Health savings accounts (HSAs) are a popular type of tax-advantaged medical savings account available to individuals who are enrolled in high deductible health plans (HDHPs). Individuals can use their HSA to pay for any qualified medical expense, whether or not it is covered by the HDHP. The HSA gives policyholders a cushion until their plan deductible kicks in.
HSAs provide a triple tax advantage—contributions, interest and earnings, and amounts distributed for qualified medical expenses are all exempt from federal income tax, Social Security/Medicare tax and most state income taxes. Because of an HSA’s potential tax savings, federal tax law includes strict rules for HSAs, including limits on annual contributions and HDHP cost sharing.
This Compliance Overview summarizes key features for HSAs, including the contribution limits for 2019.