Health Savings Account (HSA): Eligibility, Contributions, and Medicare

A Health Savings Account lets you set aside pre-tax money for medical costs, invest it, and withdraw it tax-free for qualified expenses, but only if you follow a specific set of rules about coverage, contributions, and how the money is spent. The Health Savings Account rules limit who can contribute, cap how much goes in each year, define what the money can be spent on, and impose steep taxes when you step outside those lines. For 2026, the contribution ceiling is $4,400 for self-only coverage and $8,750 for family coverage, with an extra $1,000 available if you’re 55 or older.¹

Who Can Have an HSA

Eligibility runs on four requirements, and you have to satisfy all of them.

First, you must be covered by a High Deductible Health Plan. For 2026, that means an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage, with out-of-pocket maximums (deductibles and copays, not premiums) no higher than $8,500 self-only or $17,000 family.¹

Second, you cannot have any other health coverage that pays benefits before your HDHP deductible is met. Enrollment in Medicare disqualifies you. So does coverage under a spouse’s traditional plan or a general-purpose Flexible Spending Account. A limited-purpose FSA covering only dental and vision is fine.²

Third, you cannot be claimed as a dependent on someone else’s tax return.³

Fourth, you need an account at a qualified HSA trustee, which can be a bank, credit union, insurance company, or brokerage firm.²

How Much You Can Contribute

The 2026 caps are $4,400 for self-only HDHP coverage and $8,750 for family coverage.¹ If you’re 55 or older by year-end, you can add a $1,000 catch-up contribution on top.³ The IRS adjusts the limits annually for inflation.

Contributions can come from you, your employer, or both, but the combined total from all sources counts against the same limit. Payroll contributions bypass income tax and FICA; direct contributions get an above-the-line deduction whether or not you itemize.³ You have until the federal tax filing deadline, typically April 15, to make contributions for the prior year, so 2026 contributions can be made through April 15, 2027.²

Married Couples

When both spouses have family HDHP coverage, the $8,750 family limit is a combined ceiling across all their HSAs. If both spouses are 55 or older, each can make a $1,000 catch-up, but those catch-ups have to go into separate accounts, because an HSA can only have one owner.¹

The Last-Month Rule

If you become HSA-eligible partway through the year, your limit would normally be prorated by month. The last-month rule offers a shortcut: if you’re eligible on December 1, you’re treated as eligible for the whole year and can contribute the full annual amount.²

There’s a string attached. You have to stay HSA-eligible through a testing period running from December 1 through December 31 of the following year. Lose eligibility during that window for any reason other than death or disability, and the extra amount the last-month rule allowed gets added back to your taxable income and hit with a 10% additional tax.²

What You Can Spend HSA Money On

HSA funds cover essentially anything that qualifies as medical care under the tax code: doctor visits, lab work, prescriptions, hospital stays, dental work, vision care, mental health services, and procedures like LASIK and orthodontia.⁴ Since the CARES Act took effect in 2020, over-the-counter medications and menstrual care products qualify without a prescription. IRS Publication 502 maintains the detailed list. Things that only improve general health or appearance, like teeth whitening or gym memberships, don’t count.

You are responsible for your own records. HSA custodians don’t verify that a withdrawal went to a medical expense, but the IRS can audit and ask for receipts and explanations of benefits.

Withdrawals don’t have to happen in the same year as the expense. As long as you had the HSA open when the expense was incurred, weren’t reimbursed through insurance, and didn’t claim the expense as an itemized deduction, you can reimburse yourself later. There is no deadline for reimbursement.²

Insurance Premiums

Health insurance premiums are generally not qualified, with four exceptions: COBRA continuation coverage, health coverage while receiving unemployment benefits, qualified long-term care insurance, and Medicare premiums (Parts A, B, C, and D) once you’re 65 or older. Medigap supplemental premiums remain off-limits.³

Penalties When You Step Outside the Rules

Pull HSA money out for something other than a qualified medical expense before age 65, and the withdrawal is included in your taxable income and subject to a 20% additional tax.³ That’s twice the early-withdrawal penalty for retirement accounts.

At 65, the 20% penalty disappears. Non-medical withdrawals are still taxed as ordinary income, but with no extra hit. Medical withdrawals remain tax-free at any age.³

Excess Contributions

Contribute above the annual limit and the excess amount is hit with a 6% excise tax for every year it stays in the account.⁵ You can avoid the tax by withdrawing the excess, plus any earnings on it, before your tax filing deadline including extensions. The earnings you pull out have to be reported as income for that year.²

Mistaken Distributions

If you accidentally withdraw for a non-qualified expense, you may be able to return the money. The IRS allows repayment of mistaken distributions when there’s clear evidence the withdrawal was due to a reasonable mistake of fact. The repayment has to be made by April 15 after the first year you discovered the error. Not every custodian accepts returned distributions, so confirm with yours before assuming the option exists.

The Medicare Trap at 65

You cannot contribute to an HSA during any month you’re enrolled in Medicare. What catches people is that Medicare Part A applies retroactively for up to six months once you start receiving Social Security retirement benefits. Contributions you made during that lookback period turn into excess contributions subject to the 6% excise tax.²

The safe move is to stop HSA contributions at least six months before enrolling in Medicare or claiming Social Security. If you’ve already over-contributed, withdraw the excess and its earnings by your tax filing deadline (including extensions) to avoid the tax. The existing balance in your HSA doesn’t go anywhere when you enroll in Medicare; you just can’t add to it. You can keep spending it tax-free on qualified medical expenses, including Medicare Parts A, B, C, and D premiums.

Keeping Your HSA When Things Change

The account is yours, not your employer’s. Change jobs, get laid off, or retire, and the balance goes with you. You can keep spending it on qualified medical expenses whether or not your next employer offers an HDHP or any health plan.

To move an HSA to a different custodian, you have two options. A trustee-to-trustee transfer sends the funds directly between institutions; there’s no limit on how often you can do this and no tax reporting. A rollover means the old custodian sends you a check, and you have 60 days to deposit the funds into your new HSA. You’re limited to one rollover per 12-month period, and missing the 60-day window turns the amount into a taxable distribution.²

What Happens to the Account When You Die

The beneficiary designation decides whether the tax treatment survives you.

If your spouse is the beneficiary, the HSA becomes theirs. It remains a fully functional HSA with the same tax benefits, usable for their own qualified medical expenses.²

If anyone else inherits it, the account stops being an HSA the moment you die, and the entire fair market value becomes taxable income to the beneficiary in the year of your death. One softening rule: if the beneficiary pays any of your outstanding medical expenses within one year of your death, those payments reduce the taxable amount. If your estate is the beneficiary instead of a named individual, the balance is included on your final tax return.²

1
Internal Revenue Service. Rev. Proc. 2025-19
2
Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
3
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
4
Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
5
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions