Health Savings Account (HSA)

A Health Savings Account (HSA) is a tax‑advantaged savings account for individuals enrolled in a high‑deductible health plan (HDHP).

It allows you to save money pre‑tax to pay for qualified medical expenses.
✅ The HSA is owned by the individual and may be funded by the employee, employer, or both.

✅ Eligibility Requirements

To contribute to an HSA, you must:

• Be covered by a qualified HDHP
• ❌ Not have other health coverage
  (except permitted coverage, such as dental or vision)
• ❌ Not be enrolled in Medicare
• ❌ Not be claimed as a dependent on someone else’s tax return

📊 2025 Contribution Limits

• Self‑only coverage: Up to $4,300
• Family coverage: Up to $8,550
• Catch‑up contribution (age 55+): Additional $1,000

✅ These limits include both employer and employee contributions.

⚠️ Contributions over the limit may be subject to a 6% excise tax unless corrected by the tax filing deadline.

👨‍👩‍👧‍👦 Self‑Only vs. Family Coverage

• Self‑only coverage
  HDHP covers only the account holder
• Family coverage
  HDHP covers the account holder and at least one other person
  (such as a spouse or child)

✅ The coverage type determines the maximum annual contribution limit.

🧾 W‑2 Reporting Instructions

• Box 12, Code W
  Reports total HSA contributions made through payroll
  (employer contributions + employee pre‑tax contributions)

This amount is excluded from:

• Box 1 – Wages
• Box 3 – Social Security wages
• Box 5 – Medicare wages

📄 Form 8889 (Required)

Form 8889 is used to report all HSA activity:

• Line 9: Employer contributions (from W‑2, Box 12, Code W)
• Line 13: HSA deduction
  → Transfers to Schedule 1 (Form 1040)

💰 How HSAs Affect Taxes

HSAs offer triple tax benefits:

1. Contributions are tax‑deductible
   (or excluded from income if made by an employer)
2. Earnings grow tax‑free
3. Distributions for qualified medical expenses are tax‑free

✅ HSA contributions reduce Adjusted Gross Income (AGI) and may lower overall tax liability.
✅ Self‑employed taxpayers can deduct HSA contributions even if they don’t itemize.

📋 Reporting Qualified Medical Expenses

• Qualified medical expenses are reported on Form 8889, attached to Form 1040
• If HSA funds are used for non‑qualified expenses, the distribution is:
  • Taxable as income, and
  • Subject to a 20% penalty

✅ The 20% penalty does not apply if the account holder is:

• Age 65 or older
• Disabled
• Deceased