you as a dependent on their tax return.
The second condition is where most people quietly disqualify themselves. Coverage that is allowed alongside an HDHP includes dental, vision, disability, long-term care and accident insurance, coverage for a specific disease, and telehealth services. What is not allowed is a second plan that pays ordinary medical bills early — and that includes a general-purpose health FSA or HRA held through your employer or your spouse’s employer. If your spouse’s plan covers you for general medical expenses, or gives you a general-purpose FSA that can reimburse your medical costs, you are not an eligible individual, even though your own coverage is a qualifying HDHP. A limited-purpose FSA, restricted to dental and vision, does not cause this problem.
One more trap sits inside the Medicare rule. If you delay Social Security past 65 and apply later, Medicare Part A coverage is backdated by up to six months. Contributions made during those backdated months become excess contributions. Anyone still contributing to an HSA after 65 needs to time a Social Security application with that in mind.
The triple tax advantage
People call the HSA “triple tax-advantaged” because the same money can escape tax three separate times:
- Going in. Contributions you make directly are deductible on your tax return — you do not need to itemize — and they lower your adjusted gross income. Contributions made through an employer’s payroll plan skip income tax and Social Security and Medicare taxes, which direct contributions do not. Contributions from any source — you, your employer, a family member — are combined under one limit.
- While it sits there. Interest and investment earnings inside the account are not taxed as they grow. Many custodians let you invest the balance once it passes a threshold, in much the same way as an IRA.
- Coming out. Withdrawals are completely tax-free when the money pays for qualified medical expenses for you, your spouse or your dependents.
Two qualifications keep the picture honest. First, the advantage is a federal one: California and New Jersey do not conform to the federal HSA rules, so residents there get no state deduction and owe state tax on earnings. Second, the third break depends entirely on what the money is spent on — which is why records matter, as explained below.
Contribution limits and HDHP figures, 2025 and 2026
The IRS adjusts the HSA figures for inflation each year, and the year matters: the limits that governed contributions during 2025 are not the limits for 2026. The 2025 amounts come from Revenue Procedure 2024-25; the 2026 amounts from Revenue Procedure 2025-19.
| Figure | 2025 — self-only | 2025 — family | 2026 — self-only | 2026 — family |
|---|---|---|---|---|
| Maximum HSA contribution | $4,300 | $8,550 | $4,400 | $8,750 |
| Catch-up contribution, age 55+ | $1,000 | $1,000 | $1,000 | $1,000 |
| Minimum HDHP annual deductible | $1,650 | $3,300 | $1,700 | $3,400 |
| Maximum HDHP out-of-pocket | $8,300 | $16,600 | $8,500 | $17,000 |
The out-of-pocket maximum counts deductibles, copayments and coinsurance — not premiums. The catch-up contribution is fixed by law and does not rise with inflation; it is available if you reach age 55 by the end of the tax year, and each eligible spouse can make their own.
A few rules decide how much of that limit you can actually use:
- Employer contributions count toward your cap. If your employer puts in $1,000, your own room under a 2026 self-only limit is $3,400, not $4,400.
- Married couples share one family limit. If either spouse has family HDHP coverage, the pair’s combined contributions cannot pass the family limit ($8,750 for 2026), split between their accounts however they agree. And there is no such thing as a joint HSA: each spouse who wants an account opens a separate one, and a 55-plus catch-up contribution has to go into that spouse’s own account — the two catch-ups cannot be stacked into one.
- The limit is prorated by eligible months. Eligible for only six months of the year generally means half the annual limit. An exception, the last-month rule, treats you as eligible for the full year if you are eligible on December 1 — but you must then stay eligible through December 31 of the following year, or the extra amount is taxed with a 10% additional tax.
- The deadline is the tax-filing deadline. Contributions for a year can be made until the filing deadline for that year’s return (usually April 15 of the following year), and a deposit made between January 1 and April 15 must be designated for the intended year.
- Excess contributions are expensive. Money contributed above your limit that is not withdrawn, with its earnings, by the filing deadline draws a 6% excise tax for every year it stays in the account. Contributions and withdrawals are reported each year on Form 8889.
Opening and using an HSA
If your employer offers an HDHP, it will usually steer you to a preferred HSA provider and let you contribute through payroll — the route that also saves Social Security and Medicare tax. You are not required to use that provider, and if your employer offers no HSA at all, you can open one yourself at most banks, credit unions and brokerages, then deduct your direct contributions at tax time.
Spending works in two ways. Many accounts come with a debit card restricted to medical merchants. Or you can pay out of pocket, keep the receipt, and reimburse yourself from the HSA later. There is no deadline for that reimbursement: an expense you pay today can be repaid to yourself from the HSA years from now, as long as the expense happened after the account was opened and you keep the records to prove it. The IRS does not ask for receipts when you withdraw, but it can ask afterward — weak documentation can turn a withdrawal into taxable income plus penalties.
What counts as a qualified medical expense?
The standard is the tax code’s definition of medical care: costs of diagnosing, treating or preventing disease, and care affecting a structure or function of the body, for you, your spouse or your dependents. IRS Publication 502 is the master list. Everyday examples include deductibles, copayments and coinsurance, prescriptions, dental work, eye exams, glasses and contact lenses, and — since the CARES Act — over-the-counter medicines without a prescription and menstrual care products.
Two boundaries matter most. First, insurance premiums are generally not qualified expenses. The exceptions are COBRA continuation coverage, coverage while you receive unemployment benefits, long-term care insurance within IRS age-based limits, and — after age 65 — Medicare premiums. Second, money spent on anything else is included in your income and, before age 65, hit with an additional 20% tax. Cosmetic procedures, general toiletries and gym memberships for general health all fall on the wrong side of the line.
Changing jobs, and turning 65
The account belongs to you, not your employer. Leave a job and the HSA goes with you; it can stay where it is or be moved to another provider. Changing jobs only affects contributions: if your new coverage is not an HDHP, you stop adding money, but the existing balance remains yours to spend on qualified expenses, tax-free, indefinitely. An HSA has no required minimum distributions, so there is never a deadline to empty it.
At 65 two things change. Enrolling in Medicare ends your eligibility to contribute, so contributions must stop by the month Medicare coverage begins. But the additional 20% tax on non-medical withdrawals disappears. From 65, taking money out for something other than medical care is taxed as ordinary income and nothing more — the same treatment as a traditional IRA withdrawal — while medical spending, now including Medicare premiums, stays tax-free. It is one reason an untouched HSA can quietly become part of the retirement picture, alongside the figures in our guide to average net worth by age.
HSA vs FSA vs HRA
The three accounts are constantly confused with each other, and the differences are practical:
| HSA | Health FSA | HRA | |
|---|---|---|---|
| Who owns it | You | Your employer | Your employer |
| Who can contribute | You, your employer, anyone | Mainly you, via salary reduction | Employer only |
| Required plan | An HDHP | None | Set by the employer |
| End of year | Rolls over in full, forever | Mostly use-it-or-lose-it; employer may allow a small carryover or a grace period | Employer decides |
| Changing jobs | The account moves with you | You generally lose it | You generally lose it |
| Effect on HSA eligibility | — | A general-purpose FSA disqualifies you | A general-purpose HRA disqualifies you |
Common mistakes
- Contributing while a spouse’s plan or FSA covers you. The most common eligibility failure, and it converts your contributions into excess contributions.
- Forgetting the employer’s money. Employer deposits use up part of your annual limit; the cap is on all sources combined.
- Contributing past Medicare enrollment, especially when delayed Part A is backdated.
- Assuming premiums count. They usually do not, outside the four exceptions above.
- Spending on ineligible items and being unable to document qualified ones. Keep receipts; the burden of proof is yours.
- Mixing up the years. The limits change annually — 2025’s $4,300 is not 2026’s $4,400, and using the wrong year’s figure is how over-contributions happen.
What happens to an HSA when you die?
This depends entirely on who you named as beneficiary when you opened the account — and the two outcomes could hardly be more different.
If your spouse is the beneficiary, the account simply becomes your spouse’s HSA. Same account, same tax breaks, no tax bill at the handover. They can keep spending it on their own qualified medical expenses or leave it invested.
If the beneficiary is anyone else — an adult child, say — the account stops being an HSA on the date of death, and its full value counts as taxable income to that beneficiary in that year. There is one softening rule: the taxable amount is reduced by any of your qualified medical expenses that the beneficiary pays within one year of your death. If your estate is the beneficiary instead of a person, the value goes on your final tax return.
The practical point is worth stating plainly. An HSA is a wonderful account to spend from during your life, and a poor one to leave behind to anyone but a spouse — so check the beneficiary form, especially if you hold more than one HSA. Publication 969 sets out all three cases under “Death of HSA Holder.”
This article is general education about how HSAs work, based on IRS Publication 969 and the revenue procedures cited above. It is not personal tax or financial advice; for a decision about your own coverage or contributions, check the IRS sources linked here or speak to a qualified tax professional.