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Are HSA Contributions Tax Deductible

A health savings account (HSA) is a very popular option amongst people to help better manage health care expenses. HSAs are also popular due to the tax advantages they provide.

While an HSA is tax deductible, there are different ways for the taxes to be deducted. Read on to learn more about how HSA tax deductions work and how you can get the most tax benefits through your HSA. 

How Does an HSA Work?

An HSA is a type of medical coverage used to help prepare for and better manage health related expenses. Let’s discuss some more about how an HSA and the tax advantages work!

HSA Account Rules 

Simply put, in order to qualify for an HSA one must currently be covered under a high deductible health plan (HDHP) only. You cannot enroll for an HSA if you have any other type of medical coverage plans or alternative medical savings accounts like an FSA.

Once an HSA account has been established, you can begin making monthly contributions and withdraw from the account when needed to pay for qualified medical expenses. Medical expenses covered under an HSA include dental care, vision coverage, prescriptions, and more.

If you want to learn more about HSA account rules, check out Lively for more information.

How Do I Know If My Tax HSA Contributions Are Tax Deductible?

All HSA contributions are tax deductible. The earnings from investments made through your HSA as well as withdrawals for medical expenses are also tax deductible. 

The tax advantages provided by an HSA makes it very attractive compared to more traditional types of medical coverage. 

Does an HSA Reduce My Taxable Income?

Monthly contributions made directly from your income, will reduce the amount of taxable income you owe each month. Contributions are made pre-tax, meaning you will only be taxed on your total income after the contribution has been made.

How Does HSA Tax Deduction Work 

HSAs are known to have a triple tax advantage. Contributions made to health savings accounts are not subject to federal income tax. 

Furthermore contributions made directly from your payroll, will be subtracted from your total income and further reduce the amount of taxable income you will owe. You can also make investments through your HSA which will grow tax-free. 

Lastly, withdrawing from your HSA to pay for qualifying medical expenses can also be done tax free.

HSA Tax Deduction Examples 

Say your monthly income is $4,000 and you get taxed 22% at the federal level. If you contributed $1,000 to your HSA, you will see a tax benefit of $220 as your taxable income will drop from $4,000 to $3,000. 

When withdrawing from an HSA, if funds are not used for qualifying purposes, the amount will be subject to income tax and an additional 20% penalty.

Advantages of an HSA

The main advantage of an HSA would be the triple tax advantage. An HSA is also great for their wide range of qualifying expenses covered like dental, vision, and also mental health services.

Another stand out feature of an HSA is that all contributions made to your account will be set aside for your use. That means if one year you don’t need all of the money in your account, it will rollover and be saved for the next year. 

Disadvantages of an HSA

A disadvantage of an HSA is the HDHP requirement, as this could be a heavier financial burden on you compared to other traditional types of health insurance. However, with high deductible health plans also comes lower monthly premiums which could be a trade off you are willing to make.

Another common disadvantage of HSAs is the pressure to save your funds in case of a catastrophic event. This may cause one to be reluctant about seeking health care and can cause further medical issues down the line. 


A FSA is also known as a flexible spending account. It is very similar to an HSA however the main difference is that you can individually control your HSA whereas an FSA must be sponsored by an employer. 

And while an FSA is supposed to be a flexible spending account, HSAs are known to give more flexibility. HSAs also have higher contribution limits and offer greater tax advantages in comparison to FSAs.   

Savings On Top of Savings

A health savings account is a great way to save and reserve funds for health related expenses. HSAs offer a triple tax advantage and can be of tremendous benefit to the account holder. 

If you are considering opening up a health savings account but want to ensure it is the right fit for you, contact your financial advisor. They can help guide you through the process and make sure this is the best option for you.