A Health Savings Account, or HSA, is a personal savings account you use to pay for medical expenses with tax-free dollars. For 2026, you can put in up to $4,400 with self-only coverage or $8,750 with family coverage, deduct those contributions from your taxable income, let the balance grow tax-free, and spend it on qualified medical costs without paying any federal tax on the withdrawal.1Internal Revenue Service. Revenue Procedure 2025-19 The account is yours. It stays with you when you change jobs, it never expires, and unused money rolls over year after year.
Who Qualifies for an HSA
To contribute, you have to be enrolled in a High Deductible Health Plan (HDHP) on the first day of the month.2Office of the Law Revision Counsel. 26 USC 223 Health Savings Accounts – Section: Definitions and Special Rules For 2026, an HDHP must carry an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage, and annual out-of-pocket costs (deductibles and copayments, not premiums) cannot exceed $8,500 for individuals or $17,000 for families.1Internal Revenue Service. Revenue Procedure 2025-19
Three other conditions matter. You can’t be enrolled in any part of Medicare. You can’t have other, non-HDHP coverage that pays first-dollar benefits, such as a general-purpose Flexible Spending Account or Health Reimbursement Arrangement. And you can’t be claimed as a dependent on someone else’s tax return.3Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
Starting January 1, 2026, the One, Big, Beautiful Bill Act broadened the door. Bronze and catastrophic plans purchased through an ACA exchange are now treated as HSA-compatible even when they don’t meet the standard HDHP thresholds, and enrollment in a direct primary care arrangement no longer disqualifies you.4Internal Revenue Service. One, Big, Beautiful Bill Provisions5Internal Revenue Service. IRS Notice 2026-05 – Expanded Availability of Health Savings Accounts Under the OBBBA Periodic direct primary care fees can also be paid with HSA money.
How Much You Can Contribute in 2026
Contributions can come from you, your employer, or a family member, and every dollar belongs to you the moment it lands in the account.6Office of the Law Revision Counsel. 26 USC 223 Health Savings Accounts – Section: Limitations The combined total from all sources cannot exceed the annual limit:
- $4,400 with self-only coverage
- $8,750 with family coverage
If you turn 55 or older by the end of the tax year, you can add another $1,000 as a catch-up contribution. That figure is set in the statute and doesn’t adjust for inflation.7Office of the Law Revision Counsel. 26 USC 223 Health Savings Accounts – Section: Limitations
You have until the tax filing deadline (April 15, 2027, for the 2026 tax year) to make contributions that count against the prior year’s limit.8Internal Revenue Service. Instructions for Form 8889 Going over triggers a 6% excise tax on the excess amount every year it stays in the account. You can avoid the penalty by pulling the overage (plus any earnings on it) out before your return’s filing deadline, extensions included.9Office of the Law Revision Counsel. 26 USC 4973 Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
The Three Tax Breaks
HSAs are sometimes called triple tax-free because the tax break shows up at every stage.
Money you contribute reduces your taxable income, and you get the deduction whether or not you itemize. When contributions run through payroll deduction, they bypass federal income tax and payroll taxes entirely. Interest, dividends, and investment gains inside the account aren’t taxed while the money sits there. And distributions spent on qualified medical expenses owe no federal income tax at all.3Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
Two states don’t follow the federal treatment. California and New Jersey tax HSA contributions as income at the state level, and account earnings are subject to state tax there as well. Every other state mirrors the federal rules.
What You Can Spend HSA Money On
Qualified medical expenses generally cover costs for diagnosing, treating, or preventing disease, plus transportation essential to receiving care and qualified long-term care services.10Office of the Law Revision Counsel. 26 USC 213 Medical, Dental, Etc., Expenses – Section: Definitions That takes in doctor visits, lab work, prescription drugs, dental cleanings, vision care, and mental health treatment. Since 2020, over-the-counter medications and menstrual care products qualify without a prescription.11Internal Revenue Service. IRS Outlines Changes to Health Care Spending Available Under CARES Act
What doesn’t qualify catches people off guard more often. Cosmetic procedures like teeth whitening, hair transplants, and liposuction are out unless the procedure corrects a deformity from an accident, congenital condition, or disfiguring disease. Gym memberships, vitamins, and nutritional supplements don’t count unless a doctor prescribes them for a specific diagnosed condition. Childcare, funeral costs, and maternity clothing never qualify.12Internal Revenue Service. Publication 502 – Medical and Dental Expenses
What Non-Medical Withdrawals Cost You
Pull HSA money out for anything other than a qualified medical expense and the amount is treated as taxable income. On top of that, you owe an additional 20% tax, which is steep enough to make casual non-medical withdrawals genuinely expensive.13Office of the Law Revision Counsel. 26 USC 223 Health Savings Accounts – Section: Tax Treatment of Distributions
The 20% penalty disappears once you turn 65, become disabled, or die. After 65, non-medical withdrawals are still taxed as ordinary income, the way withdrawals from a traditional IRA are, but the extra tax is gone.3Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans That’s why some savers treat an HSA as a supplemental retirement account, letting the balance grow for decades and drawing it down after 65 for any purpose.
How an HSA Differs From an FSA
HSAs and Flexible Spending Accounts both cut taxes on medical spending, but the mechanics diverge. FSA funds generally expire. Most FSA plans forfeit unused balances at year-end or allow a modest carryover (up to $680 for 2026). HSA balances roll over with no cap.
Ownership is the other big split. An HSA is yours. You keep it when you switch jobs, retire, or leave the workforce. An FSA is tied to your employer, and you typically lose access to unspent funds when you leave. FSAs also can’t be invested; the money waits until it’s spent or forfeited.
Eligibility rules run in opposite directions. An HSA requires HDHP enrollment; an FSA is available through most employer plans regardless of your health plan. You generally can’t have a general-purpose FSA and an HSA at the same time, because the FSA’s first-dollar coverage disqualifies you. A limited-purpose FSA, restricted to dental and vision, is the exception, and pairing it with an HSA is allowed.
Opening an HSA and Using It
You open an HSA through a qualified trustee or custodian, usually a bank, credit union, or insurance company. The application asks for your Social Security number, address, and proof of HDHP enrollment. You also name a beneficiary who will receive the account if you die.
Most custodians let you fund the account with a lump sum or set up recurring deposits. Some charge a small monthly maintenance fee, though many waive fees once the balance crosses a threshold. Compare fee structures before choosing, because even a few dollars a month compounds over years of saving.
Beyond a cash balance, many custodians let you invest HSA funds in stocks, bonds, and mutual funds. The triple tax treatment carries through: no tax on dividends, interest, or capital gains inside the account, and no tax on withdrawals for qualified medical costs. Investors who can pay current medical bills out of pocket sometimes leave the HSA balance invested for decades to take full advantage of the tax-free growth.
Most custodians issue an HSA debit card you can use at pharmacies, doctor’s offices, and other providers. Online portals let you reimburse yourself by moving funds to a personal bank account. There’s no deadline for reimbursement. You can pay a medical bill today and reimburse yourself years later, as long as the expense was incurred after you opened the HSA and you have the receipt.
Moving Your HSA and Passing It On
If you want to change custodians, a direct trustee-to-trustee transfer is the cleanest route. Your old custodian sends the money straight to the new one, with no tax consequence and no cap on how often you can do it.
The other option is an indirect rollover, where the custodian sends the funds to you and you deposit them with the new provider within 60 days. Miss that window and the IRS treats the whole amount as a taxable distribution, and the 20% penalty applies if you’re under 65. Indirect rollovers are limited to one per 12-month period.3Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
Naming a beneficiary matters more than most people expect. If your spouse inherits the HSA, it simply becomes their HSA, with the same tax-free treatment for qualified medical spending and the same ability to contribute if they’re otherwise eligible. Anyone else who inherits the account (an adult child, a sibling, a friend) receives something different: the HSA stops being an HSA on the date of death, and the full fair market value becomes taxable income to the beneficiary in the year you die. The beneficiary can offset that amount by paying any of your qualified medical expenses within one year of your death.3Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans If you don’t name a beneficiary, the balance goes to your estate and lands as income on your final return, which is the worst tax outcome and the easiest to avoid.
Keeping Records
Your custodian tracks contributions and distributions, but it doesn’t verify that each withdrawal paid for a qualified expense. That’s on you. The IRS expects receipts, invoices, and explanation-of-benefits statements for every HSA distribution.14Internal Revenue Service. Distributions for Qualified Medical Expenses – IRS Courseware If you reimburse yourself long after paying a bill, you’ll want records showing when the expense was incurred, what it was for, and that you didn’t also claim it as an itemized deduction. Most account holders never face an audit on their HSA, but there’s no time limit on reimbursement and no expiration on the IRS’s ability to ask for documentation, so keeping organized digital copies of medical receipts is worth the small habit.